Multi Baggers

PVR Limited

CMP - Rs. 351.25
Target Price - Rs. 450
52 weeks high/low - Rs. 390/162
Average volume - 152330 (last trading session - 28766)
Average Turnover - Rs. 432.73 Lacs(Rs. 97.90Lacs) 

PVR (Priya Village Roadshow) cinemas, is one of the main cinema chains in India. It was founded in 1995 as a joint venture between Priya Exhibitors Private Limited and Village Roadshow Ltd with the ownership stake of 60:40 respectively. With the launch of PVR Anupam (India's first multiplex) in Saket (Delhi), PVR commenced its operations in June 1997. The company also operates advertisements and sale of food & beverages in the cinemas. PVR also has presence in business of film distribution and production through its subsidiary named PVR Pictures Ltd. Thus the company operates in the whole value chain of the film industry which includes exhibition, distribution and production. PVR runs around 46 cinemas with 213 screens operating in 27 cities.

Through its subsidiary Cine Hospitality Private ltd, January 18, 2013, PVR ltd acquired the controlling stake of Cinemax India Ltd through a block deal (USD 97.80 or Rs. 395Crs) and became India's largest multiplex operator. Cinemax has about 138 screens in 39 cinemas. So after the acquisition of Cinemax, PVR manages 385 screens in total in 90 properties across 37 cities. With a significant presence in Delhi NCR, it also has operations in almost all over India such as Chandigarh, Bhopal, Nagpur, Lucknow, Hyderabad, Bangalore, Mumbai, Ahmadabad, Kochi, Vishakhapatnam etc.

Moreover CR Retail Malls Private Ltd and PVR bluO Entertainment Ltd (bowling alleys) are two other subsidiaries of the company.

Ownership Pattern

The promoters own 40.22% of the stock out of which 26.8% is pledged with the lenders while mutual funds & UTI and private corporate bodies hold 13.87% and 13.37% correspondingly. NRIs, OCBs and other foreign investors possess 11.38% whereas 7.12% stake is owned by foreign institution investors. General public hold 5.33% and some other investors have 0.21% of the stock.

Financial Analysis

Robust consolidated growth: On the back of big success of some Hindi and English movies, consolidated net sales grew to Rs. 335.2 Crs up by 89% YoY and 37.1% QoQ while EBITDA increased to Rs 59.4 Crs up by 75.7% YoY and 260.2% sequentially. Further PAT was Rs 13.6 Crs showing a growth of 79.9% YoY and 16% QoQ.

Sales break-up:

Lower YoY consolidated margins: In 1QFY14, EBITDA margins stood at 17.7% as against 19.1% in the first quarter of FY13 while it increased by 1097bps from 6.7% in the last quarter.

Satisfactory growth of standalone business of PVR:

Reflecting the 40% growth in box-office revenue from Hindi and English films in India, the standalone exhibition revenue of PVR swelled by 45% YoY

Overall revenue of PVR rose by 29% YoY to Rs. 226.9Crs due to degrowth in production and distribution business as well as non-movie exhibition business.

Further standalone EBITDA recorded a muted YoY growth of 8% owing to start-up losses from 32 new screens added in the last quarter and 72 added in last 12 months.

Cinemax's standalone results:

Standalone Revenue of Cinemax stood at Rs. 108.22 as against Rs. 99.19 in 1QFY13; recording a growth of 9.1% YoY

Net profit was Rs. 5.19 Crs as against Rs. 9.33 Crs in 1QFY13, down by 44.37% YoY and EBITDA went up by 12% each as a result of increase in average ticket price.

Rise in footfall and average ticket price:

In 1QFY14, footfall increased to 15.1mn from 11.5mn in the last quarter

Average ticket price for PVR and Cinemax was hiked to Rs. 174 and Rs. 160 respectively from the previous prices of Rs. 172 and Rs. 153 correspondingly.

Profitability:

ROE for FY13 was 6.9% as against 9.1%in FY12 while ROCE also declined to 6% in FY13 from 9% in FY12.

Business Outlook

Aggressive expansion plans: The Company along with Cinemax intends to add 90 screens in the current fiscal year.

71 screens for FY14 and 47 screens for FY15 have been factored in while projecting the earnings for FY14 and FY15.

Higher 3d content to raise average ticket price (ATP): ATP for 3d movies is 10 to 20% higher than 2d movies and some
Hollywood movies and few Hindi films are expected to release in 3d. This is going to increase average ticket price by nearly 15-20%.

Investment Positives

Synergies of acquisition of Cinemax: When PVR acquired promoters' stake in Cinemax, it was said that deal was bit expensive but going forward to the first quarter of this year the synergies have been realized (The COGS for the combined entity as a percentage of sales has reduced 440bp to 28.1%) and the advantages are going to stay in the future as the Management expects synergies to also bring down employee cost as a percentage of sales in the coming quarters. The deal provided PVR greater presence in the west and higher bargaining powers while negotiating with the producer-distributor lobby. Additionally Cinemax had better operational performance on standalone basis.

Expansion of the business: PVR has been focusing on business expansion by adding 72 screens in last 12 months and it plans to add 85-90 more screens in FY14. Considering good growth potential of the industry PVR's expansion plans augur well for the future business growth.

Tie-up with bookmyshow: Tie-up with bookmyshow to sell its tickets is proving favorable for PVR.

Investment Risks

Dependence on the quality of the content: PVR's business largely depends on the quality of the films produced and supplied to it.

Delay in launching screens: Although the expansion plans of the company are well placed with the industry growth but any delay in new additions could result in lower than expected growth.

Valuations

Trading at the price of Rs 351.25 the stock is valued at slightly above 31x FY13 EPS while industry P/E is 31.5. With the projected EPS of Rs. 21.6 and Rs. 27 for FY14 and FY15 respectively, the corresponding leading P/E stands at 16 and 12.7. The target price of Rs. 450, values the stock at 21x FY14E EPS which is justified given its Cinemax acquisition and string growth.