PVR rating: Maintain ‘hold’ with target price of Rs 1,261

By Edelweiss Securities

With cinemas remaining shut throughout Q1FY21, PVR reported nil core operating revenue, leading to ebitda and PAT losses of Rs 1.1 billion and Rs 2.2 billion, respectively. Given the circumstances, PVR cut employee and other expenses 35% and 74% YoY, respectively, and is eyeing permanent 10-15% reset in cost structure over the long-term. Clarity on resumption of business remains limited as Covid cases continue to rise and state governments could use their discretion. However, ~25-30% reduction in monthly cash burn, ample liquidity and resumption with a leaner cost structure (expect break-even occupancy to be ~17-18% against ~20% earlier) bode positive for the business, in our view. Maintain ‘hold.’

While screens remained closed for business, PVR’s sales came in marginally ahead of our estimates, owing to sale of its packaged gourmet popcorn and income from distribution rights and recognition of convenience fee. Ebitda, however, belied our estimate, primarily owing to one-time personnel cost of Rs55 million; Rs280 million provision for CAM payments; and Rs25 million worth inventory write-off taken in Q1FY21. Going ahead, the management expects the monthly cash burn to reduce to Rs220-250 million from Rs320 million in Q1FY21. Additionally, permanent reduction in manpower and cutback in other overheads are expected to positively impact the breakeven occupancy rate and the company’s fixed cost structure.

Rights issue (Rs3 billion) done in July to provide sufficient liquidity. Gross debt position stands at Rs12.7 billion against the liquidity of Rs5.5 billion. Has provided for CAM, but will not be paying for the lockdown period; discussions with property owners underway over rental agreements for balance FY21. To add 30 screens in FY21; incremental capex to be ~Rs400 million. Screens in Sri Lanka resumed operations a month ago– occupancy at 65-70% of pre-Covid levels, encouraging signs on F&B off-take. However, too early to comment on ad revenue.

While near-term headwinds persist, we remain confident of the long-term story for the multiplex industry. Hence, our revision of rating remains contingent on improving visibility on screen opening/occupancy; price correction (at 31x FY22E ex-Ind AS EPS); and clarity over rentals. Maintain ‘hold/SP’ with target price of Rs 1,261.