PVR: A blockbuster show

The stock of multiplex operator PVR has surged 54 per cent since our ‘buy’ call in end-December 2015. The company’s spectacular show in 2015-16 on account of many blockbuster movie releases during the year buoyed the stock.

The Competition Commission of India’s approval of the company’s acquisition of DT Cinemas, which has screens in prime locations, too boosted sentiment. Most recently, the passage of the GST Bill by the Rajya Sabha has come as a shot in the arm for multiplex operators. The final clearance of the Bill will offer tax relief to multiplexes.

At ₹1,219, the stock trades at 59 times its trailing 12-month earnings, higher than its five-year average valuation of 45 times. While this is pricey, given that PVR’s prospects look good, investors with a two-to-three-year perspective can buy the stock.

With many big films lined up for release in 2016, PVR should continue its strong performance this year too.

The completion of the consolidation of DT Cinemas with PVR’s existing business too will bump up the company’s earnings in the coming quarters.

PVR gets 55-60 per cent of its revenue from box office collections and 25 per cent from food and beverages. Income from these two sources is driven by the crowds that are drawn into theatres. This, in turn, depends on the success of the movies being released.

During 2015-16, PVR grew its revenue 27 per cent (year-on-year) to ₹1,874 crore. This was thanks to several blockbuster movie releases such as Bajrangi Bhaijaan, Baahubali , Avengers and Prem Ratan Dhan Payo .

Accordingly, the company’s operating profit jumped 63 per cent to ₹335 crore and the net profit multiplied nine-fold to ₹119 crore during this period compared to 2014-15, which was a drab year.

The impact of this is seen in the company’s key performance metrics. Footfalls jumped 18 per cent to 696 lakh, average ticket price rose nearly 6 per cent to ₹188 and average spend per head went up 12.5 per cent to ₹72 in 2015-16, compared to the previous fiscal.

In the June 2016 quarter too, PVR’s revenue climbed 17 per cent to ₹570 crore compared to the same quarter last fiscal. Operating profit, however grew at a relatively modest 6 per cent to ₹116 crore, impacted by the change in the manner of reporting rental expense under the new Indian accounting standards.

Successful performance at the box office of movies such as Rustom , Mohenjo Daro and Ae Dil Hai Mushkil lined up for release this year along with the ongoing hits, Kabali and Sultan , should boost PVR’s revenue in the coming quarters.

Further, it helps that PVR, which is the country’s leading multiplex operator, has been expanding its presence over the years.

PVR has grown to the current 553 screens (including DT Cinemas) across 121 properties, from 351 screens across 85 properties in 2012-13.

The acquisition of DT Cinemas’ 29 screens spread across Delhi, Chandigarh and Gurgaon should boost PVR’s earnings.

This is because these properties enjoy higher average ticket prices and spend per head given their prime location.

This should also up the premium that PVR commands in ad rates.

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