PVR Ltd. Showcasing Blockbuster Performance

PVR Ltd.
SHOWCASING BLOCKBUSTER PERFORMANCE 

Since its inception in the year 1997, PVR has transformed itself into India’s largest and premium film exhibition company. PVR Ltd, the integrated film and retail brand, has PVR Cinemas as its major subsidiary. Post-acquisition of Cinemax in 2012 and DT Cinemas in 2016, the company serves 76 million consumers annually.

 In June 2018, the company opened 5 multiplexes, taking its total multiplex network to 630 screens at 135 properties in 52 cities (19 states and 1 Union territory), thereby emerging as the largest multiplex operator in India. 

PVR also operates as distributor of non-studio/independent international films in India through its subsidiary PVR Pictures. Since 2002, the company has released more than 350 Hollywood, 175 Hindi, 75 regional films across genres under its banner. PVR Pictures has the highest box office share of independent foreign language films in the India. Likewise, with its another subsidiary, PVR Leisure, the company offers in-mall entertainment, gaming, food, etc. 

Screen expansion to showcase blockbuster performance 

With 630 screens, PVR is already the largest film exhibition company in the country. The company is determined to maintain its leadership position and to scale up its business, the company is expanding its screens across the country and focusing on tier-I and tier-II cities to capitalise on the untapped opportunities. The company has given an indication that it will open almost 90 screens organically in FY19. Accordingly, 23 screens are ready and awaiting licences, 53 screens are under fit-out and are expected to be completed in the next 5-8 months. Also, the company is expecting mall development across the country, which in turn would lead to further organic growth. For FY19, the company has given capex guidance of Rs 400-450 crore as against Rs 350 crore in the previous fiscal. This capex is expected to be funded majorly through internal accruals, which will help the company to avoid strain on its balance sheet. However, it had passed resolution to raise Rs 1000 crore through debt, which is expected to be used for encashment of opportunities in the future.  

PVR has not just pioneered the multiplex industry in India but has been instrumental in driving innovation and providing premium movie watching experience. PVR’s premium formats includes Gold Class, Director’s Cut, IMAX, 4DX, P[XL] and Playhouse. Currently,PVR has 59 screens or 9.4% of total screens across the premium formats. PVR is targeting aggressive growth and has targeted premium screens to reach ~20% of its screen portfolio in the next three years. 

New offering to bring incremental revenue for PVR 

Apart from its conventional film exhibition the company also offers various other premium services such as Gold Class, Director’s Cut, IMAX, 4DX, P[XL] and Playhouse which at present contribute around 9 per cent of total premium screen formats. Going forward, the company is looking to substantial expansion in this space and aims to take premium screen share from current 9 per cent to 20 per cent over the next three years. 

Likewise, the company has also started innovative initiative Vkaao, where patrons can watch cinemas of their choice on demand and at a theatre of their choice with a minimum booking for 50 seats. Patrons can choose movies from PVR Pictures library of 500 titles which the company eventually targets to take it to more than 1,000 titles. Another innovative initiative of PVR is that during summer holidays, the company has started showing movies from the kids’ genre. All these initiatives would help the company drive footfalls during leaner periods for movies. 

Low screen penetration provides headroom for multiplexes to grow

Increasing urbanisation is expected to result in 35 per cent population living in urban areas by 2020. Further, the average household income is expected to grow by 1.5x to reach USD 10,100 by 2020. 

Besides, with an increasing population and a majority of this population (61 per cent) expected to be below the age of 35 bodes well for the overall entertainment industry. When compared with nations such as China, Brazil, South Korea, US and UK, India is an under-screen market as seen in the exhibit below. Thus, the company's screen expansion plan majorly in the tier-I and tier-II cities would be fruitful for PVR in years to come. 

Factors that may lead to flop show

From August 1, 2018, the multiplexes in Maharashtra may not be able to restrict patrons from bringing in outside food. Also, food stalls are not allowed to charge prices higher than the MRP. The government is working on the same and it is likely to come with resolution of the issue in the next few weeks. This is a serious issue for multiplex owners such as PVR as it has almost 25 per cent of its total screens in Maharashtra. PVR generates almost 28 per cent of its total revenue from the high margins in food and beverages segment. However, to mitigate this risk, the multiplex owners are likely to go for price hike for movie tickets. 

Another threat that the multiplex owners may face is the increasing penetration of digital or OTT platforms. In recent years, digital or over-the-top (OTT) platforms are emerging as a strong competitor to conventional multiplexes as these platforms have created a space for watching movies. Earlier, movies were available on theses digital platforms on or even before four weeks post the movie release.

Financials 

Looking at the last quarter of FY18's performance, PVR’s consolidated revenue for the quarter rose almost 21 per cent to `584.9 crore over the corresponding quarter of last year. This robust revenue growth was led by growth of 18 per cent YoY in net box office collections, which contributed almost 55 per cent of the total revenue. Also, the segments such as food & beverages (28 The company’s EBITDA for the quarter doubled from Q4FY17 to Rs 94.4 crore with a corresponding margin expansion of 645 bps. Its EBITDA margin for the quarter stood at 16.1 per cent. Notably, the company witnessed turnaround in its bottomline to Rs 26.2 crore from a loss of Rs 0.05 crore in Q4FY17. per cent of revenue) and advertising (13 per cent of revenue) contributed in the overall revenue growth with an increase of 22 per cent and 37 per cent YoY,respectively. 
 

On the annual front, the company’s revenue for FY18 rose 10 per cent to Rs 2334 crore over the last fiscal. In terms of full year, the advertising segment registered growth of 20 per cent YoY. Other segments such as net box office and food & beverages recorded growth of almost 10 per cent each YoY. The EBITDA for the full year rose 28 per cent YoY to Rs 402 crore, with corresponding margin expansion of 240 bps. The net profit for the period also jumped 30 per cent to Rs 125 crore. 

Valuation 

In terms of price-to-earning (P/E) multiple, the stock is currently available at reasonable valuation of 43.3x on TTM earnings, as against five years median P/E of 55.87. The company’s RoCE also stands at the comfortable level of 13.31x as against 8.56x of its close peer Inox Leisure.

 

Conclusion

The increasing urbanisation and disposable incomes in the country, coupled with the low penetration of  screens, gives a huge headroom for the multiplex operators to grow faster in the coming years. We believe being a market leader, PVR is well placed to encash this opportunity. Besides, increasing revenue from non-ticket revenue provides sustainability for the foreseeable future. However, the recent developments in Maharashtra (allowing outside food into multiplex, sale of foods on MRP, etc.) may restrict incremental revenue from the F&B segment. Going forward, we would like to see how the company the responds to this development. Thus, we recommend our reader-investors to HOLD the stock. 

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