UPDATES - Ambit
Leisure: Asset-heavy, but returns steady
PVR delivered 48% earnings CAGR over FY11-16 and Wonderla consistently achieved park-level RoIC of 30%+, highest amongst peers. PVR's earnings volatility due to unpredictability of content quality and Wonderla's ability to rejuvenate older parks (Kochi) have been key near-term investor concerns. The 2QFY17 results allay these concerns. PVR's earnings have found support from non-ticket revenues (~50%). Wonderla management's actions leading to revival in Kochi footfalls (+7% YoY) reinforce our faith in its ability to maintain unit economics of existing parks. Competitive advantages around (a) innovation to provide best-in-class visitor experience; (b) strengthening brand; (c) presence in high-quality catchment areas; and (d) healthy returns/cash generation for funding future rollouts, are sustainable and ensure leadership. Valuations would remain justifiably rich given the local area monopolistic nature of the businesses and high reinvestment opportunity. (Abhishek Ranganathan, CFA, +91 22 3043 3085)
PVR (BUY): A lot more to showcase
PVR's earnings and stock price grew 8x over past five years. At 550 screens, PVR has potential to grow revenues 7x and profits 10x over next 15 years led by internal drivers (screen launch in high-quality catchments, pricing power, rise in ancillary revenues, and profitability gains) and external tailwinds (rising share of non-Bollywood content, consolidation and GST). Valuation of 29x FY18E P/E appears lofty but leaves room for re-rating as PVR maintains healthy earnings growth (33% EPS CAGR over FY16-20E) while improving profitability (200bps gain) and return ratios (12% to 18% in FY20). Key risk: Near-term earnings miss due to poor content and mall development delays. (Abhishek Ranganathan, CFA, +91 22 3043 3085)
Wonderla (BUY): Leisure walk in the 'park'
Wonderla, with over 30% ROCE, sub-10 year payback periods and cash-positive balance sheet, stands out in an industry marked by high capital intensity and weak return ratios. Focused execution and in-house design/manufacturing/installat
Dish TV (BUY): Remain guarded on consolidation benefits
Dish TV and Videocon d2h (VDTH) announced their merger to create India's largest Distribution Platform Owner (16% market share). The merger, likely to be completed in 2HCY17, is subject to statutory approvals and mitigation of regulatory uncertainties. While avoiding specifics, the managements (separately) said they are optimistic of synergy benefits from market structure improvement and reduced fixed costs. Dish TV will remain listed in India whilst NASDAQ shareholders of VDTH will get the option of either converting ADRs into Indian equity shares or holding GDRs listed in Luxembourg. VDTH shareholders get a better deal with 34% premium on pre-merger traded price, whilst benefits will be protracted for Dish TV shareholders (~17% upside). We leave our estimates unchanged given uncertainty over the merger. Dish TV trades at reasonable multiples of 9.8x/8.4x FY17E/FY18E EV/EBITDA and 25x FY18 P/E. (Vivekanand Subbaraman, CFA, +91 22 3043 3261)
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