As Cinema halls reopen, PVR set to gain? Revenue had plunged 96 pct! But it just got dubbed as a stock to buy
PVRs near term profitability and business scale should be affected as cinemas have been the last to open and are operating with much reduced capacity and limited timings. Waiver of rental charges and the sharp drop in employee and other expenses come as a great relief; > 50% decline has been reported in overall costs.
Brokerage Motilal Oswal has a buy rating on the stock with target price of Rs 1340 from Rs 1460 earlier. PVR’s near term profitability and business scale should be affected as cinemas have been the last to open and are operating with much reduced capacity and limited timings. Waiver of rental charges and the sharp drop in employee and other expenses come as a great relief; > 50% decline has been reported in overall costs. The existing Rs 5.5 bn liquidity, including Rs 3.5 bn cash (Rs 3 b proceeds from a rights issue) should cater to the next 6–8 months of cash burn. With lockdown in force for the majority of the quarter, revenue plunged 96%; however, a sharp 83% cut in opex cushioned EBITDA loss to Rs 810 mn (better than estimate of Rs 1 bn).
The recent shift in movies to OTT platforms and their increased viewership raise concerns regarding the increased competition from the OTT medium. However, multiplexes are expected to resume operations with a fixed exclusive window of movie viewing in cinemas and healthy flow of movie content. This, coupled with PVR’s scale and execution, should bode well for the company. Motilal Oswal expects PVR to reach FY20 EBITDA levels of Rs 5.8 bn in FY22E.
Highlights from management commentary:
Revenue recovery, which may take another six months, would be supported by -:
a) Cinema re-openings in Maharashtra
b) New movie releases.
The focus on reducing cost by 70%, with a 50% drop in rentals and even higher decline in employee and other expenses in FY21E would curb cash burn. Cinema additions and inorganic opportunities have stalled until normalcy returns. Nonetheless, expect 30 screen adds (for which 90% work has been completed) with Rs 1 bn capex in FY21.
PVR has reached a settlement with the developers of more than 60% of its cinemas for complete rental waiver during the lockdown and reduced rent sharing post the reopening. Also, common area maintenance (CAM) charges would be discounted by 30–50%.
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