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Brokerage Recommendations

Monday, June 23, 2014

Emkay calls a ‘Buy’ on PVR
CMP: Rs. 683    Target Rs. 900
PVR is the largest multiplex chain with 434 screens (~28% market share), enjoys a 20-22% and 30-35% market share of Bollywood and Hollywood box-office collections, respectively. Dominant market share and aggressive screen expansion would provide better negotiating power with content providers and continued growth in footfalls. Multiplexes are gaining market share from single-screens. With 18-20% screen share, multiplexes contribute >50% of domestic box office collections. Expect Revenue/EBITDA CAGR of 17%/23% over FY14-16E, resulting in healthy cash generation. At CMP the stock trades at 21x FY16E EPS and 9.3% OCF yield. Initiate with a Buy and PT of Rs900 (7% FY16E OCF yield)

Dominant and fastest-growing multiplex company: PVR is India’s largest multiplex chain, with 434 screens and ~28% screen market share. It is the most aggressive player, with 60-70 screen additions planned annually for the next 4-5 years. PVR is looking to add 120-140 screens, taking total number of screens to >500 by FY16E. PVR enjoys a market share of 20-22% and 30-35% of Bollywood and Hollywood box-office film revenues, respectively. This provides better negotiating power for content sharing with distributors/producers.

Valuations: PVR’s aggressive expansion plans, premium location strategy, robust growth in F&B and advertisement would drive revenue/EBITDA at a CAGR of 17%/23% over FY14-16E, resulting in healthy cash generation. We expect a debt repayment of Rs800mn in the next 2 years. Initiate coverage with a Buy and a target price of Rs900, implying 7% operating cash flow yield (OCF) and 28x FY16E earnings. Implementation of GST would have a positive impact of 300-400bps on EBITDA margin.

Karvy calls a ‘Buy’ on TVS Motors
CMP: Rs. 143    Target Rs. 187

To Enter New Margin Territory Backed by Healthy Volume Growth: TVS Motor (TVSL) displayed stellar performance across segments over past three quarters. Moreover, success of its new launches in domestic market and high double digit growth in exports led to visible outperformance of the company since FY15 beginning. TVSL’s increasing three wheeler contribution and high export realization will further boost its average realization as well as margins. Its product portfolio is steadily inclining towards richer products with increasing contribution from motorcycles and high end scooters.

Market Share Gain to Continue…Healthy Volumes Ahead: TVSL’s market share in scooters improved to 14.1% at present from ~12.7% in FY14, while it rose 17 bps YoY to 5.9% in motorcycle segment. In domestic three wheelers company’s share rose 146 bps YoY to 3.5% in YTD’15. Success of Jupiter has been driving market shares as its current monthly run rate is moved up to ~28K from ~10K. TVSL’s product and marketing strategy has begun paying off. It plans to launch 2 new products (new Star City+ and new Scooty) over next 3 months and 2-3 more new models over next 6-8 months in two wheeler segment. This would aid the Company on volume front over next 2 years. Company has been gaining shares from BJA in African markets, as its YTD’15 export growth was 41% as against industry’s export growth of 27%. We expect company’s volumes to grow by 16.3% CAGR over FY14-16E. On account of Company’s restructured business strategy in domestic two wheeler market, richer product mix coupled with higher focus on exports, we expect its EBIDTA margins to improve from 6% in FY14 to 7.8% in FY15E and 8.5% in FY16E. Amid high fixed cost, TVSL benefits largely from operating leverage.

Valuation & Rating: In view of TVSL gaining market shares, better industry outlook and healthy exports, we increase our volume estimates by 8% and 9.5% for FY15 and FY16, accordingly we increases our revenue estimates by 9% and 12% for FY15E and FY16E respectively. On account of higher margins, we raise our EPS estimates by 30% and 39% for FY15E and FY16E respectively. We increase our price target from Rs 115 to Rs 187 per share, valuing its FY16E EPS at 14x (earlier 12x). We reiterate our “BUY” recommendation on TVS Motor with potential upside of 30% from CMP.

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