CMP: Rs. 668.85; Market Cap: Rs. 2,768.83 Cr; 52 Week
High/Low: Rs. 750.00 / Rs. 490.0o; Total Shares: 4,13,96,888 shares;
Promoters : 1,22,55,260 shares –29.60 %; Total Public holding : 2,91,41,628 shares – 70.40 %; Book Value: Rs. 94.32;
Face Value: Rs. 10.00; EPS: Rs. 13.39; Dividend: 25.00% ; P/E: 49.98 times; Ind P/E: 36.93;
EV/EBITDA: 15.34. Total Debt: 502.12 Cr; Enterprise Value: Rs. 3,258.38 Cr.
Priya Village Roadshow (PVR) Cinemas: 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 product 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 centres. PVR,
Currently controls 398 including 135 Screens with Cinemax India Ltd at 92
locations across 37 cities in 13 States and 1 Union Territory. Company’s
subsidiaries include CR Retail Malls (India) Limited (CRR), PVR Pictures
Limited (PVR Pictures) and PVR bluO Entertainment Limited (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. PVR Ltd
announced the opening of a multiplex on August 15, 2012, at Empress Mall, in
Nagpur in the state of Maharashtra. The multiplex consists of five screens. 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 share 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. The 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. 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 398 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 has an impressive market share of around 25 %
including Cinemax of the total 1600 multiplex screens in the country. The Indian Media and Entertainment (M&E)
industry is around Rs. 83,000 crore (US$ 13.23 billion) and is on high growth
trajectory. Proving its resilience when the global economy was going through
tough times, the Indian M&E sector was on the cusp of a strong phase of
growth, backed by rising consumer payments and advertising revenues across all
sectors. The industry has been largely driven by increasing digitisation and
higher internet usage over the last decade. In today’s times, the Indian
entertainment segment is largely driven by digitisation and internet
penetration. More than 22.7 Cr Indians use their mobiles, computers, tablets or
other devices to access internet to listen to music, watch a film, a TV show or
a cricket match. India ranks third in the world in watching videos online
through a PC/laptop and fourth in the world when it comes to watching videos on
the phone, according to the statistics. The CII-PwC report named 'India
Entertainment & Media Outlook 2013' estimates that the Indian M&E
industry would exceed Rs. 224,500 crore (US$ 35.8 billion) by 2017, growing at a
CAGR of 17 per cent from 2013. The growth would be majorly driven by increasing
penetration of digital platforms across the industry segments. While the print
sector is expected to register a CAGR of 9 % and touch Rs 33,100 crore (US$
5.28 billion) of revenues by 2017, sectors such as internet access, internet
advertising, gaming and music are expected to continue on their high growth
trajectory, said the report. The report highlighted that immense use of the
internet, high penetration of smart phones; digital advertising, wireless
broadband, digital content consumption and supportive regulatory eco-system
have had and will continue to have a significant impact on the E&M sector. PVR
has an impressive market share of 25 % including share of Cinemax and has the
total of 1,600 multiplex screens in the country. After the Cinemax acquisition,
PVR now has a combined revenue share of 20-22 % from Bollywood films and 30-35
% from Hollywood films as in multiplex revenues. The company has about 462 screens as on date and plans to raise its market share by rolling out 70-80
screens each year. This leadership position gives PVR the leverage to negotiate
better deals with movie producers. It is expected that in FY16E the total
screens of PVR can reach 525 in 114 properties and in FY17E the total number of
screens could be 575 in 123 properties. 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. PVR also plans to use this immense
bargaining power to negotiate with the government so that there can be some
minimum window before movie releases are available on other platforms. Owing to
its strong competitive position after the Cinemax acquisition the company has
been able to effectively pass on price hikes. The average ticket prices (ATPs)
have been on an upward trajectory since FY13. As the demand for the movies are
increasing so do the investments in movies are increasing. Hence, there would
be an increase in ATPs. Moreover, the consolidation in the multiplex industry
and with PVR being a market leader it would be in best position and be able to
pass on price hikes effectively. Also, there are some major releases in the
pipeline and several Hollywood releases would help PVR to take price hikes as
per the heavy demands for star-studded movies. It is expected that Average Ticket
Prices to grow at a CAGR of 4.2 % to Rs. 186.4 by FY17E. PVR also benefits from
its strategy of following differentiation pricing based on the regions, target
audience and the movie to be released. PVR
has always remained quite consistent with its property roll-out guidance. The
company has the first mover advantage in various smaller towns and cities where
it has already cornered the best location. In Q4FY13, as the Cinemax numbers
were consolidated the tally of the properties increased from 47 to 86. As on
date, the company has 104 properties with 462 screens in total. The company has
rolled out about 73 screens at the end of FY14. The company guided at
maintaining the run rate of 70-80 screens for the coming two years. PVR has
60 million footfalls, which makes advertisers comfortable to advertise with PVR
as the audience is also easily traceable. PVR is strategising to augment its
advertising revenues by about 25-30 % on a YoY basis 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. There is also an uptrend seen in the Spends
per head in the food and beverage (F&B) segment. This gives PVR an ability
to take price hikes and higher operating leverage in the coming future and this
will in turn help in the margin expansion to the tune of about 17.2 % in FY16E
and 18.1 % for FY17E from 16.0 % in FY14. PVR
has entered into a share purchase agreement with L Capital for purchase of their
entire investment in equity shares and preference shares of PVR Leisure. L
Capital had bought the stake at Rs. 50 Cr in 2012. L Capital will be exiting
its investment at a loss and PVR will be buying its stake at Rs. 37 Cr. Since
PVR Leisure has Rs. 15 Cr to Rs. 16 Cr cash, net outflow for PVR will be Rs. 22
Cr. Apart from one property scheduled to be opened in Ludhiana in the next 2‐3 months,
PVR will not be expanding further in the bowling business. L Capital will
continue to be a significant shareholder in the main company. Also,
PVR Cinemas has entered into a 5 year strategic partnership with BookMyshow.com
to be its online ticketing partner across India. The multiplex targets to sell
tickets worth of Rs. 1000 crores over these five years exclusively on
BookMyshow.com besides its existing sale of tickets from its Box Office and
other channels. Also with the GST
coming into force by 2016 and the GST rate being fixed at 16 %, it could
potentially lead to a 4.50 % to 5.50 % improvement in EBITDA margin for PVR.
Given the fact that movie watching is a discretionary spend and the category
has pricing power, so PVR will be in good position to absorb all benefits of
GST rather than passing it on to consumers. 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:
 |
Innovative ways to book tickets
via online and app |
PVR is
the largest and the most premium film entertainment Company in India and is
listed as the “Most Trusted Brand” in the Category of Entertainment by the
“Brand Trust Report, 2013”. PVR, a pioneer in multiplex in India and is the
largest cinema exhibition player in the country today. There are about 9,000 screens in India of which multiplexes account for approximately 25 %. The screen density in India is 8 per million as in comparison with 117 per million in US. For multiplexes, it is less than 1 per million. Malls will continue to guide the future of multiplexes. Multiplexes form only tenth space at the mall. 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. 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 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. Every ticket of Rs. 100 sold is divided as Rs. 20 as entertainment tax, Rs. 36 to distributors and then Rs. 44 for the multiplexs. Multiplexes enjoys margin of around 30 % on Exhibition, margin of around 65 % on food & berverages and margin of around 80 % on advertisement - translating into revenue of around Rs. 68 for exhibition, Rs. 25 for food & berverages and Rs. 7 for advertisment. It is expected that PVR’s Average Ticket Prices can register
growth of 7 % at Rs. 177 by the end of FY15E and a growth of 3 % to Rs. 182 by
the end of FY16E. Currently, spends
per head (SPH) as % of ATP is at 36 % and it can go as high as 45‐50
%. 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. In US, this ratio is much
higher. In India, the potential is high due to the concept of intervals.
Colas and popcorns contribute 65 % of total F&B sales, which also have high
margins. 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. For multiplexes, in cinema advertising and food sales are bigger businesses. These two businesses have now grown to account for more than a third of the income for multiplex operators. And these segments have grown profitability as they offer bigger margins than its core business of selling movie tickets. Non Ticket segments contributes on an average of 35 % to the revenue of the multiplexes. For PVR revenue from in cinema advertising has been growing in the range of 35-40 % every year in last five to six years. PVR
has a deal signed with HUL on ‘Pay for eyeballs’ basis. HUL contributes less
than 2 % of overall ad revenues. However, HUL gives confidence to other FMCG
advertisers to advertise in multiplexes. PVR has many national advertisers too.
Management is maintaining its guidance of 15‐17 % YoY overall ad growth in FY15. 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. Tepid box‐office collections impacted performance as many
movies fared below expectations. However, this was an aberration. Business is
driven by content to a large extent. Bang
Bang and Happy New Year did well in PVR’s circuit and met management
expectations. Footfalls at malls were high and Movies are still the number one
format of entertainment in India. During the weekday/weekend footfalls split ratio
is 50:50. PVR thoroughly checks out the
two main parameters of quality of assets and value of opportunity. Also, IRR
should be upwards of 15 % for the acquired company. The Company has been trying
alternate content at its screens. However, it is still too premature to comment
on performance, though early signals are very positive. Interest rate for the company
declined from 12.0% a couple of years ago to 11.5 % due to refinancing of debt
via NCDs. While gross debt stood at Rs. 720 Cr, net debt stood at Rs. 660 Cr. Ad
inventory of peers is higher than PVR and PVR is planning to add 21 screens in
Q4FY15. Over FY15E/FY16E, tax rate will be in single digits. PVR has earmarked
capex of INR450‐500mn for next 3 years (FY14‐16)
to be utilised for renovation and rebranding of Cinemax properties. Company
is expected to benefit immensely with implantation of 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 has the pricing power with
regards to ATP, F&B and advertising and also the company will be a key
beneficiary of possible uptick in urban consumption. PVR has earmarked overall
capex of Rs. 45 Cr to Rs. 50 Cr spread over next 3 years to be utilised for
renovation and rebranding of Cinemax properties. The 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. 668.85, the
stock P/E ratio is at 51.45 x FY15E and 22.67 x FY16E respectively. PVR can
post EPS of Rs. 13.00 and Rs. 29.50 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.
| KEY FINANCIALS | FY14 | FY15E | FY16E | FY17E |
|---|
| SALES (₹ Crs) | 1,347.50 | 1,541.20 | 1,906.30 | 2,236.10 |
| NET PROFIT (₹ Cr) | 50.40 | 51.40 | 119.50 | 137.80 |
| EPS (₹) | 12.90 | 13.00 | 29.50 | 34.00 |
| PE (x) | 53.10 | 52.50 | 23.10 | 20.10 |
| P/BV (x) | 7.00 | 6.30 | 5.00 | 4.10 |
| EV/EBITDA (x) | 16.30 | 14.40 | 9.90 | 8.10 |
| ROE (%) | 10.10 | 12.60 | 24.10 | 22.40 |
| ROCE (%) | 9.70 | 10.90 | 16.20 | 18.50 |
*As the author of this blog I disclose that I do not hold PVR Ltd in my any of the portfolios.
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Disclaimer:
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