During the period FY2008-10E, we at Angel Broking expect PVR to register a 47.9% CAGR in consolidated topline driven by steady addition in seating capacity, improvement in ATP and SPH (aided by PVR Premiere screens) and strong growth in advertisement revenues.
We expect the screen count to increase from the current 97 screens to 125 screens in FY2009E and 163 screens in FY2010E.
In terms of PVR Pictures, we have factored in Rs70 crore and Rs120 crore topline in FY2009E and FY2010E respectively on the back of a strong movie production / distribution pipeline supported by fresh infusion of funds.
At the operating front, we expect margins to improve 240bp over FY2008-10E driving a robust 57.4% CAGR in EBITDA supported by lower E-Tax outflow (expected to reduce as a percentage of ticket revenues), lower overheads (spread over a larger screen base) and contribution from PVR’s first owned property at Phoenix Mills (7 screens with 1,965 seats expected to start in July 2008).
As a result, we expect the company to deliver a Net Profit CAGR growth of 50.7% during the mentioned period.
PVR’s management bandwidth, integrated business model and strong set of properties (in terms of location) make it the most preferred play in the exhibition space.
Moreover, its new ventures like food courts and bowling alleys will help PVR capitalise on large flow of Footfalls and hold upside risk to our estimates.
While we are enthused with the valuations ascribed to PVR Pictures by private equity partners, we still await clarity on the deal and prefer to wait another quarter (to check on the performance of its co-production releases) before assigning similar valuations.
Nonetheless, we believe this deal is likely to lead to a re-rating of the stock. At the CMP of Rs184, the stock trades at attractive valuations of 9.1x FY2010E EPS.
We maintain a Buy on the stock with a revised Target Price of Rs263 (Rs276), downgraded marginally to factor in higher execution risk, both in terms of movie production and exhibition business.