PVR LIMITED : LEADER IN ITS INDUSTRY !!!

Scrip Code: 532689/ PVR

CMP:  Rs. 664.45; Buy at current levels & Accumulate at every dips.

Medium to Long term Target – Rs. 730; STOP LOSS – Rs. 611.30; Market Cap: Rs. 2,731.30 Cr; 52 Week High/Low: Rs. 705.00 / Rs. 317.05

Total Shares: 4,11,06,220 shares; Promoters : 1,18,95,970 shares – 28.94 %; Total Public holding : 2,92,10,250 shares – 71.06 %; Book Value: Rs. 156.52; Face Value: Rs. 10.00; EPS: Rs. 14.05; Dividend: 10.00% ; P/E: 47.30 times; Ind P/E: 41.05; EV/EBITDA: 14.72.

Total Debt: 601.44 Cr; Enterprise Value: Rs. 3,299.70 Cr.

PVR LIMITED : PVR Limited was incorporated in 1995 and is based in Gurgaon, India. PVR LTD was incorporated in April 1995 pursuant to a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited, one of the largest exhibition companies in the world. PVR Limited is an India-based company that operates movie houses in India. PVR Ltd came with an IPO on December 08, 2005 with an issue price of Rs. 225 per share and raise about Rs. 173.25 Cr with an objective to utilize the proceeds to finance the then new cinema projects in various cities across the country, to expand the film distribution business, technological up gradation and renovation of cinemas. The Company also generates revenue from in-cinema advertisements and products displays and in-cinema sale of food and beverages. It also produces and co-produces movies; and distributes movies, as well as operates 24 lane bowling centers. PVR, Currently controls 434 screens including 135 screens with Cinemax India Ltd at 92 locations across 37 cities in 13 states and 1 Union Territory. PVR's subsidiaries include CR Retail Malls India Ltd (CRR), Cine Hospitality Private Ltd, PVR Pictures Ltd (PVR Pictures) and PVR bluO Entertainment Ltd (PVR bluO). The Company has diverse cinema circuit in India consisting of 35 Cinemas with 154 screens spread over 20 different cities: Delhi, Faridabad, Gurgaon, Ludhiana, Ghaziabad, Mumbai, Bangalore, Hyderabad, Chennai, Lucknow, Indore, Aurangabad, Baroda, Allahabad, Ahmedabad, Udaipur, Chandigarh, Surat, Latur and Raipur. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69 %  followed by the open offer for another 26 % in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per sgare from the Rashesh Kanakia and family. PVR Ltd is locally compared with Prime Focus ltd, Reliance Broadcast Network Ltd, Balaji Telefilms ltd, Media Matrix Worldwide Ltd, Shree Ashtavinayak Cine Vision Ltd, Tips Industries Ltd, Fame India Limited, Cinemax Properties Ltd, Era E Zone (India) Ltd, Pyramid Saimira Theatre Limited and Inox Leisure Ltd and globally compared with Walt Disney Co of US California, Time Warner Inc of USA, IG Port Incorporated of Japan, Twenty First Century Fox, Inc of New York, Lions Gate Entertainment Corp of California,  UTV Media PLC of UK, Dreamworks Animation Skg Inc of California, Orange Sky Golden Har. Ente. Holdings Ltd of Hong Kong, Kinepolis Group NV of Belgium, Cinemax X AG of Germany, Digital Cinema Destination Corp of United States and Reading International Inc of United states, Geo Dinos Company Ltd of Japan, Nakanihon Kogyo Company Ltd of Japan.

Investment Rationale:

Priya Village Roadshow (PVR) Cinemas is a leading cinema chains in India. The company began as a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow limited in 1995 with 60:40 ratios. PVR pioneered the multiplex revolution in the country by establishing the first multiplex cinema in 1997 at Saket, New Delhi. This opening of the first multiplex opened up a new era in the Indian cinema viewing experience, which also set a role model for others to follow suit. In 2002, the Village Road Show exited the JV and company changed its name to PVR Limited and in 2003, ICICI Ventures made an investment in PVR and from there on it was no looking back. PVR has set new benchmarks in the cinema exhibition business including establishment of the first largest 11 screen multiplex in the country, Gold Class Cinema, luxury cinema, IMAX theatres and ECX (Enhanced Cinema Experience). PVR, Currently controls 434 including 135 Screens with Cinemax India Ltd at 92 locations across 37 cities in 13 States and 1 Union Territory. It also plans to open another 500 screens by 2015. PVR commands a significant presence in New Delhi and NCR with 55 screens in 16 multiplexes. PVR also has its strong presence in major Indian cities. The Cinemax acquisition makes PVR a leader in the exhibition space and gives a strong bargaining power. PVR has an impressive market share of of around 28 % including Cinemax in the total 1600 multiplex screens in the country. After the Cinemax acquisition, the company has a combined revenue share of 20 % to 22 % in Bollywood and 30 % to 35 % in (Hollywood) of multiplex revenues. The company has about 434 screens as on date and plans to augment its market share by rolling out 60 to 70 screens each year. This leadership position gives PVR the leverage to negotiate better deals with movie producers. It is expected that the total tally at PVR to reach 481 screens with 109 properties in FY15E and 537 screens with 119 properties in FY16E. PVR also plans to approach the next government for a minimum window norm before movie releases are available on other platforms. Management is planning to “re-brand” all the Cinemax screens to PVR which will take 24 months. So far only 2 Cinemax screen is rebranded to PVR and company has seen 25 % increases in revenue. Thus management believes that re-branding is encouraging. As an innovation in marketing strategy, company has tied up with Unilever for marketing on “pay per eye ball” basis. Company is planning to focus on corporate & bulk bookings as a part of new marketing initiative. Currently corporate booking revenue is miniscule at around Rs. 12.5 Cr. However company sees a big potential in this segment. Two marketing employees are allocated at every screen who will market to corporate and colleges in the vicinity of 8 to 10kms. About 8 to 9 % of the all shows were “housefull” shows. The timing of the movies are allotted in such a way that 70 to 75 % occupancy is reached and balance 20 to 25 % are kept as a buffer to handle unexpected increase in demand. The Annual maintenance capex comes at 1-2 % of revenue. Every screen requires refurbishment after 6-8 years to keep the cinema maintained and fresh. This amounts to 20-30 % of original capex. Capex required is on an average of Rs. 2.5 Cr per screen. Of the total 434 screens, 2/3rd screens are older than 2 years. The Company's growth is slow in East and is still not able to find right malls and location for expansion in East. But management continues to look for good opportunity in East. PVR’s occupancy rate for FY14 was around 34 %. PVR is evolving itself into a lifestyle entertainment company and the acquisition of Cinemax proved to be a master stroke which helped PVR to become industry leader. PVR’s has good prospects with improvement in RoCE and RoE with free cash flow visibility and with the timely execution of the given aggressive roll-out plan it will maintain its leadership position.

Outlook and Valuation:

PVR, a pioneer in multiplex in India and is the largest cinema exhibition player in the country today. Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain with 97 properties, 434 screens and 101k seats. PVR is India’s largest and fastest growing multiplex chain with market share of about 23-25 % in Bollywood market and with 33-35 % of market share in Hollywood market. Being the only large player and the way it is expanding itself aggressively will definitely makes PVR an undisputed leader and will further extend its leadership to higher scales. The recent KPMG report anticipates the market size of Indian Music & Entertainment sector to touch Rs 1,45,700 Cr (US$ 25.51 billion) by 2016. There is increased penetration in Indian markets, which is expected to even intensify further, owing to a revolution brought in by digital technology. Wireless broadband, growing internet usage, cable digitisation and higher DTH adoption would further drive Indian M&E industry to new heights. The report also noted that smart phones, tablets, gaming devices have laid the foundation of a new wave in the industry. Also, the Investments inflows in the movie production space are set to multiply, several movie studios such as Virgin Produced India, Fox Star Studio plans to step up investments in Bollywood. Along with the higher investments and with higher quality content driven by heavy investments would lead to higher demand for movie related entertainment. PVR would be benefited from the increased occupancies and rising Average Ticket Price (ATPs). PVR has offerings across the consumer segments like in Luxury Cinema Viewing it has Directors Cut with ticket prices ranging from Rs. 1,044 to Rs. 1276; in Comfortable Reclining Seats it has Gold Class with ticket prices ranging from Rs. 696 to Rs. 928; in Catering to Upper Middle Class it has PVR Premiere with ticket prices ranging from Rs. 174 to Rs. 348; in Comfortable Regular Seatings it has PVR Mainstream with ticket prices ranging from Rs. 116 to Rs. 174; in Low cost Multi-screen cinemas it has PVR Talkies with ticket prices ranging from Rs. 58 to Rs. 116. It is expected that PVR’s Average Ticket Prices to register a growth of 7 % at Rs. 177 by the end of FY15E and a growth of 3 % to Rs. 182 by the end of FY16E. Moreover, as disposable incomes increase, Foods & Beverages (F&B) spends are also expected to rise to Rs. 60 in FY15E and to Rs. 62 by the end of FY16E, from Rs. 53 currently. PVR is strategizing to augment its advertising revenues by about 25 to 30 % YoY by providing advertisers various deals such as pay per eyeballs and other innovative deals. The company has earned about Rs. 141.9 crore in FY14. PVR has about 59.9 million footfalls segregated on various counts, which gives advertisers unmatched opportunity to reach the target audience. It is expected that PVR can see a growth rate of 15 % and 13 % to reach or Rs. 163 and Rs. 184 crore of advertisement revenues by FY15E and FY16E, respectively and thus Advertisement revenue would be PVR’s new noticeable revenue stream. Moreover, a gradual recovery in economic activity will increase disposable incomes to keep growth buoyant. Company is expected to benefit immensely with implantation of GST as the entertainment tax will be offsetted against GST. Average entertainment tax is believed to reduce from 23 % currently to 16 % post the implementation of GST. Also, company will be able to avail tax credit of tax paid on input cost if the act is implemented which will reduce its tax liability. PVR reported sales of Rs. 314 Cr in 4QFY14, compared to Rs. 335 Cr in 4QFY14, marking a YoY growth of 28 %. On result front, PVR poseted a revenue growth in 4QFY14 was primarily due to delivery of low budget films like Queen and 2 States. EBITDA margin for 4QFY14 stood at 10.5 % as against 6.7 % in 4QFY13, primarily due to higher operating leverage. Company reported PAT at Rs. 80 lakhs in 4QFY14, against Rs. 11.7 Cr in 4QFY13, de-growing by 93 %. This was primarily due to higher tax credit of Rs. 29.4 Cr in 4QFY13 as against Rs. 4 Cr in 4FY14. There was an exceptional gain of Rs. 8.5 Cr during the quarter on account of profit from sale of Anupam Multiplex property; common area maintenance, rent expense, property tax relating to earlier year and assets written off during the period. PVR at the end of FY14 has net debt of Rs. 580 Cr, with given strong operating performance and debt repayment over next 2 years, the balance sheet is expected to improve in meaningful way and it is assumed that there would be an debt reduction of Rs. 30 Cr and Rs. 50 Cr in FY15 and FY16 respectively. Going forward, the cash generation would support capex requirement as well as debt repayment. In past, the company has been aggressively expanding its screens presence, and this has resulted in capex in excess of Operating Cash Flow and that lead to an increase in debt. But now, the capex would be lower than the OCF generation and hence would lead to surplus cash to re-pay its debts and this improving balance sheet will command premium multiple. PVR Management has guided to add 60-70 screens in FY15. They target to add 300-450 screens in next 3-4 years. Management has no plans for equity dilution and signals that PVR is adequately funded for the future growth. A 50-bp drop in the average occupancy ratio erodes could affect the price of the stock by 5 %. At the current market price of Rs. 664.45, the stock P/E ratio is at 38.63 x FY15E and 23.81 x FY16E respectively. PVR can post EPS of Rs. 17.20 and Rs. 27.16 respectively. The content pipeline of the company is exciting and would propel the further growth of PVR. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. PVR can touch Rs. 875 in near future. 

KEY FINANCIALS	FY13	FY14	FY15E	FY16E
SALES (₹ Crs)	805.00	1,351.20	1,640.10	2,022.50
NET PROFIT (₹ Cr)	45.00	50.40	70.90	113.10
EPS (₹)	11.20	13.60	17.20	27.50
PE (x)	51.50	42.40	33.50	21.00
P/BV (x)	3.60	6.00	5.20	4.30
EV/EBITDA (x)	24.20	12.10	9.40	6.90
ROE (%)	6.90	10.80	16.50	22.30
ROCE (%)	4.60	11.10	15.50	22.30

I would buy PVR LTD for Medium to Long term for target of Rs. 730.00 and may touch Rs. 875.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 611.30 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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