PVR’s Q4FY16 revenue and PAT came in line. Key positives were: (i) advertising increased by 19% YoY versus Inox Leisure which saw 2% YoY dip; (ii) net box office collection surged 36% YoY, driven by 9% YoY LTL ATP growth and 18% YoY LTL footfalls growth aided by blockbusters like Airlift and Neerja; (iii) F&B revenues soared 50% YoY led by 17% LTL SPH growth. EBITDA margins expanded 767bps YoY on favourable base. Going ahead, PVR will have a strong base of H1FY16. However, we expect the company to clock decent performance drawing from strong content pipeline and screen expansion in FY17. Maintain ‘BUY’.

Screen expansion continues; employee cost slightly higher
In Q4FY16, PVR added 25 screens (52 screens in FY16). The company will add another 65 screens in FY17 (17 in Q1FY17, 14 in Q2FY17), which will drive footfalls in FY17. Employee cost increased by 39.7% YoY due to addition of new screens and New Bonus Act. PVR will continue to add 50% of its new screens in tier I cities where ATP is above INR200. Upcoming movies such as Udta Punjab, Independence Day and Sultan are expected to do well for PVR.

Q4FY16 conference call: key takeaways
PVR expects 3-5% YoY ATP growth in FY17. The company has 283, 181 and 60 screens in tier I, II and III cities, respectively. E-commerce accounts for 10% of the ad revenue. PVR’s ad rates are ~30-40% higher than competitors. Going ahead, entertainment tax will be marginally higher as Delhi’s higher entertainment tax was not present in the base for 3-4 months. The company expects SPH to increase 8-10% YoY in FY17. It is launching popcorn, juices and merchandising for kids to drive growth. PVR expects DT Cinema’s consolidation from Q2FY17.

Outlook and valuations: Positive; maintain ‘BUY’
We remain enthused by PVR’s dominance and expansion in exhibition business and we envisage the company to continue to benefit from strong content pipeline in FY17 as well. We estimate PVR to log 19.8% EPS CAGR over FY16-18. At CMP, the stock is trading at 27.7x and 22.1x FY17E and FY18E EPS, respectively. We maintain ‘BUY/Sector Outperformer’ with a target price of INR956 (25x FY18E EPS).

Bajaj Electricals’ (BJE) Q4FY16 revenue at INR13.5bn (up 3.5% YoY) came 4% below estimate due to lower-than-expected revenue in E&P and consumer durables (CD) segments (nil growth YoY). Moreover, higher employee expense provisioning of INR70mn impacted margin. While EBIT margin of lighting segment at 7.2% (up 10bps QoQ) improved, that of E&P and CD segments fell 180bps and 150bps QoQ, respectively, pushing blended EBIT margin down to 5% (down 120bps QoQ). BJE’s INR347mn PAT was lower than our INR422mn estimate. Maintain ‘HOLD’ with target price of INR275 based on SOTP multiples—lighting 5x, CD 18x and E&P 7x on FY18E earnings.

Lower revenue growth, higher costs impact profitability
During Q4FY16, revenues of CD and E&P segments remained flat. However, lighting segment’s revenue jumped 20% YoY. Provisioning for employee wage increase for FY17 has been accounted for during this quarter (INR70mn) squeezed EBITDA margin to 5.5% versus 5.9% in Q4FY15. CD business EBIT margin of 3.4% fell ~350bps YoY owing to higher fixed costs. However, E&P and Lighting EBIT margins of 6.6% and 7.2% were higher than the margins of 4.7% and 4.3% in Q4FY15, respectively. Tax outflow of INR186mn was much higher than INR58mn in Q4FY15 due to regulatory requirements. Overall PAT came in at INR347mn, versus a profit of INR469mn in Q4FY15, on tepid operating performance.

Outlook and valuations: Improving; maintain ‘HOLD’
Execution of better margin orders in the E&P segment bolsters confidence in the project business. We anticipate LED business to continue to drive the lighting business. Competitive intensity in CD segment and its focus on secondary sales are likely to keep CD segment profitability under pressure in near term and this change in BJE’s strategy in the CD segment is likely to reap benefits from H2FY17. Return of growth along with pace in its CD business will determine the company’s overall performance over the near to medium term. The stock currently trades at 13.3x and 10.5x FY17E and FY18E earnings, respectively. Factoring in improvised margins, we revise up FY17E and FY18E earnings 19% and 31%, respectively. We maintain ‘HOLD/Sector Performer’ with a revised target price of INR275 (INR205 earlier) based on SOTP multiples—lighting 5x, CD 18x and E&P 7x on FY18E earnings.

AIA Engineering’s (AIA) 2% decline in revenue and 9% growth in EBITDA in Q4FY16 came 7% and 19% ahead of estimates, respectively. Sales beat was driven by 5.7% YoY volume growth with 13% YoY spurt in mining volumes. However, realisation declined 6% YoY. While management remained upbeat on achieving additional volumes of 120,000MT over FY17-19E, concerns remain on margins with management withdrawing guidance owing to variables like aggressive pricing strategy and emerging market currency volatility. With earnings CAGR of mere 4.6% leading to 270bps dip in RoCE over FY16-18E, we maintain ‘HOLD’. However, we remain structurally positive in the long term with scope to raise our conservative 54% capacity utilisation estimate for FY18.

Tepid volumes owing to challenging scenario
Sales declined 2% YoY with volume growth of 5.7% YoY at 53,502MT for Q4FY16 and down 0.5% YoY in FY16 to 185788mt (mining volumes grew 12.9% YoY to 28,594MT for Q4FY16 and declined 5% YoY to 100684MT for FY16). Management maintained that overall volumes remained flat in FY16 owing to certain strategic and conscious decisions taken by the company viz. restricting sales to Ukraine, reduction in South African market volumes owing to currency uncertainties and volume reduction owing to closure of one particular iron ore mine in Brazil. Realisation declined 6% YoY in Q4FY16 and 2% YoY in FY16.

Margin guidance uncertain; capex forecast maintained
Management has withdrawn EBITDA margin guidance (earlier 22-23%) citing emerging market currency volatility and competitive pricing strategy adopted by AIA. Though gross margin dipped 180bps to 62.3%, EBITDA margin grew 290bps YoY to 28.9% on hedging gains. Management guided for capex of INR1.5bn in FY17 and INR2bn in FY18.

Outlook and valuations: Fairly valued; maintain ‘HOLD’
Management highlighted its continued focus on market share expansion and hence maintained its strong capacity addition guidance. Concerns remain on margins led by aggressive pricing. With earnings CAGR of mere 4.6% leading to 270bps dip in RoCE over FY16-18E, we maintain ‘HOLD’, valuing the stock at 18x FY18E. However, we remain structurally positive in the long term with scope to raise our conservative 54% capacity utilisation estimate for FY18. Stock currently trades at PER of 18.7xFY18E

Colgate Palmolive’s (Colgate) Q4FY16 numbers came in line with estimates—sales jumped 6.8% YoY, EBITDA fell 2.5% and PAT dipped 10.8% YoY. Recovery in volume growth at 4% YoY (highest in 4 quarters) coupled with pick up in herbal innovations indicate gradual recovery in FY17 (to be aided by soft volume growth in base). Heightened competitive intensity, especially from herbal players—Dabur clocked 6 quarters of double digit oral care growth in Q4FY16, Patanjali’s Dant Kanti crossed INR4.5bn mark in FY16—remains key overhang. We are enthused by the recent success of Palmolive handwash. Maintain ‘HOLD’.

Sales look up; brand investments to aid momentum
Key positives: (i) 4% YoY domestic volume growth (highest in 4 quarters); (ii) rise in brand investment to aid volume recovery; (iii) success in personal care (3% of India sales; 21% of global sales) can boost long-term growth; and (iv) step-up in herbal segment innovation (launched first sensitive toothpaste with clove). Key negatives: (i) 450bps jump in annual tax rate (ex INR311 prior period reversal); FY17 effective tax rate to be 32%; (ii) toothpaste market share loss to 55.7% in YTD16 (up 60bps MoM in April 2016) from 57.2% in 2015; and (iii) inventory days up to 72 days from 59 in FY15.

Q4FY16 conference call: Key highlights
Urban areas clocking marginally higher growth than rural areas. Colgate Active Salt Neem has 1.1% market share (pan-India). Barring multi-usage and low priced packs, other segments—freshness, whitening, naturals, family—posting good growth. ~300mn consumers still do not use toothpaste, this along with promoting twice a day usage (<20% brush twice daily in urban areas) present strong growth potential. Premium mix improved ~400bps to 19.4% over FY12-16. Personal care focus will be on niche products where leadership (or second position) in modern trade is likely. Outlook and valuations: To improve gradually; maintain ‘HOLD’ We estimate 7.8% EPS CAGR over FY16-18. ~20% correction in stock price in past 1 year factors in risk from herbal players. Recovery in volume growth and return of pricing growth in FY17 (FY16 pricing growth negatively impacted by phasing out of fiscal sops) are re-rating triggers. At CMP, the stock trades at 29.1x FY18E EPS. We maintain ‘HOLD/Sector Performer’ with target price of INR917.