PVR: Hold

As the economy grinds its way up the path of high growth, discretionary spends from consumers are expected to revive significantly.

PVR, one of the top multiplex operators in the country, continues to see audiences flocking to its screens. Increase in footfalls, ticket prices and higher spends on food and beverages by customers have helped PVR deliver healthy numbers over the last couple of years. Advertising revenue too has increased substantially this fiscal.

At ₹694, the PVR stock trades at over 30 times its likely per share earnings for 2015-16. This is expensive compared to the broader markets.

But given that the company is on a sound footing on operational parameters, investors can retain their holdings despite the rich valuation multiples. Further exposure can be considered on declines linked to the broader market. Footfalls are on the rise and with a slew of mega releases featuring top movie stars set to hit the screen over the next few months, PVR is likely to put up an improved performance.

In the first nine months of 2014-15, the company’s revenue grew 14 per cent over the same period in the previous fiscal to ₹1,183 crore, while net profit fell 15 per cent to ₹47 crore.

The fall in profit was primarily due to higher (54 per cent increase) depreciation of ₹92.5 crore in the nine months of this fiscal. However, the company has reported healthy growth in revenue (25 per cent) as well as profits (127 per cent) in the recent December quarter.

PVR, after its acquisition of Cinemax, has presence in 44 cities and its screen count is 462. Movies such as PK, Happy New Year and Haider had people thronging the cinema halls.

While PVR has generally been a very strong player in the northern markets, especially in the lucrative Delhi-NCR region, it has now strengthened its presence in the western region as well, enhancing footprint in the important Mumbai market.

In recent times, large players such as Cinepolis (Fun Cinemas) and Carnival Films (Big Cinemas) have been acquiring multiplex operators.

Scale becomes an important factor, as it increases bargaining power on revenue share; PVR is well-placed in this regard to take on competition.

The company has been able to increase pricing of its tickets substantially over the past year with the average ticket price for the consolidated entity rising from ₹175 to ₹184.

Spends on food and beverages per head have increased more than 24 per cent to about ₹67 currently. Advertising, which accounts for nearly 11 per cent of PVR’s total revenue, has grown at a healthy 19 per cent in the nine months of this fiscal compared with the same period last year. Footfalls are up 12 per cent over the last one year to 1.6 crore currently.

Many Hindi as well as regional language movies with a quality star cast are set to be released over the next year. The March quarter, being exam season, though may be soft.

Badlapur , which released recently, was a hit. Movies such as Uttama Villain (Kamal Hassan starrer) and Detective Byomkesh Bakshi are set to be released over the next couple of months.

The critical ingredient for PVR’s success would be content that finds favourable acceptance with the audience.

The success or failure of films that are screened would determine its fortunes.

This is especially so with films that the company co-produces. The trend to quickly release new movies in DTH is another threat for multiplexes such as PVR.

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