PVR – High valuation a concern!
PVR is India’s largest multiplex player in terms of number of screens admits and total revenue as of and for FY18. The company commands Leadership position in India with 32% share of Hollywood box office and 22% share of Bollywood box office in FY18.
The company has been gaining through inorganic expansion and constant increase in footfalls coming from a healthy track record of screen additions.
Strong Quarterly performance: PVR posted strong revenue growth of Rs 51.3% YoY (owing to SPI cinemas consolidation) and 26% ex SPI.Revenue growth was driven by a 22.4% increase in footfalls and higher-than-expected ATP increase to Rs220. Standalone ticket sales increased 25.9% YoY to Rs3.7bn.Management reiterated that it is on track for achieving its screen guidance of 90+ in FY19.
Even though company has been delivering strong earnings growth the valuations have been factoring in a large part of the growth. The company has been undergoing constant PE re rating owing to strong performance and successful expansions. Currently, the PE is trading at 46x which is at the higher end of the band. We believe the scope forPE rerating is limited from here as valuations are high and the company will have to deliver a much higher growth rate to maintain the valuations going forward.
PVR took the Fibonacci confluence zone of 1060 as support and then bounced back to the previous highs of 1655. The stock has two supports one the fibonacci confluence and the other the trend line. Hence there was a support on the horizontal and as well as on the diagonal in the same zone. Hence the stock moved up strongly back to the previous highs.The candlestick formation at the top was Doji last month . Doji on the highs is an indication of indecisiveness,it’s also an indication of weakness. Technically previous highs act as important support and resistance. In this case it acted as a strong resistance. With the stock at resistance and the RSI in the bear zone of 60-65 the probability of an important top is very high here.The moving averages on the RSI have already given a bearish crossover hence the momentum indicator is weak . Therefore right on the highs the technical parameters are showing weakness and hence one should take profits off the table from this counter.