PVR – The show must go on.

PVR (Rs 255) is another of our http://www.theequitydesk.com/forum/forum_posts.asp?TID=23 - Buy what you see picks . The company is the largest multiplex cinema operator by number of screens engaged in a scorching growth drive and this should see the number of screens and seats more then tripling over the next 12-18 months.

PVR is also engaged into film distribution business through PVR Pictures (100% subsidiary). This company acquires and distributes international film. The distribution strategy revolves around taking up distributing rights for the territory where PVR cinemas are located. For the international business the company purchases the entire suite of distribution rights on an All India basis.

Of an estimated 12,900 active screens, over 95% are stand-alone, single screen theaters. Most of these would be converted into multiplexes over the next 4-5 years because of economic advantages to the exhibitor and the growth drivers for the multiplexes:

I have not calculated the EPS and Revenue figures for the current year since it is very difficult to estimate the number of screens that the company would actually roll out for this year and the ones that could be spilling over to the next year. Motilal Oswal did at the time of the IPO have an EPS target of Rs 19.8 for Fy 08  but I would not look too much into that since this should be a broad 24 month call rather then a 6 month bet.

Total Revenues for the quarter ended June 2006, were Rs.42.89 crores, up 62% over the corresponding quarter ended June 2005. During the June quarter the company entertained 3.66 mn people at their cinemas compared to 2.12 mn during the corresponding quarter in previous year (up 72% Y-O-Y).

The average occupancy in the cinemas was 51% during the quarter ended June 2006.

The average ticket price was Rs.115 across the cinema circuit during the quarter ended June 2006 as compared to Rs.116 achieved during the corresponding quarter of previous year. The average ticket pricing at the existing cinemas grew by approximately 5% as compared to the corresponding quarter of the previous year.

One drawback with PVR’s business model is the tax exemption it receives (generally for the first five years) for its new cinema theatres. Once five years passes by these theaters are brought under the tax net so that could be a rolling process with new tax free cinemas being set up while the older ones coming under the tax net..From the shareholders point of view I would not be too perturbed by this provision.

Recommendations: The kind of growth the multiplex sector is about to witness over the next 4 years is unprecedented. Generally an investor can play the organized retail boom through the multiplex companies because the profile of the crowd that shop at the mall and the ones who visit these cinemas are very similar. The stock is a buy at the current price of Rs 255 and should deliver supernormal returns over the next 4-5 years incase the company’s plans are executed as per expectations.At this time the risk reward  profile favourrs PVR CInema over http://www.theequitydesk.com/forum/forum_posts.asp?TID=100 -  

The company trades at a PE of mnore then 100 times trailing. Now for The june quarter they did a sales for Rs 42 crs (approx) - Thta makes it Rs 188 crores annualised - Generally the second half is better due to the festive and holidfay season. Capaity is being more then tripled over the next 12- 18 months. So in Fy 08 the sales should be more then Rs 500 crores or may be 3 times annualised current quarter.

1. Large Capex requirements, the companies would need to raise debt.
2. Rising real estate prices
3. Key to profitability in this biz is pricing & occupancy rates. The average ticket price cannot be increased beyond a point. Due to intense competition, occupancy rates might come down which could create pricing pressures.

PVR is the largest player in film exhibition space.

Yes, PVR seems to be have an ability to pass on the price rise, earn from fringe areas like parking/coke-popcorn etc.

I am not too convinced about Indiainfoline's (have seen it in other cos) research. What is their sales target for Fy 08. 

Source: IRIS Exclusive (11 October 2006)

You are right volume growth is possible only through capex not so in the broadcasting business where the costs are fixed (anchor salaries, content etc) and additional revenue contributes directly to the bottomline. But in India PVR should do well for a couple of years let's say till 2009 then the charm is lost as the sector would get saturated too soon (4-6 years). In my posts also I have written somewhere that PVR is not the stock we can buy and hold for 5-10 years but we are just trying to take advantage of the huge growth over the next 36 months. Major part of the capex has already gone in and now the company is waiting for the cash flow to generate.

Post the correction in mid-caps, the stocks of Shringar Cinemas and PVR are now trading at levels closer to their offer price, even as Inox Leisure has fallen significantly from its earlier high.

While valuations have corrected, they remain on the high side. Although the demand for multiplexes from the cinema-going public shows no signs of weakening, problems in execution of expansion plans, coupled with the high risks associated with the business, could temper valuations. We analyse the performance of multiplexes in the post-offer period and provide an outlook for the stocks in the sector.

Robust revenue growth

The robust performance cannot eclipse the risk of sudden knocks in performance if the content suffers. Strong inflows from box office collections have, however, so far reduced the impact of a slower-than-expected rollout of theatre chains.

Problems in execution

The stated expansion plans across the three contenders continue to be ambitious; companies expect to double and triple the number of screens they operate over the next two to three years. Screen additions are likely to bunch up in some quarters, which could skew the quarterly performance picture in a manner similar to what is being witnessed in the retail industry.

PVR appears to have managed a faster rollout than its peers and now appears to be fairly ahead of Inox Leisure when it comes to screen presence. This could be why it continues to trade at a premium to the other players.

Tussle with distributors

Scale is becoming increasingly important for multiplex operators. While a good box-office year has had cash registers ringing, distributors are not too happy with exhibitors walking away with a greater share of the profits. Multiplexes account for barely 5 per cent of the total screens in India but are estimated to rake in 30-40 per cent of box-office revenues every year, thanks to their ability to charge higher ticket rates.

Big banner productions such as Fanaa, Dhoom-2 and Baabul have had distributors demanding more favourable terms in the revenue-sharing agreements. Those who have succumbed to their pressure have seen pressure on margins. The distributor's share is one of the more significant expenses borne by operators, accounting for more than 20 per cent of revenues. Inox Leisure, for instance, has seen a rise of 700 basis points in distributor's share in the first half of FY-07.

Such instances are likely to crop up till multiplexes gain scale; operators now see merit in consolidating their presence in certain distributor territories to improve their bargaining power with distributors. They are also getting into distribution themselves to ensure supply of content for their exhibition business.

Stock view

Given that expansion plans were at an early stage, we had maintained that it would be difficult to pick one of the three as a superior exposure and had earlier recommended holding at least two of the three stocks. We remain positive on the sector and maintain our stance. Despite execution problems, we believe that the ramp up in revenues and earnings would be significant.

Among the three players, PVR is more expensively valued. Its larger scale and better execution capabilities appears to drive its premium valuation. Its foray into co-production for two films with Aamir Khan Productions, due for release in 2007, also appears promising. Higher share of theatres that carry tax benefits could also help scale up margins. However, given the stiff valuation, tolerance to poor quarterly performance would be low. Shareholders can hold the stock and investors can consider accumulation on declines.

While Inox Leisure is relatively more attractive, concerns stem from the steep decline in margins it has witnessed recently, on account of rising payout of entertainment tax and distributors' share. Inox has enjoyed higher-than-average operating margins thanks to its operating from locations that are exempt from tax. Sustaining this advantage might prove difficult. Retain holdings of the stock.

Shringar Cinemas' performance appears to be turning the corner, reversing losses in the first two quarters. Additional screens could result in a substantial improvement in revenues and earnings. Shringar's long experience in the distribution business will also be to its advantage once it gains scale. Execution, however, continues to be an issue as the company has been slow to roll out properties. Investors with an appetite for risk can consider exposure in the stock.

That is bizzare. Multiplexes will run without Ac now. There is nothing free in this world!!!

M'rashtra offers tax relief to PVR. 

PVR rose 0.59% to Rs 232, as its multiplexes at Latur and Aurangabad were granted exemption from entertainment tax for five years.

As many as 6,049 shares were traded in the counter on BSE.

The stock moved higher, amid alternate bouts of buying and selling, in the past few weeks. From Rs 227.65 on 21 December, the stock advanced to Rs 235.25 by 5 January 2007, as buying continued. Here, it slipped to Rs 230.70 on 9 January 2007, under profit-booking.

In September, PVR's multiplex at Indore, Madhya Pradesh, was also granted entertainment tax exemption for five years.

PVR Cinemas plans to add 43 more screens across India to its existing stable of 77 in the next 12 months. The chain will use Rs 150 crore, proceeds from its IPO last year, to finance expansion plans.

PVR aims to operate over 300 screens in the next 2-3 years. It has signed 19 new screens, and will add more to take its tally to 120. The 19 screens will be operational by April-end. The chain plans to sign another 43 screens by then, which will become operational in another five months.

PVR group company, PVR Pictures, which signed a two-film co-production deal with Aamir Khan Pictures (AKPL), is likely to launch them next year.

PVR had registered a net profit growth of 57%, to Rs 3.36 crore (Rs 2.14 crore) for Q2 September 2006. Net sales rose 51.60%, to Rs 43.50 crore (Rs 28.70 crore).

Hi guy

With so much detail discussion on PVR, I am dead sure that all our late night (Fund managers) will jump on this stock ........

Hi guys

With so much detail discussion on PVR, I am dead sure that all our late night (Fund managers) will jump on this stock ........

As I said this on the Pantaloon thread long time back, watching movies outside is goin to be more about the together experience(family or with friends) rather than just movie. Relaxing oytside and watching movie or boozing a bit and watching movie would be coupled more and more, depending on preferences.

Hey PC can beat that arguement easily with his own: He is the FM of India.

Basantjee