PL Sector Report - Media & Entertainment - Apr-Jun'23 Earnings Preview - A tough quarter

Media & Entertainment – Jinesh Joshi, Research Analyst, Prabhudas Lilladher Pvt Ltd

Apr-Jun’23 Earnings Preview – A tough quarter

Media: In line with the previous quarter, NBOC’s for the industry stood at ~Rs18.6bn in 1QFY24. Accordingly, we expect PVR-Inox to mimic the performance of earlier quarter with footfalls of 33mn (30.5mn in 4QFY23) and pre-IND AS EBITDA margin of 5.8% (achieved break-even in 4QFY23). On broadcasting side, ZEEL’s performance is likely to be impacted by continued weakness in ad-environment and higher investment in content. We expect domestic ad-revenues to decline 2.5% YoY to Rs9bn with an EBITDA margin of 6.3%.

Entertainment: While Nazara’s top-line growth of 26.1% YoY will be aided by consolidation of WildWorks, we expect sequential expansion in EBITDA margin to 12%. We believe Nodwin is on a strong growth path as recent fund infusion of ~Rs2bn can help the business expand inorganically, while return of BGMI is a big positive for Esports viewership.

Top pick: Nazara remains our preferred pick in the media & entertainment space and we expect sales/PAT CAGR of 27%/49% respectively over FY23-25E. Retain ‘BUY’ with a DCF based TP of Rs804.

Multiplex: NBOC’s for Bollywood and Hollywood genre (excluding regional movies) declined 14.6% YoY to ~Rs9.6bn in 1QFY24. While The Kerala Story turned out to be a sleeper HIT, subdued collections from movies like Kisi Ka Bhai Kisi Ki Jaan (Rs1.1bn) and Adipurush (Rs2.8bn; considered as sub-par given the budget and huge expectations surrounding the movie that had pan-India appeal) impacted overall performance for the quarter.

We expect PVR-Inox to report footfalls of 33mn with pre Ind-AS EBITDA margin of 5.8%. Given weak performance in 1QFY24; we cut our pre-IND AS EBITDA estimates by 9%/8% for FY24E/FY25E but retain ‘BUY’ on the stock with a revised TP of Rs1,704 (14.5x Sep-24 EBITDA) as content pipeline for near-term is healthy with movies like Gadar-2, Oh My God-2, Jawan, Dream Girl-2, MI-Dead Reckoning and Oppenheimer in pipeline.

Broadcasting: We expect ZEEL to report 5.8% YoY growth in top-line to Rs19.5bn while EBITDA margin is expected to succumb to 6.3% amid weakness in ad-environment and continued investment in content. Given persistent margin pressure, we cut our EPS estimates by 13%/4% for FY24E/FY25E. Nonetheless, we maintain our ‘BUY’ rating with a TP of Rs236 (19x FY25E EPS) as we believe merger with SPNI will go through (key re-rating lever) notwithstanding the current challenges viz: 1) Puneet Goenka’s directorship in merged entity given imminent SAT order and 2) pending NCLT approval.

Entertainment: We expect Nazara’s top-line to increase 26.1% YoY on account of consolidation of WildWorks, while EBITDA margin is expected to improve sequentially to 12%. We expect Kiddopia’s subscriber base to increase by 2% QoQ to 317,012 while the Freemium and SportsKeeda business will get a fillip in 1QFY24 due to presence of IPL. In a seasonally weak quarter, Esports business is expected to grow by 10% YoY. We retain ‘BUY’ on Nazara with a DCF based TP of Rs804 and it remains our preferred pick in the media & entertainment space.

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