PL Sector Report: Media - Jul-Sep’23 Earnings Preview – Full house in cinemas but broadcasters struggle

Media - Jinesh Joshi - Research Analyst, Prabhudas Lilladher Pvt Ltd

Jul-Sep’23 Earnings Preview – Full house in cinemas but broadcasters struggle

Media: As 8 movies have breached Rs1bn mark, industry wide BO collections stood at record levels of ~Rs32.7bn in 2QFY24E. Accordingly, we expect PVR-Inox to report standout performance with footfalls of 47mn (~30% occupancy) and pre-IND AS EBITDA margin of 19.2%. On broadcasting side, while ZEEL’s performance is likely to be impacted by continued weakness in ad-environment, windfall from Gadar-2 (co-produced by Zee Studios) should aid performance in 2QFY24E. We expect domestic ad-revenues to decline 2.5% YoY to Rs9.3bn with an EBITDA margin of 11.1% (back in double digit after 2 quarters).

Entertainment: While Nazara’s top-line growth of 19.3% YoY will be aided by consolidation of WildWorks (base quarter had consolidation impact of 1 month) and healthy growth in Nodwin, EBITDA margin is likely to be at 8.3%. We believe Nazara is on a strong growth path as recent fund infusion of ~Rs5.1bn can help the business expand inorganically, while return of BGMI is a big positive for Esports viewership.

Top pick: Though Nazara has remained our preferred pick in the media & entertainment space for quite some time given 50%+ appreciation in last 6 months, we switch to ZEEL as it has a better risk-reward at current levels given merger overhang is now over.

Multiplex: NBOC’s for Bollywood and Hollywood genre (excluding regional movies) increased 176.4% YoY to ~Rs19.3bn in 2QFY24. Industry wide BO collections stood at record levels of ~Rs32.7bn, as there were 8 movies that breached Rs1bn mark during the quarter. In fact, Jawan and Gadar-2 breached the Rs5bn milestone, significantly aiding BO collections for the quarter.

We expect PVR-Inox to report record performance with footfalls of 47mn and pre- IND AS EBITDA margin of 19.2%. Given strong performance in 2QFY24; we increase our pre-IND AS EBITDA estimates by 2%/3% for FY24E/FY25E and retain ‘BUY’ on the stock with a revised TP of Rs1,862 (14.5x FY25E EBITDA) as content pipeline for near-term is healthy with movies like Animal, Tiger-3, Dunki, Salaar, and Leo in pipeline.

Broadcasting: We expect ZEEL to report 5.6% YoY growth in top-line to Rs21.4bn, while EBITDA margin is expected to claw back to 11.1% after being in single digit for last 2 quarters. We maintain our ‘BUY’ rating on ZEEL with a revised TP of Rs314 (earlier Rs276) as we increase our target multiple to 25x (earlier 22x) given merger overhang is now over as NCLT approval is in place.

Entertainment: We expect Nazara’s top-line to increase 19.3% YoY led by consolidation of WildWorks and healthy growth in Nodwin. However, EBITDA margin is likely to remain flat on YoY basis at 8.3%. Recently, Nazara announced preferential issue of Rs5.1bn and we have accounted the dilution impact into our estimates. Including the preferential issue, Nazara has cash balance in excess of Rs10bn which will be used as growth capital to expand inorganically. Nonetheless, given 50%+ appreciation in stock price over last 6 months we downgrade the stock to ‘HOLD’ with DCF based TP of Rs836 (earlier Rs834).

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