Baahubali 2 makes the PVR stock a hit
Baahubali 2: The Conclusion has had a phenomenal run at the box office and still has some steam left.
This is great news for multiplex operators, especially considering that the quality of content was weaker than expected in the financial year gone by. PVR Ltd will benefit from this and a healthy content pipeline of Wonder Woman, Despicable Me 3, Tubelight, Jagga Jasoos and Dunkirk in fiscal 2018.
That should offer some comfort to investors, especially as the March quarter wasn’t particularly exciting. The company reported a 30% year-on-year growth in consolidated Ebitda in the past quarter to Rs46.7 crore, slower than some analysts’ estimates. Increase in rent costs was higher than anticipated. But decent content performance during the quarter meant higher year-on-year footfalls and better occupancy rates.
Ebitda is short for earnings before interest, taxes, depreciation and amortization.
Analysts are expecting PVR, the market leader, to report a strong June quarter, riding on the success of Baahubali 2: The Conclusion. Nonetheless, much of the good news already seems factored into the share price, with the stock surging as much as 63% in the past one year on NSE to Rs1,472. Currently, it trades at 39 times and 29 times, respectively, estimated earnings for the current financial year and the next, based on Bloomberg data.
The sharp appreciation is likely to limit further increases. “We arrive at our target price of Rs1,587 by valuing the stock at ~14x of its FY19E Ebitda,” pointed out Spark Capital Advisors (India) Pvt. Ltd in a report on 1 June. The brokerage factored in revenue and earnings compounded annual growth rate of ~17 and 41%, respectively, from FY17-19E.
PVR added 38 screens in the past financial year and had 579 screens at the end of the year. This year, it intends to add 66 screens, though analysts feel it will fall short of its target owing to delays in regulatory approvals. Nevertheless, more screen additions will fetch more revenues and investors would do well to watch for news of screen expansion. Another factor worth watching is the impact of the goods and services tax (GST).
“Despite the negative impact that is to accrue from the currently proposed GST rates, our growth assumptions have been only marginally tapered downwards as we believe robust box office collections would mitigate the impact to an extent,” says Spark Capital.