HAPPY DIWALI & A PROSPEROUS NEW YEAR SAMVAT 2070 !!!

HELLO READER FRIENDS, 

Here's Wishing You n your Family

A VERY HAPPY DIWALI &

   A PROSPEROUS NEW YEAR !!!!

We meditate on the Glory of the Creator ; 
   Who has created the Universe ; 

  Who is worthy of Worship ;
         Who is the embodiment of Knowledge and Light ; 

            Who is the remover of all Sin and Ignorance ;

  May He enlighten our Intellect.

Gayatri Mantra....

There's always something warm and bright, about this time of the year, when everything has a special glow, and hearts are full of Cheer, that's why this special greetings comes your way, to wish you all a life's best on Diwali and in the coming year too.....

Bhavikk Shah

I Wish u all a Very Happy Diwali and A Prosperous New Year and Thank you all for being there as a support system for the Blog for 5 long years..
Yes !!! its being Five long years serving its investor friends...and this would not at all been possible without your true and unconditional support ....

This blog, started as an hobby, was seen as a platform to share expreince.... but soon it became a passion, A Passion to create awarness among the people to be an investor and not an trader, an minuscule contribution through this Blog towards Investor Awareness ..!!!

Your blog witnessed the highs of 21,226 of November 2010 and the lows of 7,700 in November 2008, And Now, when we are witnessing 21,000 again, ur blog still have the same feeling that it had 5 years back, yes to help its investor friends.... With 226 posts and going.. I thank u all for ur unconditional support for the Blog which encourages us to keep on going...... once again WISH YOU ALL A VERY HAPPY NEW DIWALI AND A PROSPEROUS NEW YEAR !!!!

READ THE VERY FIRST POST OF THIS BLOG DATED : 30th OCT 2008 

Best Regards,

BHAVIKK SHAH 

Visit:  www.bhavikkshah.blogspot.in 

Visit: Mobile Version of Blog 

 Twitter Handle -  @bhavikkrshah 

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BHAVIKK SHAH's BLOG.
MUMBAI - INDIA .

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COLGATE PALMOLIVE (INDIA) LTD : DIWALI 2013 MUHURAT PICK !!!

Scrip Code: 500830 / COLPAL

CMP:  Rs. 1248.15; Buy at current levels.
Short term Target – Rs. 1350; STOP LOSS – Rs. 1148.29; Market Cap: Rs. 16,973.94 Cr; 52 Week High/Low: Rs. 1579.90 / Rs. 1190.00

Total Shares: 13,59,92,817 shares; Promoters : 6,93,56,336 shares –51.00 %; Total Public holding : 6,66,36,481 shares – 49.00 %; Book Value: Rs. 36.00; Face Value: Rs. 1.00; EPS: Rs. 38.90; Div: 2800.00 % ; P/E: 32.08 times; Ind. P/E: 39.12; EV/EBITDA: 24.38.

Total Debt: ZERO; Enterprise Value: Rs. 16,679.14 Cr.
EX - DIVIDEND on 6th NOV 2013 -  Rs. 9.00 (900%)

COLGATE PALMOLIVE (INDIA) LTD: The Company was founded on 23 September, 1937 and is based in Mumbai, India. The company is the subsidiary of Colgate Palmolive Company of USA. The company offered 11,79,000 equity shares of Rs. 10 each at a premium of Rs. 15.00 to the general public in November, 1978. Colgate-Palmolive (India) Limited provides oral care products. The company offers products that include toothpastes, toothpowder and toothbrushes under the 'Colgate' brand, as well as a specialized range of dental therapies under the banner of Colgate Oral Pharmaceuticals. The company also provides a range of personal care products under the brand name 'Palmolive'. The oral care product mix includes: Toothpastes which comprises of Colgate Dental Cream, Colgate Total 12, Colgate Kids Tooth Paste, Colgate Fresh Energy Gel, Colgate Herbal, Colgate Herbal White, and Colgate Cibaca Top. Its Tooth Brushes products comprises of Colgate Kids, Colgate Navigator Plus, and Colgate Sensitive, Colgate Extra-Clean, Colgate Super 55, Colgate Cibaca Top, Colgate Motion, Colgate Massager, Colgate Super Junior Flexible, and Colgate Super Child Flexible. Other products offered by the company include tooth powder and whitening products. Its Personal care product mix includes: Shower gel which comprises of Palmolive Aroma Shower Gel – Sensual, Palmolive Aroma Shower Gel – Relax, and Palmolive Aroma Shower Gel – Revive. It’s Bar soaps products comprise of Palmolive Aroma Soap – Revive and Palmolive Aroma Soap – Relax. Company’s Liquid hand wash products comprise of Palmolive Aroma Liquid Hand Wash – Revive and Palmolive Aroma Liquid Hand Wash – Relax. Colgate’s Talcum Powder products comprises of Palmolive Aroma Talcum Powder - Revive and Palmolive Aroma Talcum Powder – Relax. Other products in the personal care includes Palmolive shave cream and Palmolive Charmis cream. House hold care products include Axion Dish Washing paste. Colgate’s from the Dentist to the company offers Dentist product mix that includes Gingivitis treatment comprising of PerioGard and Total Plax, Sensitivity treatment products comprising of Gel Kam and Sensitive, Tooth whitening products, Fluoride therapy consists of Phos-Flur anti-cavity fluoride rinse and lastly Mouth ulcer treatment which consists of Oragard-B. Colgate Palmolive (India) Ltd is locally compared with Amar Remedies Ltd, Farmax India Ltd, Gillette India Ltd, Godrej Consumer Products Ltd, Hindustan Unilever, JHS Svendgaard Laboratories Ltd, Jyothy Laboratories, Nirma Ltd, Procter & Gamble Ltd  and Globally with Beiersdorf AG of Germany, Reckitt Benckiser PLC of UK, Kimberly-Clark Corporation of USA, Church & Dwight Co., Inc of USA, Clorox Company of USA, Paos Holdings Berhad of Malaysia, Niitaka Co ltd of Japan.

Investment Rationale:

India’s oral care market is around $100 Cr and is expected to grow at a CAGR of about 14 % during 2011–2015, which is much higher than the global growth rate. This has led to an increase in the number of oral care companies entering the space, thereby stiffening the competition. P&G has made a similar move by launching its first toothpaste in the country under the Oral-B brand, which commands close to 30 % share in the toothbrush market. Although P&G’s Oral-B has a strong brand recall in India, Colgate-Palmolive has also positioned itself well to defend its market share here. In India only 42 % of the people living in Indian villages and small towns use toothpaste, the proportion is expected to increase with rising rural income and greater awareness about oral hygiene through advertisements, dental camps and free dental checkups. Colgate has done well in this regard by building strong distribution strength across rural India. Colgate now has the highest reach among all consumer products companies in the country. More than 30 % of India’s population suffers from gum sensitivity and oral hygiene problems. Thus, India’s urban population is continuously upgrading from regular toothpastes to dental creams due to which this category is growing at 30 %–40 % annually. Colgate has launched its innovative products such as Colgate Total Pro Gum Health and Colgate Sensitive which will help Colgate to compete with P&G’s Oral-B Pro-Health. Colgate launched several products and a new production facility in India. To support its products in the wake of rising competition, the company also increased its advertising spending which increased by 31 % during the first half of 2013. This has resulted in market share gains in toothpastes, which has grown from 52 % in 2012 to 56 % presently. Company’s annual Report 2013 emphasizes the importance of innovations, market development and distribution expansion to drive growth in oral care business. Colgate is driving market development through consumer awareness program like ‘Brush at Night’, ‘Oral Health Month’ and ‘Bright Smiles, Bright Future’. Innovations are creating new segments like Gum Care, Sensitivity & Visible White. Colgate has launched Colgate Total Pro Gum Health and Colgate Visible White toothpaste in FY13. It has also launched Colgate MaxFresh and Colgate 360 (battery operated) in toothbrush category. Strong efforts on distribution are underway; wherein store coverage increased 40% and rural coverage increased by 25% in FY13. Given that P&G’s toothpaste launch was in the pipeline for some time, competitors have been gearing up for this, and this gets evidenced by a spate of promotions and price-offs, it is expected that Colgate’s ad-spends will too increase. Colgates has a very strong leadership in toothpaste category, it has strengthened its leadership position in toothpaste category from 52.9 % in FY12 to 54.6% in FY13, while market share in toothbrush strengthened to 40.5 %. Hindustan Unilever and Dabur India are at risk of market share loss wherein, the toothpastes contributes 6 % - 7 % of Hindustan Unilever’s and 9 % - 10 % of Dabur India’s revenues. Colgate management is committed for continued investments in India and their efforts are underway for toothpaste facility in Sanand, Gujarat and toothbrush facility in Sricity, Andhra Pradesh. The company has already expended capex of Rs. 1oo Cr and capital advance of Rs. 54.80 Cr and expects commercial production in FY14.

Outlook and Valuation:

Colgate has been present in India for more than 76 years. With products across all oral care categories and price points, it is one of the most popular and preferred oral hygiene brands in the country. Compared to P&G, Colgate offers a much larger assortment of oral care products in a wide price range. This allows consumers to trade up and down gradually depending on macroeconomic conditions without impacting Colgate’s sales volume. Colgate-Palmolive was faced with a similar situation in Brazil where it commands over 70 % market share. When P&G entered the country’s oral care market in 2009, a majority of its market share gains came from smaller competitors and overall category growth for Colgate continued due to maintained strong brand equity among consumers. P&G’s market share gains in India will also come from smaller competitors such as HUL and Dabur given that Brazil and India are quite similar in terms of economic growth and where Colgate-Palmolive has a dominating presence. Recently, Colgate transferred the GSSO division to Colgate Global Business Services Pvt Ltd (CGBSPL) which will enable Colgate Palmolive India to focus on its core business. Colgate divested GSSO by way of slump sale to CGBSPL for a consideration of Rs. 59.89 Cr. With this transfer, expenses and income resulting from this entity would no more reflect in Colgate’s financials w.e.f April 2013. On performance side the volume growth in toothpaste category has moderated from 13 % in recent past to 10 % in FY13. Though, no qualitative input is available in the annual report, but with market checks seems to indicate slower growth in value tiers. Media spends has risen from Rs. 260 Cr in FY12 to Rs. 350 Cr in FY13, A&P spend increased from 15.7 % in FY12 to 15.9% in FY13. This probably hints at preparedness of Colgate for upcoming entry of P&G in India. The management exuberated confidence that the Oral Care category would continue to grow at a healthy pace given the size of the opportunity, but also cited that competition may intensify in near future. With the underlying volume growth of 10 % - 11 % is in sync with management commentary. However, launch of P&G in India, should drive promotions in this category. Colgate Palmolive India has increased media spends in FY13; higher promotion spends in FY14E should be underway. There is overhang on earnings in the short-run. The company has a Cash flow generation of Rs. 460 Cr in FY13 as against Rs. 300 Cr in FY12; also the company has a strong dividend payout at 77 % vs average of 72 % in last 3 years. Higher dividend payout exuberates confidence on future cash generation. At the current market price of Rs. 1239.95, the stock is trading at a PE of 29.86 x FY13E and 25.78 x FY14E respectively. The company can post Earning per share (EPS) of Rs. 41.80 for FY13E and Rs. 48.40 for FY14E. It is expected that with the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. One can ‘BUY’ in COLGATE PALMOLIVE INDIA LTD with a target price of Rs. 1350.00 for shorter term and for Rs. 1430.00 for Medium to Long term investment.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (Rs. Crs)	2,623.80	3,084.10	3,514.70	4,083.60
NET PROFIT (Rs. Crs)	446.50	496.80	567.90	658.10
EPS (Rs.)	32.80	36.50	41.80	48.40
PE (x)	43.20	38.80	34.00	29.30
P/BV (x)	44.30	39.40	34.90	30.80
EV/EBITDA (x)	36.90	32.40	25.20	21.00
ROE (%)	109.00	107.40	109.00	111.7
ROCE (%)	149.20	148.90	154.50	160.20

I would buy COLGATE PALMOLIVE (INDIA) LTD with a price target of Rs. 1,430 for the 6 month target. 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 8 % or Rs. 1148.29 on your every purchase.

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BRITANNIA INDUSTRIES LTD: THINK BETTER, BUY BETTER !!!

Scrip Code: 500825/ BRITANNIA

CMP:  Rs. 875.60; Buy at current levels.
Medium to Long term Target – Rs. 1010; STOP LOSS – Rs. 805.55; Market Cap: Rs. 10,481.00 Cr; 52 Week High/Low: Rs. 444.90 / Rs. 881.80

Total Shares: 11,97,00,815 shares; Promoters : 6,08,68,345 shares – 50.85 %; Total Public holding : 5,88,32,470 shares – 49.15 %; Book Value: Rs. 53.52; Face Value: Rs. 2.00; EPS: Rs. 23.09; Dividend: 425.00% ; P/E: 37.92 times; Ind P/E: 37.97; EV/EBITDA: 21.52.

Total Debt: 341.35 Cr; Enterprise Value: Rs. 10,800.50 Cr.

BRITANNIA INDUSTRIES LTD: The Company was founded in 1892 with an initial investment of Rs. 295.00 and is based in Bengaluru, India. It was earlier known as Britannia Biscuit Company and changed its name to Britannia Industries Ltd in 1979. The company is the subsidiary of Associated Biscuits International Limited. The company offered 18,00,000 shares of Rs. 10 each at a premium of Rs. 5 to the general public in the January, 1978. Britannia Industries Limited engages in the production and sale of bakery and dairy products in India and internationally. Its Bakery products include biscuits, bread, cakes, and rusk; and Dairy products comprise milk, butter, cheese, ghee, and dahi (curd), as well as milk-based ready to drink beverages and dairy whiteners. The company offers its products under various brands, including Tiger, Good Day, 50-50, Marie Gold, Treat, Milk Bikis, NutriChoice, Time Pass, Pure Magic, Little Hearts, Nice Time, Greetings, Premium Bake, and Healthy Start. It also manufactures and sells gourmet bakery products, which include specialty breads, cakes, pastries, and cookies through the company’s own retail stores under the brand name of Daily Bread. Its subsidiaries include AL Sallan Food Industries Co SAOC, Britannia Dairy Pvt. Ltd, Boribunder Finance & Investment Pvt. Ltd, Daily Bread Gourmet Foods (India) Pvt. Ltd, Ganges Vally Foods Pvt. Ltd, International Bakery Products Ltd, Sunrise Biscuits Co. Pvt. Ltd, Manna Foods Pvt. Ltd, J.B Mangaram Foods Pvt. Ltd. Britannia Ind Ltd is locally compared with Parle Products, Nestle India Ltd, Ruchi Soya Industries Ltd, Heritage Foods Ltd, Kwality Ltd, ITC Ltd, and Globally with United Biscuits of UK, ConAgra Foods Inc of USA, Kraft Food Group Inc of USA, Hershey Company of United States of America, Campbell Soup Company of USA, Dean Foods Co of USA, LaSalle Brands Co of USA, Enlightened Gourmet Inc of USA,  PepsiCo USA, Iwatsuka Confectionery Company Ltd of Japan, Bourbon Corporation of Japan, Kameda Seika Co., Ltd of Japan.

Investment Rationale:

Bakery is a traditional activity and occupies an important place in food processing industry. The bakery manufactures in India can be differentiated into Bread, Biscuits and Cakes. About 1.3 million tonnes of the bakery products industry in India is in organized sector out of 3 million tonnes whereas the rest are from unorganised and small scale local manufactures. Bakery products are an item of mass consumption which are low priced and has rapid growth. With changing eating habits of people, bakery products have gained popularity among masses. The unorganized sector accounts to about half of the total biscuit production estimated at 1.5 million tonnes. It also account for 85 % of total bread production and around 90 % of the bakery products estimated at 0.60 million tonnes, this includes pastries, cakes,buns, rusks and others. Biscuit market growth has although slowed down as indexed sales growth has registered only 35 % of earlier levels, the pace of premiumisation has also slowed down a bit, however Britannia’s premium brands straddle across price points and are affordable, enabling the company to sustain its growth in this environment. Good monsoons and Food Security bill would be seen as a boost to company’s growth rates in coming quarters. The rural India offers huge growth opportunity as Britannia’s market share in rural India is only 70 % of its urban share from the total market share of 33 %. With strong brand equity and pricing power can increase growth significantly, although the efficient and cost effective distribution remains a challenge for this company. Britannia plans a capex of around Rs. 450 Cr aiming at Bigger Units with a capacity of 15000 MT per unit; multiples lines of 3 per unit; fiscal benefits of VAT refund in Bihar and Orissa for 10 years estimated to be around Rs. 18 Cr in FY13. Britannia has reduced conversion costs by 0.90 % and overheads by 1.10 % in 1QFY14. The Cost reduction were in freight, energy (bio mass in new units), raw material sourcing (reverse auction) and distribution (integration of dairy and bakery, low volume SKU rationalisation) has led to these savings. Management is aiming at simplifying the systems and processes with focus on bigger manufacturing plants, bigger innovations, lean organisation structure and better distribution which will enable further cost reduction in coming periods as well. Volatility in input costs remains a challenge; however recent quarters show benefits of cost control measures in a stable input cost scenario. While stable input costs environment have aided this improvement, the company’s cost rationalisation efforts across the value chain have started bearing fruit. In addition to increasing premiumisation, company has worked on saving energy and distribution costs, improving revenue per employee and better manufacturing technology in its bid to improve profitability. Britannia will continue with its focus on improving margins and the management expects to maintain margins going forward as well. Stable input prices (led by a good monsoon) will also support margins. It is expected that the to expand by 2.20 % over FY13-15, led by favourable base and premiumisation benefits. EBITDA margins could see an expansion of 1.60 % over FY13-15 to 7.4 %, this margin expansion is significant given the slowing down biscuits segment (in sync with overall consumption slowdown). In the June 2013 quarter, biscuits category growth stood at one-thirds of that witnessed in June 2012 quarter. Thus, focus on profitability will enable Britannia to minimise the impact of the slowdown.

Outlook and Valuation: 

The branded packaged segment in this sector had a size of Rs. 17,000 Cr in last fiscal and is expected to grow at 13 % - 15 % in next 3-4 years. Within biscuits there are few players like Parle, ITC and Cadbury which commands about 75 % of market share. The bakery industry has achieved 3 positions in generating revenue among the processed food sector. The market size for the industry is expected to be at US$ 760 Cr by 2015, and the shining star of the sector will be Biscuits Industry. The per capita consumption of bakery products in India is very low, about 1 to 2 kgs per annum, which is comparatively much lower than the developed countries where consumption is between 10 and 50 kg per annum. The growth rate of bakery products has been tremendous in both urban and rural areas. Britannia is stepping up its rural presence as well as expanding its food and snacks portfolio to drive long-term growth. Notably, rural markets have remained fairly stable as compared to urban markets during this slowdown and hence, company’s strategy of increasing rural penetration seems to be appropriate. Improved financial health of its Dairy and International businesses will also aid growth. While an unprecedented rise in input costs remains the key risk, monetisation of its land assets at Chennai and Bengaluru will act as key stock price catalysts. Management believes that a 2.00 % decline in overheads led by reduction in energy cost, freight, distribution, proprietary technology and own manufacturing units is sustainable Key brands like 50‐50, Goodday, Mariegold and Milk Bikis which have sustained high double digit growth rates Britannia is following 3 pronged strategy based on Innovation, cost control and revenue management to drive profitable growth for the company. Company is looking forward to restructure its cost base by implementing comprehensive projects from design to delivery. Company also focuses on its revenue management by differentiating brands and differentiating pricing. Gross Margins have expanded by 2.50 %, while EBITDA margins have expanded by 3.30 %. Britannia had a strong run in the recent past at the bourses on the back of significant improvement in its profitability which has supported its financial performance in the current slowing demand scenario. The company’s strong brands, improving sales mix (in favour of premium products) and healthy cash generation are its key positives. Most analysts remain positive on the company and expect 15-18 % from current levels. Britannia is trading at 23.3 times FY14 estimated earnings and at 15-25 % discount to listed peers ITC, Nestle, Marico & GSK Consumer, largely due to low operating margin. However, due to on-going structural changes in company’s revenue and product mix, the operating margin will improve and this discount could narrow down gradually. The global baked goods market has shown rapid recovery following the economic recession, recording strong growth over recent years. Factors fuelling market expansion include convenience, affordability and health benefits of baked goods products. Demand for healthier fortified baked products has also driven sales. At the current market price of Rs. 875.60, the stock P/E ratio is at 32.55 x FY14E and 24.45 x FY15E respectively. Company’s Earnings per share (EPS) of the company for FY14E and FY15E is seen at Rs. 26.90 and Rs. 35.80 respectively. Britannia Ind could be good buy for the target price of Rs. 1010 for Medium to Long term investment.

KEY FINANCIALS	FY12	FY13	FY14E	FY15E
SALES (₹ Crs)	4,974.20	5,615.50	6,505.10	7,603.40
NET PROFIT (₹ Cr)	186.80	233.90	321.30	427.50
EPS (₹)	15.60	19.60	26.90	35.80
PE (x)	44.90	35.90	26.10	19.60
P/BV (x)	16.10	13.00	10.60	8.30
EV/EBITDA (x)	30.40	22.90	15.60	12.00
ROE (%)	38.50	40.20	44.70	47.40
ROCE (%)	22.70	27.70	35.40	40.80

I would buy BRITANNIA INDUSTRIES LTD for Medium to Long term for target of Rs. 1010. 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 8 % or ₹ 805.55 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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PVR LTD: CASHING ON DIWALI RELEASES !!!

Scrip Code: 532689/ PVR

CMP:  Rs. 495.15; Accumulate between 475 - 495 levels.

Medium to Long term Target – Rs. 522.50 - 544.50; STOP LOSS – Rs. 437.00; Market Cap: Rs. 1,961.63 Cr; 52 Week High/Low: Rs. 565.85 / Rs. 202.55

Total Shares: 3,96,16,995 shares; Promoters : 1,22,95,970 shares –31.04 %; Total Public holding : 2,73,21,025 shares – 68.96 %; Book Value: Rs. 157.20; Face Value: Rs. 10.00; EPS: Rs. 15.39; Dividend: 10.00% ; P/E: 32.17 times; Ind P/E: 33.37; EV/EBITDA: 20.36.

Total Debt: 601.44 Cr; Enterprise Value: Rs. 2,277.14 Cr.

PVR: 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 8th December 2005 with an issue price of Rs. 225/share and raised 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/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 centers. The company operates 213 screens in 46 cinemas in 27 cities. 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.

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 is on a spree of opening new multiplexes it opened cinema halls in Ambience mall, Gurgaon in 2007 named “PVR Ambinece Premier” as first 2K Dolby Digital multiplex with five Premier class auditoria and two Glod Class auditoria. Currently PVR 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 commands a significant presence in New Delhi and NCR with 55 screens in 16 multiplexes. PVR also has its strong presence in Chandigarh, Bhopal, Ludhiana, Nagpur, Chennai, Lucknow, Indore, Hyderabad, Bangaluru, Mumbai, Nanded, Ahmedabad, Kochi, Udaipur, Vijayawada and Visakhapatnam. PVR recently launched its premium brand, PVR Premiere, targeting urban consumers in metros. The company operates three other brands, PVR Talkies, the no-frills cinemas for consumers in tier II cities, the original PVR Cinemas targeted at the urban & semi-urban consumers and PVR Director's Cut for ultra luxury watching. Recently PVR opened a Multiplex at Diamond Plaza Mall, Jassore Road, Kolkata in the State of West Bengal, this is of Five Screens Multiplex and is fitted with latest Sound and Projection System. PVR opened another Multiplex at Koregaon Plaza Mall, Pune, Maharashtra; this is a Seven Screens Multiplex with 1519 Seats operational from 8 September 2013 fitted with latest Sound and Projection System. PVR has witnessed a very good increase in Footfalls and Average Ticket Price. The footfalls in Q1FY14 were higher on account of the good box office performance by movies like Yeh Jawani Hai Deewani, Raanjhnaa and Aashiqui 2. Footfalls increased from 1.15 Cr in Q4FY13 to 1.51 Cr in the current quarter. The addition of 23 new screens in the PVR portfolio helped to the increase the footfalls numbers. The company has also been able to report an impressive hike in ATP, which increased from Rs. 172 and Rs. 153 in Q4FY13 to Rs. 174 and Rs. 160 for PVR and Cinemax properties, respectively. The management indicated the ATPs of screens with similar stature of PVR and Cinemax would converge subsequently as the company would hike Cinemax’s ATP as and where suitable. PVR reported its Q1FY14 numbers, with a top line of Rs. 335.2 crore on the back of higher-than-expected footfalls, which increased to 1.51 Cr. The company reported a consolidated EBITDA margin of 17.7 % while the EBITDA for the quarter stood at Rs. 59.4 crore, growing 76 % YoY. However, exceptional item on account of write-off of CWIP towards discontinued projects and provisions for items under litigation marred PAT, which came in at Rs. 13.6 crore. The property expansion in this quarter has been impressive along with remarkable increase in ATP. It is expected that PVR could launch 48 more screens in this fiscal.

Outlook and Valuation:

PVR DIRECTORS CUT VASANT KUNJ

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. The report also noted that smart phones, tablets, gaming devices have laid the foundation of a new wave in the industry. There are 10 number of screens per 10 lakh people in India as against 120 screens per 10 lakh people in USA. A stream of several successful Hindi and English film releases drove PVR’s strong results. 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. On a comparable basis, combined revenues and EBITDA for PVR and Cinemax were up respectively 23 % and 9 %. Revenues and EBITDA for 1QFY14 came 6 % ahead of our estimates, following stronger-than-expected footfalls and average ticket prices (ATP). ATP for Cinemax now stands at Rs. 160, versus Rs. 174 for PVR. Lack of operating leverage suggests a likely increase in repairs, maintenance and general upkeep expenses to improve the quality of service / experience offered to visitors. It is believed that buoyancy in the film industry continues to drive the results, the Film exhibition revenue has registered a 17 % CAGR over CY10-12. In CY13 so far, net box-office collections from Hindi and Hollywood films climbed 27 % yoy. During 1QFY14, collections were up 39%. In the past six months the company’s valuations have surged owing to its strong business and earnings growth in FY13, and the Cinemax acquisition (which marks major industry consolidation). The stock trades at 18x oneyear forward-PE, broadly similar to the average of the last six months. It is expected that this valuations to be sustained by growth in the industry and for the company. A 50-bp drop in the average occupancy ratio erodes could effect the price of the stock by 5 %. At the current market price of Rs. 495.15, the stock P/E ratio is at 22.92 x FY14E and 18.33 x FY15E respectively. Earning per share (EPS) of the company for the earnings for FY14E and FY15E is seen at Rs. 21.60 and Rs. 27.00 respectively. The content pipeline of the company is exciting, with big releases this diwali like Hrithik Roshan starrer Krish-3, Ranveer and Deepika starrer RAMLEELA, Imran and Karina Starrer Gori Tere Pyaar Mein and Sunny deol's action movie Singh Sahab The Great, will be an great oppurtunity for PVR and would be benefited as a major market share holder. 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. Eros is trading at a significant discount to other media businesses. Factoring in revenue and PAT CAGR of 17.4% and 14.3%, respectively, in FY13-15, PVR Cinemas could be a good ‘BUY’ with a target price range of Rs. 522.50 - 544.50 for Medium to Long term investment

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (₹ Crs)	513.10	809.70	1,410.50	1,595.40
NET PROFIT (₹ Cr)	25.40	44.50	85.70	107.10
EPS (₹)	9.80	11.20	21.60	27.00
PE (x)	35.70	31.20	16.20	13.00
P/BV (x)	3.30	2.20	1.90	1.70
EV/EBITDA (x)	19.40	15.80	7.40	6.10
ROE (%)	9.10	6.90	11.80	12.90
ROCE (%)	9.00	6.00	11.30	11.90

I would buy PVR LTD for Medium to Long term for target of Rs. 522.5 - 544.50. 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 8 % or ₹ 437.00 on every purchase. (Why Strict stop loss of 8 % ?) - Click Here

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