PVR stock gets rated Reduce by Kotak; here is where things really stand

By: | Published: October 14, 2017 2:22 AM

PVR has launched a fully digital and hassle-free loyalty programme to improve customer stickiness and drive footfalls.

PVR, KotakThe launch of the loyalty programme once again shows PVR’s ability to remain ahead of competition.

PVR has launched a fully digital and hassle-free loyalty programme to improve customer stickiness and drive footfalls. With rewards at just about 5% of customer spends, it has to be seen if this programme can drive a meaningful increase in footfalls. Nonetheless, the enrollment of movie-goers on its loyalty platform will enhance customer engagement and enable data analytics, helping PVR roll out personalised offers and better monetise ad inventory. We like PVR but the stock is fully priced. Retain Reduce.

GST rate on a/c restaurants (applicable to PVR’s F&B sales) is under review and government may reduce it to 12% from 18% and withdraw input tax credit benefits. PVR has fully absorbed higher tax on F&B. Reduction in GST rate to 12% will increase PVR’s EBITDA by 4-8% (EBITDA margin upside of 70-135 bps) depending on whether input tax credit benefits continue or not.

Separately, the Tamil Nadu government has imposed a local body tax of 10%/20% on Tamil/non-Tamil movie tickets and it has increased the ticket price cap to `150 (inclusive of local body tax + 28% GST) from `120 (inclusive of e-tax) earlier. Increase in net ticket price is modest.

We note that the film/multiplex industry is protesting TN government’s decision of imposing the local body tax. TN contributes 2.8% to PVR’s screen count and this event is not material for PVR, per se. That said, the risk of other states following suit and imposing a local body tax cannot be ruled out.

The launch of the loyalty programme once again shows PVR’s ability to remain ahead of competition. We like PVR for its premium location presence and branding and leadership in monetisation and profitability. However, in view of regulatory risks (imposition of local body tax and ticket price caps) and not-so-encouraging box office trends, we value PVR at 12X FY2019 EV/EBITDA. The stock is fully priced. Reduction in GST rate on F&B can add `40- 75/share to our TP.

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