Recommendations From Specialty Retail Sectors
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
PVR
PREMIUMISE YOUR PORTFOLIO
HERE IS WHY
Leading multiplex chain in India
Good expansion plans
Strong revenue growth
PVR Ltd is the largest and the most premium film exhibition company in India. It has nearly 800 screens and expanding aggressively with 42 screens added this year till date. The company has an asset light model with no ownership of cinema premises. This makes expansion easier without stressing the balance sheet. Ten per cent of PVR’s screen portfolio is premium. Premium screens have higher margins. Recently, the company acquired SPI cinemas. This acquisition will help the company’s future expansion in the underpenetrated South India market.
In H1FY20 admits have increased by 22 per cent to Rs 5.63 crore as against 4.61 crore same period last year. However, the income from movie tickets, foods and beverages has increased by 25 per cent and 33 per cent respectively. The excess growth in these income segments vis-à-vis admit growth can be attributed to increase in revenue per seat due to the increasing ticket prices and growing share of premium seating. PVR has undertaken numerous initiatives in this segment which includes offering gourmet selection which is not traditionally found in cinemas, such as artisanal pizza, chicken hotdog and mocktail. Further, they are providing innovative and convenient ways for the consumers to order food. The Company’s focused attention to this segment has resulted in achieving the highest F&B spend per patron in the Indian industry. Revenue from this segment is also the highest as compared with its peers. F&B contributes about 25 per cent of the overall revenue in comparison to all the other PVR operations.
According to an EY report, the cinema hall penetration in India (9,600 screens) is low in comparison to USA (55,623) and China (40,837). This gives the multiplexes in India enough room for expansion.
PVR is amongst the Top 10 global multiplex chain operators in terms of the number of admit (Source: CRISIL). However, in terms of spending per head and average ticket price, PVR’s numbers are significantly lower than that of its global peers, which indicates significant headroom for Box Office and F&B revenue growth by continuing premiumisation of screens and improving customer experience. The company has good expansion plans by adding newer screens and upgrading the existing screens to premium quality. This will result increase in revenue as the erstwhile front seats were more difficult to sell.
On a year-on-year consolidated basis, net sales increased by 37.35 per cent to Rs 973.18 crore in Q2FY20. EBITDA (excluding other income) rose 156.50 per cent to Rs 318.08 crore and EBITDA margin was 32.68 per cent as against 17.50 per cent inQ2FY19. Net profit in Q2FY20 jumped from 34.58 per cent to Rs 47.83 crore. PVR trades at a TTM PE of 58x versus the industry PE of 25x. PVR commands a premium over its listed peers due to the greater number of screens, good share of premium seating and better screen locations. With its aggressive expansion plans, growth in urban middle class and more spending on leisure activities, the company and stock has good growth prospects. We recommend our readers BUY.
