Existing and upcoming properties of DT Cinemas will be on 15% revenue-share basis and is expected to be margin accretive.
PVR is all set to buy DT Cinemas for R500 crore subject to CCI approval. Although EV/screen of R1,280 crore (versus replacement cost of R150-250 crore) appears expensive, ~12x FY17e EV/Ebitda seems comparable to the Inox-Satyam deal. Weak Q4FY15 results saw the stock correct by 14% from peak levels which could reverse given its strong content pipeline in FY16.
Existing and upcoming properties of DT Cinemas will be on 15% revenue-share basis and is expected to be margin accretive. With this acquisition, PVR’s screen share (among top-4 multiplexes) will increase to 35.2%. PVR also gets the right of first refusal to be the multiplex partner in all upcoming DLF malls. Post the acquisition, PVR’s market share will improve to 21% in the NCR region. There is enough room for improvement in ad revenues and F&B income at DT Cinemas. We believe the deal will be EPS accretive by ~1.5% in FY17E.
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We remain enthused by PVR’s dominance and expansion in exhibition business. With this acquisition, the company will enhance its market share in all key cities, which will drive growth once consumption picks up. At CMP, the stock is trading at 28.9x and 21.2x FY16e and FY17e EPS. We maintain buy with target price of R760.