Stock Fundamentals

PVR: Buy

K. Venkatasubramanian | Updated on October 29, 2011

PVR has witnessed an increase in spending on food and beverages, giving margins a boost .



Despite concerns about a slowing economy, a slew of hit Hindi movies has ensured bigger audience at PVR's properties.

Investors can buy the shares of multiplex operator PVR in light of improving footfalls, increasing occupancies at its properties and higher spends witnessed on food and beverages. Also, that the Cricket World Cup — a key impediment for multiplex businesses in garnering an audience — is getting over in April this year should come as a relief.

Despite some concerns on the possibility of the economy slowing down, a slew of good hit Hindi movies has meant that PVR's properties have continued to bring in more audience. The pipeline of releases for the next couple of quarters too looks promising.

At Rs 126.5, the stock trades at nine times its likely FY12 per-share earnings. This is at a discount to peers such as Inox Leisure, despite PVR's larger scale of operations and profitability.

During FY11, the company saw its revenues increase by 28 per cent to Rs 360 crore, while net profits expanded manifold to Rs 16.8 crore.

In the first half of the current fiscal, too, the momentum has been sustained with revenues rising by 21 per cent over the same period in FY11, to Rs 128 crore, while net profits rose 54 per cent Rs 12.3 crore.

Over the past one year, PVR has rapidly increased the number of screens it operates. The number of screens has risen to 158 from 136 about five quarters ago.

Focus has also been increased on fast growing non-Metro cities such as Ahmedabad, Lucknow, Udaipur and Surat.

Even as the number of seats increased, occupancy has improved to 36 per cent, compared to 30 per cent levels that the company enjoyed earlier. The average ticket price, at Rs 157 for the first half of this fiscal, has been largely stable. This segment contributes over 65 per cent of revenues.

There has been an increase in spending on food and beverages per person to Rs 42 levels, from Rs 40 levels. This segment contributes about 19 per cent of the company's revenues. Rising occupancies, coupled with rising spends per head has helped PVR improve margins. These apart, advertising, which accounts for about 12.5 per cent of revenues, has seen a 32 per cent increase in the first half of this fiscal. Together, these facts indicate that consumer response continues to be positive, despite the negative sentiment surrounding the overall economy.

PVR has also kept its expenditure under control. Film distributor's share, the biggest cost component has been brought down marginally to 42.8 per cent of net ticket sales.

Movies delivered

Movies released earlier this year, such as Ready, Zindagi Na Milegi Dobara and Singham have been declared to be blockbusters, with box-office collections of more than Rs 100 crore each.

A string of such successful movies justify the increase in occupancies at PVR's properties. The Shahrukh Khan starrer Ra.One is expected to bolster occupancies for multiplexes, at least in the initial weeks. Movies with Akshay Kumar, John Abraham, Ranbir Kapoor, Deepika Padukone and Vidya Balan too may have curious audience flocking to the cinemas, including those of PVR. Successful English movies that have had or are having a fantastic run overseas such as Paranormal Activity 3 and The Adventures of Tintin: The Secret of the Unicorn have been or are expected to be released in India over the next few months. These too are expected to keep the box-office counters buzzing domestically.

Content risk is the biggest challenge that PVR is faced with, as the movie exhibition's fortunes tend to gyrate based on the success or failure of films that are screened. This is especially so with films that the company co-produces.

The rising trend of producers pre-selling satellite rights to direct-to-home providers, thanks to this medium's rapidly increasing penetration, to hedge themselves against content risk could turn away potential audience. This phenomenon, though, is now more prevalent with the less successful movies.

Published on October 29, 2011

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