PVR LTD : EXHIBITING ITS STRONG FOOT HOLD !!!

Scrip Code: 532689 / PVR

CMP:  Rs. 286.75; Accumulate at every  levels.
Short term Target – Rs. 300; STOP LOSS – Rs. 263.80; Market Cap: Rs. 1,136.01 Cr; 52 Week High/Low: Rs. 340.90 / Rs. 141.00

Total Shares: 3,96,16,995 shares; Promoters : 2,23,09,467 shares –56.31 %; Total Public holding : 1,73,07,528 shares – 43.68 %; Book Value: Rs. 70.35; Face Value: Rs. 10.00; EPS: Rs. 5.45; Div: 60 % ; P/E: 52.61 times; Ind P/E: 30.79; EV/EBITDA: 6.80.

Total Debt: Rs. 225 Cr; Enterprise Value: Rs. 1,599.01 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. 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 Leisure Ltd, PVR Pictures Limited (PVR Pictures), Cine Hospitality Private Ltd 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 Fame India Limited, Cinemax Properties Ltd, Era E Zone (India) Ltd, Pyramid Saimira Theatre Limited and Inox Leisure Ltd and globally it is compared with 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:

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 heralded (started a good beginning)  a new era in the Indian cinema viewing experience and which also changed the industry forever. From then-on PVR initiated many path breaking innovations in the industry from launching its largest 11 screen multiplex in the country in 2004 in Bangalore and introducing Gold Class Cinema. PVR Ltd came with an IPO on 8^th 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. PVR entered into a JV with Major Cineplex Group in 2008, a leading Film exhibition and retail entertainment company based out of Thailand, to bring lifestyle entertainment concepts to Indian consumers. The JV enjoined setting up of bowling alleys, karaoke centers, ice skating rings and gaming zones across the country to enhance the out of home entertainment experience for Indian consumers. PVR Cinemas today contributes about 20%-25% of domestic box office collections of any leading Hollywood movie and 12%-13% of any leading Bollywood movie, highest across the Indian Film Exhibition space. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69% in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per share from the Rashesh Kanakia and family followed by the open offer for another 26% of Rs. 148 Cr, with the success of open offer which ended on 23^rd February 2013, PVR will now look at de-listing of Cinemax which will comply with the norms of SEBI to maintain minimum public shareholding of 25%. With the successful open offer of Cinemax, PVR, which has already added 47 screens this year will have 351 screens in 85 properties across 36 cities in India with 87,493 seats on combined basis, this translates into entertaining a staggering 5.3 Cr customers every year. PVR expects to add 55 more screens by the end of FY14.

Outlook and Valuation:

PVR's IMAX Auditorium in Bengaluru

PVR buyout deal for Cinemax India will cost PVR a total of Rs. 543 Cr, which will be funded through the approval to rise about Rs. 260 Cr through preferential issue of 1,06,25,205 shares of PVR at Rs. 245 per share to PVR promoters viz. Ajay Bijli and Sanjeev Kumar who in total will infuse Rs. 25 Cr which will then will hold 32% in PVR after the fund raising, Multiples Alternate Asset Management Private Equity Fund Ltd will infuse about Rs. 153 Cr which will then own 15.80% in PVR, L Capital Eco Ltd will infuse about Rs. 82.3 Cr into PVR’s preferential issue which will then hold 15.80% in PVR. Thus a an equity dilution of about 36.7 % is slightly negative for the stock but the best side for the stock is that firstly, post deal PVR will become India’s largest Multiplex operator ahead from Inox + Fame who has 256 screens, Big Cinemas who has 254 screens, secondly, it will gain access to eight new markets and northern region, also PVR will be benefited from the stronger foot-hold of Cinemax in western region. PVR will be benefited in spite of the increase of service charge from Rs. 6 to Rs. 14 by the government as multiplex operators will now can retain the increment of Rs. 8 in ticket prices. On consolidated basis the Debt of PVR is around Rs. 600 Cr on the net worth of Rs. 650 Cr, and the debt equity Ratio of PVR is not expected to come down in next 12 -16 months due to its expansion plans. PVR has stated that it will continue to focus on distribution of Hollywood movies. PVR’s profitable subsidiary PVR Leisure has cash of around Rs. 45 Cr and in my view PVR can use this cash for making changes in Cinemax's screens, its food & beverage segment which could be expected to get turnaround in next 12 months period. With a healthy EBITDA of 34% with consolidated revenue of Rs.202.44 Cr, in my view PVR Ltd could report FY13E EPS of Rs. 7.50/sh and for FY 14E of Rs. 14.50/sh. The stock could be bought for the short target price of Rs. 300.00 and recommend Accumulate on the stock. 

Name of the Companies	Number of Screens
PVR Cinemax	351 Screens
INOX + Fame	256 Screens
BIG Cinemas	254 Screens
FUN Cinemas	73 Screens
Cinepolis	49 Screens
Sathyam Cinemas	27 Screens
TOTAL	1,010 Screens

KEY FINANCIALS	FY12	FY13E	FY14E	FY15E
SALES (Rs. Crs)	513.10	825.70	1,322.50	1,465.80
NET PROFIT (Rs. Crs)	25.40	30.20	58.20	74.80
EPS (Rs.)	9.80	7.50	14.50	18.60
PE (x)	26.90	35.10	18.20	14.20
P/BV (x)	2.40	1.70	1.50	1.40
EV/EBITDA (x)	15.30	8.80	5.10	4.20
ROE (%)	9.10	4.70	8.40	9.70
ROCE (%)	9.00	4.80	8.90	9.60

I would buy PVR LTD with a price target of Rs. 300.00 for the short term 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. 263.80 on your purchase. (Why Strict stop loss of 8 % ?) - Click Here

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

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STOP LOSS : MORE YOU DELAY MORE IS YOUR PAIN !!!

Friends, as markets tanked on budget day, my inbox was full that evening, with many of my fellow reader’s pouring in their queries on stocks – saying "What should we do. The stocks are down by 15 % - 20 %". I casually - said "Sell if your stop loss is triggered" – “But it’s a loss of more than 10 % and I am losing a lot out of it”, I started answering to this question by giving them an explanation and the reason behind to keep a stop loss- just then a thought strike my mind that lets have a post on importance of stop loss mechanism. 

Friends’, dealing in stock markets is dealing with volatility, uncertainty and market factors which are beyond one’s control. Many among us, or almost everyone at some point of time must have experienced that “whenever I buy, the stock is down the very next moment and the stock goes up whenever I sell”. This happens because we fail to understand the stock market behavior. Many investors among us are reluctant to book their losses. The problem is we always want to see our money growing. We never ever think of selling off the stock once it starts falling, on the contrary we start questioning ourselves "what if that this counter goes up after I sell it in the losses". This “What if” is a psychological nature of us which always challenges our emotions and costs dearest to our wealth. We hold on to that stock hoping it to bounce back and ultimately it makes you realize that you are too late to sell, making you an compulsory investor. The problem here is that we don't have a proper stoploss.

If you go through my blog posts where I always quote my views on any particular stock with a stoploss, and always without fail I mention that I respect the markets and will sell once the stoploss is triggered. Keeping a strict stoploss will not only protects the capital but it also allows to invest in any other better option. Suppose, if you buy a stock at Rs. 100 and it goes down by 10 % your loss is of Rs. 10 – as usual reluctantly people don’t like to sell at loss, so hoping for the stock to bounce back he will hold on to it, further the stock tanks another 10 % making losses to go up from 10 % to 20 %, now you are more reluctant to book losses and now you start saying that you are a long term investor knowing very well that it will take a very long time to break even.

Let’s take a simple mathematics drill which will make you understand the importance of keeping a stoploss.

Example: If you buy a stock at Rs. 100 and maintain a strict stoploss of 8 %, suppose if it falls to Rs. 92 hitting your stoploss and you don’t sell, then the same stock will need to jump 8.7 % to get back your break even point of Rs. 100. Similarly, in the table given below explains that the Longer you hold on to your losses, the Harder it is to get back your money.    

Percentage Loss	Percentage to Break Even
8.00 %	8.70 %
10.00 %	11.10 %
20.00 %	25.00 %
40.00 %	66.70 %
50.00 %	100.00 %
60.00 %	150.00 %
80.00 %	400.00 %

The table above will indeed help you in making the hard decision in easy way. This stoploss mechanism also pertains to the best fundamental stocks like Larsen & Tubro – suppose you buy Larsen for the long term say for 6 months at Rs. 1400 and if it goes down further to Rs. 1288 showing you losses of 8 %, you sell at Rs. 1288 as your stoploss of 8 % is triggered. Selling at stoploss will not only protect you with further down side but will also provide you with an opportunity to enter back in L&T when it tanks further at Rs. 1185. As L&T commands best fundamentals you decide to jump on to it at Rs. 1185 (off course this time too with strict stoploss of 8 % or Rs. 1090), it’s of more of the probability that it will bounce back once the sentiments of the markets improve hence giving back your money with profit of 18.14 % (buying at Rs. 1185 and selling it at Rs. 1400).

Choosing the correct stoploss here is a key; if you are a long term investor with moderate risk taking ability then you should go for 8 % as your stoploss trigger, but if you are a trader than Trialing Stoploss using Average True Range or ATR will serve you better. ATR was developed by J. Welles Wilder is an indicator that measures volatility. This number does not provide an indication of Price direction but it only provides an volatility and slightly modifying this number will make this number easy to understand; this is calculated by subtracting current High & Low of the stock and then multiplying it by 2, further dividing it by the days close. Suppose you are trading ACC today you would set your trialing stop loss as - 

Previous Days Close = 1221.35; Previous Days High = 1259.70; Previous Days Low = 1211.10; so subtracting days high & low i.e. 1259.70 - 1211.10 = 48.6

2*48.6/1221.35 = 7.95 %   

What are you doing here is you are simply attaching a risk tolerance level i.e. 2 based on the stock’s intraday moves averaged over a period of time. Here your stoploss for ACC should be 7.95 % from today's close. This is an indicative levels and just gives an rough idea about the volatility that stock may face in respect of prices the next trading day. And this should not be taken as a thumb rule.   

Some Key points before executing a trade:

• A stoploss should be considered & decided before a position is entered.
• A stoploss should be placed immediately at the time of entry.
• A stoploss should not allow more than 2 % loss of your account balance.
• Only risk 1 % of your total trading capital on any one trade - when you loose 2 % on that get out of that trade. 
• For the day trades a stoploss should not allow more than 1 % loss of your account balance.   

READ HERE TO KNOW MORE ON LONG TERM INVESTING - CLICK HERE

VIEW THE POWER POINT PRESENTATION ON

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