We reiterate our positive stance on PVR owing to: (i) strategic acquisition of SPI Cinemas (SPI) — set to reap manifold benefits; and (ii) limited overhang of F&B controls — till now courts have adopted a favourable stance on the issue. As SPI is the most popular screen brand in South India, PVR will draw operational synergies and scale up ad revenues, while reducing content risk. The acquisition also clears the decks for PVR to emerge as the No. 1 player in key South Indian cities as well as undertake seamless expansion (100 plus screens post FY19). We expect the deal to be earnings accretive in the first year itself. Hence, we raise our FY19/20e EPS by 2.70/4.08% and also revise our target multiple to 30x (from 28x) FY20e EPS to arrive at a revised TP of Rs 1,608 (earlier Rs 1,442). Maintain Buy.
F&B issue: Favourable stance by the powers-that-be — Subsequent to petitions filed at different high courts to allow outside food at multiplex screens, pertinent judicial bodies — Madhya Pradesh and Telangana High Court — have decreed multiplex-goers to abstain from taking outside food inside the screens. The Maharashtra government also dismissed the issue, citing safety concerns.
Outlook: Long term positive — We expect revenue growth to be supported by aggressive expansion (aided by entry in MENA region), strong movie line-up, synergistic scale-up in ad revenue and business from acquired SPI screens. At CMP, the stock trades at 31.5x FY19e and 24.6x FY20e EPS. We maintain ‘BUY/SO’.