Mid-Cap Stock Pick – PVR Cinemas. Target Price: Rs 230
PVR is focusing on its movie production and distribution business. It expects over 100% growth in FY2009 through its subsidiary PVR Pictures. At present, the company operates 24 properties with 97 screens having 24,830 seats across various cities of the country. Moreover, PVR plans to open 7 properties with 41 screens and10,468 seats in FY2009.
Valuation: We have revised our revenue estimates for FY2009. We have increased our estimated topline of the company by 3.5% from Rs.3,933 mn to Rs.4,069 mn on account of increasing visibility from the distribution and production business. However, we have decreased our EBIDTA estimates by 3.6% as we believe that the increasing lease rentals will have an impact on the margins of the company due to new properties being at prime locations and the company following AS-19 for accounting of lease rentals. Consequently, we have decreased our EPS estimates by 6.5% from Rs.15.7 to Rs.14.7 per share, on the back of increased lease rentals and higher average cost of debt to the company. The stock is currently trading at 19.4xFY2008 earnings and 1.9xFY2009E earnings with the current market price at Rs.175. Due to the recent decline in the stock prices we change the rating on the stock from ‘Outperformer’ to ‘BUY’, with a target price of Rs.230.
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