PVR (Initiating Coverage) - It's showtime - Standard Chartered Securities

OUTPERFORM, PVRL IN, CMP INR 330.75, Price Target INR 500.0

- PVR is the largest multiplex chain in India and is best positioned to capitalise on the favourable dynamics of the Indian film exhibition sector, in IER's view.

- IER believes consolidation with Cinemax and potential synergies add to PVR's investment attractiveness.

- A strong EBITDA growth profile coupled with a deleveraging balance sheet is likely to magnify PVR's equity value over FY14E to FY16E, in IER's view.

- IER initiates coverage of PVR with Outperform rating and a price target of INR 500, based on 9x FY15E EV/EBITDA. Moreover, it believes the stock could re-rate to INR 600 in two years, imputing an FY16E EV/EBITDA of 8.5x.

- The key company-specific risk is irrational growth, apart from risks that could impact the film exhibition industry.

Multiplex industry on a strong footing: IER believes the multiplex industry is in a buoyant phase, given: (1) under-penetration of screens coupled with room for higher ticket prices in India (2) marginalisation of small- and single-screen operators, leading to better multiplex market share; and (3) a more organised content industry, providing a better content pipeline.

Synergies from the Cinemax acquisition: Following the acquisition of Cinemax, PVR has become the largest multiplex operator in India. IER believes multiple synergies, including (1) lower cost of goods owing to larger scale; (2) reduction of duplicate costs; and (3) optimum pricing and movie scheduling are likely to help improve the company's overall profitability.

Growth coupled with deleveraging to magnify returns: IER believes PVR will be able to compound its EBITDA by 23% over FY13-16E. Moreover, with expected de-leveraging during the period, IER thinks returns for equity investors could magnify over the next 12 and 24 months.

Initiate with Outperform: IER initiates coverage of PVR with a March 2014 price target of INR 500, based on 9x 12-month forward EV/EBITDA. Given that growth and deleveraging are expected to continue in the medium term, IER believes investors would do well to hold the stock even beyond 12 months; IER thinks PVR could re-rate to INR 600 in the next two years.

Risks. Key risks include: (1) irrational competition; (2) weak content supply; (3) irrational growth; (4) competition from new media; and (5) prolonged slowdown in new mall development.

Source : Equity Bulls

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