Analysts bullish on PVR on long-term growth outlook

The multiplex industry has faced one of the most severe blows from the onslaught of the Covid-19 pandemic as outdoor venturing became passé and entertainment shifted online on OTT platforms. Yet India’s biggest cinema player PVR has received strong support from investors – both domestic and foreign.

A quick glance at the company’s shareholding pattern shows that foreign institutional investors have been upping their stake in the company since the September quarter of the previous fiscal, when pandemic related restrictions began to ease in India. From 34.6 per cent at the end of Q2, FIIs’ stake stood at 42.6 per cent at the end of Q4FY21. Even on a year-on-year (YoY) basis, the stake has risen from 38.35 per cent seen at the end of Q4FY20.

So, what’s infusing this confidence? To begin with, analysts opine that FIIs are looking beyond the near-term pain and are assured of PVR’s long-term growth trajectory.

“The structural growth story remains intact for key multiplex players as when the entire episode of Covid-19 will be behind us, these players will emerge stronger than before,'' says Jinesh Joshi, research analyst at Prabhudas Lilladher.

He adds PVR, being a listed player, has easy access to liquidity when compared with other unlisted & single screen counterparts enabling it to sail through the current crisis.

Notably, on Wednesday, the Gurugram-based multiplex chain announced fresh plans to raise up to Rs 500 crore through issuance of Non-Convertible Debentures, in one or more tranches, on a private placement basis. This follows nearly Rs 800 crore fund-raising it did in Q4FY21 via QIP.

This is in stark contrast to single-screen players who have been struggling to make their ends meet. During an investor call post Q4FY21 results, PVR said that approximately 10 per cent of the 5,500-6,000 single screens in India may be permanently shut in the aftermath of Covid.

“Others are surviving due to owned property and skeleton structure, or owners have other sources of funding. A few screens have reduced occupied space to 30-45 per cent and are using the remaining for commercial purposes,” it added.

Going-forward, as single screen closures could accelerate, PVR could emerge stronger relative to most other cinema operators and may be well placed to capitalize on likely pent-up demand once the second wave subsides, vaccination picks up, and cinemas resume operations, says Jaykumar Doshi, research analyst at Kotak Institutional Equities.

Besides fresh funds, cost control, rent waivers, and revenue sharing agreements with distributors will be a key to ensure survival, say Naval Seth and Sonali Shah, research analysts at Emkay Global.

PVR’s rent cost during Q4FY21 was down over 45 per cent YoY due to concession on rentals and it is negotiating for concessions even for the second wave. Moreover, other overheads declined by 50 per cent and employee costs were cut by 22 per cent YoY. With an average monthly cash burn of Rs 30 crore, cash balance of Rs 750 crore, and annual debt refinancing of Rs 200-300 crore, Sanjesh Jain, research analyst at ICICI Securities, expects PVR to sail through.    

Rebound expected

The Indian cinema market is expecting a strong rebound in the medium-term as theatres have seen encouraging footfall globally post resumption of economic activities. China has already reached FY20 levels while the US saw a strong response to new releases during Memorial Day weekend (May 28-31 2021) with over $100 million collection, which is the best collection since the pandemic began.

This, according to global brokerage HSBC, further bolsters confidence that the lure of watching cinema on a big screen remains intact, even in markets with strong OTT presence.

Back home, PVR remains confident of producers showing movies at theatres as the situation normalises in India and a strong movie line up and regional cinema will help revive business.

PVR’s ticketing revenues rose to Rs 87.9 crore in Q4FY21, aided majorly by regional content and various states permitting 100 per cent occupancy. F&B revenue at Rs 56.5 crore and ad revenue at Rs 13.6 crore appears reassuring for now, say analysts.

Earnings expectations

That said, given the near-term headwinds, most analysts have cut their FY22 and FY23 earnings estimates factoring-in minimal revenues in the on-going fiscal.

ICICI Securities and Emkay Global, for instance, have cut their FY22 Ebitda estimate by 71 per cent each and by 8 per cent and 2.6 per cent, respectively for FY23. Prabhudas Lilladher, meanwhile, has cut FY22E Ebitda estimate by 43 per cent, although it has kept its FY23E estimate intact.

On the bourses, the stock of PVR has been fairly resilient, having learnt from last year’s sell off and rebound, and is up 0.3 per cent on a YTD basis. In comparison, the benchmark S&P BSE Sensex is up 8.5 per cent till Wednesday.

Source: Brokerage reports