PVR

1

Jul 24, 2015PVR LimitedConsumer Discretionary Jul 24, 2015

PVR LimitedIndia Research - Stock Broking BUYBloomberg Code: PVRL IN

Recommendation (Rs.)

CMP 790Target Price 933Upside (%) 18

Stock InformationMkt Cap (Rs.mn/US$ mn) 33529 / 52452-wk High/Low (Rs.) 885 / 5723M Avg. daily volume (mn) 0.2Beta (x) 0.8Sensex/Nifty 28323 / 8579O/S Shares(mn) 41.5Face Value (Rs.) 10.0

Shareholding Pattern (%) Promoters 29.5FIIs 23.5DIIs 7.7Others 39.3

Stock Performance (%) 1M 3M 6M 12M

Absolute 33 41 27 36Relative to Sensex 30 37 31 25Source: Bloomberg

Relative Performance*

Source: Bloomberg; *Index 100

Analysts ContactUday Kiran Y040 - 3321 [email protected]

Scripting a BlockbusterMarket leader in movie exhibition business: The company is expanding its market share in movie exhibition business through organic & inorganic routes. The company has market share of 29% in 2015 with 503 screens post DT cinemas acquisition. The next phase of growth is likely to trigger from Tier-2 & Tier-3 cities through its expansion plans.Content is King, Strong content could increase footfalls: With an expected strong content lined up, the footfalls are likely to witness CAGR growth of 20% during FY15- 17E. F&B & Advertisement revenues are likely to see CAGR growth of 35% & 24% respectively during FY15-17E. SPH is expected to reach Rs.80 in FY17E from 64 in FY15.Company is strengthening its leadership position post DT cinemas & Cinemax acquisitions: After acquisition of DT cinemas & Cinemax, the company has strengthened its leadership position in the movie exhibition business. DT cinemas currently operates around 6200 seats across 29 screens with eight properties in NCR & Chandigarh. PVR has acquired DT cinemas for Rs 5000Mn on slump sale basis in June 2015, which is subject to Competition Commission of India (CCI) approval. The total number of DT screens are 39, out of which 29 screens are operational and 10 screens will be operational by FY17E.PVR well positioned to benefit from discretionary spending: The discretionary spending is likely to increase on the back of strong economic recovery. PVR could be one of the beneficiaries of discretionary spending.

Valuation and Outlook At CMP of Rs.790, PVR is currently trading at 9.3x FY17E EV/EBITDA. We value the company at 11x of EV/EBITDA for FY17E EBITDA for a target price of Rs 933 based on the company future prospects. We therefore initiate coverage on PVR Limited (PVRL) with a “BUY” rating for a target price of Rs.933 representing an upside potential of 18% in a 9-12 month period.

Key Risksyy Change in the revenue sharing model between exhibitors & distributors.yy Increase in entertainment taxes & lower footfalls.yy Quality of content.

For private circulation only. For important information about Karvy’s rating system and other disclosures refer to the end of this material. Karvy Stock Broking Research is also available on Bloomberg, KRVY<GO>, Thomson Publishers & Reuters

Exhibit 1: Valuation Summary (Rs. Mn)

YE Mar (Rs. Mn) FY13 FY14 FY15P FY16E FY17E

Net Sales 8053 13475 14813 21876 26780EBITDA 1163 2124 2053 3179 4234EBITDA Margin (%) 14.4 15.8 13.9 14.5 15.8Adj. Net Profit 361 423 127 728 1286EPS (Rs.) 9.3 10.3 3.1 16.1 27.7RoE (%) 5.6 10.6 3.1 8.8 13.4PE (x) 46.7 38.6 174.3 49.1 28.6Source: Company, Karvy Research; *Represents multiples for FY13, FY14 & FY15 are based on historic market price Vignesh S B K

040 - 3321 [email protected]

90

105

120

135

Jul-14 Oct-14 Jan-15 Apr-15 Jul-15PVR Sensex

http://www.karvy.com/


2

Jul 24, 2015PVR Limited

Company BackgroundPVR Limited was incorporated in April 1995 pursuant to a joint venture between Priya exhibitors’ private limited and Village Road Show limited, Australia. The company instigated the multiplex revolution by establishing the first multiplex at Saket New Delhi, in the year 1997. Today PVR has a wide range of multiplexes across India with almost 503 screens at 106 locations across 43 cities in 15 states and 1 union territory. PVR offers a wide range of high-end hospitality and entertainment such as Directors Cut, which has various premium facilities such as 3D enabled technology, world class full sound systems, fully reclinable arm chair and an exciting in-seat F&B (Food and Beverages) menu. Apart from Directors Cut, PVR offers Directors Rare for niche audience who wish to watch alternate content on big screen. PVR Gold is a segment which offers premium experience for movie goers. The brand PVR is strengthening from time to time.

Exhibit 2: Shareholding Pattern (%)

Source: Company, Karvy Research

Exhibit 3: Revenue Segmentation: Product-wise (%)


Balance sheet (Rs. Mn)

FY15P FY16E FY17E

Total Assets 14320 20009 21191Net Fixed assets 9408 13475 13154Current assets 1569 2696 3630Other assets 3343 3838 4407Total Liabilities 14320 20009 21191Networth 4092 8320 9606Debt 6355 7255 6455Current Liabilities 3341 3921 4603Deferred Tax 11 11 11Miscellenous 522 502 516Balance Sheet Ratios

RoE (%) 3.1 8.8 13.4RoCE (%) 8.3 11.5 16.4Net Debt/Equity 1.6 0.9 0.7Equity/Total Assets 0.3 0.4 0.5P/BV (x) 6.8 4.6 4.1Source: Company, Karvy Research

Cash Flow (Rs. Mn)

FY15P FY16E FY17E

PBT 124 1012 1837 Depreciation 1168 1333 1521 Interest (net) 783 834 876 Tax (8) (283) (551)Changes in WC (942) 339 398 Others (104) (62) (57)CF from Operations 1021 3173 4024 Capex (1572) (5315) (1099)Investment 212 (8) 3 CF from Investing (1360) (5323) (1096)Change in Equity 4 3500 0 Change in Debt 1565 900 (800)Others (1198) (1317) (1432)Dividends (46) (46) (46)CF from Financing 324 3037 (2278)Change in Cash (16) 886 650 Source: Company, Karvy Research

Company Financial Snapshot (Y/E Mar)

Profit & Loss (Rs. Mn)

FY15P FY16E FY17E

Net sales 14813 21876 26780Optg. Exp (Adj for OI) 12760 18698 22546EBITDA 2053 3179 4234Depreciation 1168 1333 1521Interest 783 834 876PBT 124 1012 1837Tax 8 283 551PAT 116 728 1286Adj. PAT* 127 728 1286Profit & Loss Ratios

EBITDA margin (%) 13.9 14.5 15.8Net margin (%) 0.9 3.3 4.8P/E (x) 174.3 49.1 28.6EV/EBITDA (x) 19.3 12.5 9.3Dividend yield (%) 0.1 0.1 0.1Source: Company, Karvy Research, *Including Minority Interest

Promoters29.5%

FIIs23.5%DIIs

7.7%

Others39.3%

Tickets60%

F&B25%

Advertsiement12%

Others3%


3


Consolidation in industry will lead to higher bargaining power for the leading multiplex playersIndia’s Media & Entertainment Industry (M&E) is worth Rs.1026 Bn at the end of 2014 and is expected to grow at CAGR of 14% for the next five years and reach Rs.1964 Bn at the end of 2019, according to KPMG. Indian M&E industry is estimated to grow twice at the rate of global M&E industry.

India media & entertainment industry: Size & ProjectionsFilm industry plays an integral part of India’s M&E industry which has share of 12.3% in 2014. Size of film industry stood at Rs.126 Bn at the end of 2014 and is expected to grow at CAGR of 10% and reach Rs.209 Bn at the end of 2019. With more number of screens getting added annually and rise in consumer discretionary spending is likely to drive the growth of the Indian film industry. 75% of film industry revenues are contributed by the domestic theatrical revenues where movie exhibitors are involved.

Exhibit 5: Film Industry Size & Forecast (Revenues Rs. Bn)

Source: FICCI Report, Karvy Research

Exhibit 4: India Media & Entertainment Industry: Size & Projections

Overall industry size (Rs. Bn) 2012 2013 2014

% Segment

share in

Industry

2015P 2016P 2017P 2018P 2019P5 year CAGR

(2014-2019)

% Market

share in

Industry

TV 370 417 475 46.3 543 631 740 855 976 15.5 49.7Print 224 243 263 25.7 285 307 332 358 387 8.0 19.7Films 112 125 126 12.3 136 156 171 186 204 10.0 10.4Radio 13 15 17 1.7 20 22 27 33 40 18.1 2.0Music 11 10 10 1.0 10 12 14 17 19 14.0 1.0OOH 18 19 22 2.1 24 27 30 32 35 9.8 1.8Animation and VFX 35 40 45 4.4 51 59 69 81 96 16.3 4.9Gaming 15 19 24 2.3 28 32 35 40 46 14.3 2.3Digital Advertising 22 30 44 4.2 63 84 115 138 163 30.2 8.3Total 820 918 1026 100.0 1159 1330 1532 1740 1964 13.9 100.0Source: FICCI Report, Karvy Research

62 69

85 93 94 100 11

4 124 13

4 145

0

50

100

150

200

2010 2011 2012 2013 2014 2015P 2016P 2017P 2018P 2019P

Domestic Theatrical Overseas Theatrical Home Video Cable & Satellite Rights Ancillary Revenue

Exhibit 6: Consumer spending trend of Indians by 2020

CategorySpending in $ Bn

2010

Spending in $ Bn

2020

% CAGR Growth

Rate

% Segment Share in

Spending (2010)

% Segment Share

in Spending (2020)

Food 328 895 10.6 33.1 25.0Housing & Consumer durables 186 752 15.0 18.8 21.0Transportation & Communication 168 664 14.7 17.0 18.5Education & Leisure 71 296 15.3 7.2 8.3Clothes & Footwear 59 225 14.3 6.0 6.3Health 49 183 14.1 4.9 5.1Others 129 570 16.0 13.0 15.9Source: Euro Monitor, National Sample Survey Office, Karvy Research


4


Exhibit 7: Screen penetration is lowest in India

Source: FICCI, Karvy Research

Exhibit 8: Domestic Box Office Collections (in $ Bn)

Source: SAPPRFT, Karvy Research

125

85 82

61 57

26 31 8

US France Spain UK Germany Japan China India

Screens per million

0.91.5

2

2.7

3.5

4.7

1.1 1 1.11.4 1.6 1.6

0

1

2

3

4

5

CY09 CY10 CY11 CY12 CY13 CY14

China India

Exhibit 9: Global Box Office Collections ($ Bn)

Source: MPAA, Karvy Research

10.8

2.8

2.4

1.7

1.7

1.4

1.3

1.3

1.2

1.2

10.9

3.6

2.4 1.

6 1.7

1.5

1.4

1.3

1.4

1.1

10.4

4.8

2.0

1.8 1.7

1.7

1.6

1.3 1.2

1.0

0

2

4

6

8

10

12

US

/Can

ada

Chi

na

Japa

n

Fran

ce U.K

Indi

a

S. K

orea

Ger

man

y

Rus

sia

Aus

tralia

2012 2013 2014

Exhibit 11: Number of Movies Produced Annually

Source: UNESCO Institute of Statistics, Karvy Research

Exhibit 10: Correlation between No. of Screens and GBOC

Source: SAPPRFT, Karvy Research

1255

819

584

441

299 27

2

216

212

199

155

Indi

a

US

A

Chi

na

Japa

n

UK

Fran

ce

Rep

of

Kor

ea

Ger

man

y

Spa

in

Italy

Movies produced

1470

2070 2740

2800 3570 48

00

4723 62

56 9200 13

118 18

195 22

000

0

5000

10000

15000

20000

25000

2009 2010 2011 2012 2013 2014

China box office collections ($ Mn) No of screens

Low Density of ScreensIndia has approximately 9600 screens out of which 18% of them are multiplex formats. Screen density in India is at 8 per mn is low compared to other nations such as China’s 31 and USA which has 125 screens per million. Multiplex screen density in India is very negligible at ~2 per million indicating growth opportunities for the multiplex operators. India produced close to 1200 movies in 2014 which is one of the largest movie producers globally. However, India’s box office collection stood at $1.6 Bn which is lower compared to other countries. China’s box office collections for 2014 stood at $4.5 Bn which is the second largest market for box office and has produced ~618 movies and has close to 22000 screens. In India, movies are one of the cheapest forms of entertainment compared to theme parks, plays, music concerts & sports.


5


Exhibit 14: Market share of Movie Exhibitors

Major PlayersNumber of Screens

in 2014

Market Share

(%)

PVR 421 26Inox 310 19Big Cinemas 254 16Cinepolis 84 5Fun Cinemas 73 5Carnival 50 3SRS Cinemas 39 2Satyam Cinemas (Delhi) 39 2SPI Cinemas 30 2DT Cinemas 29 2Wave 24 2Movie time 29 2Others 218 14Total 1600 100Source: Respective companies, Karvy Research

Exhibit 15: Consolidation Pattern in Indian Movie Exhibition Industry

Major PlayersNumber of

Screens 2015*

Acquired Total No of screens

2015* (Including

Acquisition)

Market Share

(%)Exhibitor Screens

PVR 464 DT Cinemas 39 503 29Inox 334 Satyam Cinemas 38 372 22

Carnival 54Big Cinemas 252

346 20Stargaze Entertainment 30HDIL Broadway 10

Cinepolis 110 Fun Cinemas 83 193 11SPI Cinemas 50 50 3SRS Cinemas 48 48 3Wave Cinemas 39 39 2Movie time 29 29 2Others 148 148 9Total 1276 452 1728 100Source: Respective companies, Karvy Research, * 2015 Year to Date

The rise of multiplexes

Single screen operators have been under stress in the last few years mainly because of digitization of screens, lower occupancy rates, unfavorable revenue sharing model, rising costs and competition from multiplex players who provide better movie watching experience. Last couple of years was important for film exhibition business not because of its content but for the consolidation which lead to the emergence of 4 major players in the industry. PVR has acquired DT cinemas which gave leeway to strengthen its market share further. Carnival, which was small player, has entered into top league after buying out Big cinemas and another major player Cinepolis, the Mexican player, has bought out Fun cinemas which was the fifth largest player in India.

Exhibit 13: Footfalls in major countries ( In Mn)

Source: UNESCO Institute of Statistics, Karvy Research

144145153160172205217

3701284

2940

0 500 1000 1500 2000 2500 3000 3500

BrazilJapan

RussiaRep of Korea

UKMexicoFranceChinaUSAIndia

Exhibit 12: Cheapest form of Entertainment

Price Range (Rs.)

Multiplex Tickets 80-500

Sport Events 150-2000

Plays 500- 3000

Live Concert 500-2000

Theme Parks 500-3500Source: Book My Show, Karvy Research


6


Exhibit 17: Target Vs Existing

Source: Respective companies, Karvy Research

Exhibit 16: Distributors’ Share

Week 1

(%)

Week 2

(%)

Week 3

(%)

Thereafter

(%)

Multiplex 50 42 37 30

Single Screens 70-90 70-90 70-90 70-90Source: Company, Karvy Research

464

372

346

193

50

1000

558

1000

400

90

0 500 1000

PVR

Inox

Carnival

Cinepolis

SPI Cinemas

Target 2018 2015

PVR expanding its presence and strengthening its presence in Movie Exhibition industry

PVR has 503 screens and is the largest player in Indian multiplex industry with market share of 29%. The company is planning to add 60 screens per annum for the next couple of years and has target of 1000 screens by 2018. The target of 1000 screens can be achieved by aggressive expansion and through inorganic route. The capex required for a screen is Rs.20 mn and capex of Rs.1200-1400 mn would be required per annum for the addition of targeted 60-70 screens. The average ticket price & spent per head is likely to increase on the back of expansion plans.

Exhibit 17: No of Screens Additions by PVR & its Competitors


24

59

70

60 60 60

18

28 25

62

55

60

010203040506070

FY12 FY13 FY14 FY15 FY16E FY17EPVR INOX

Exhibit 19: Movie Pipeline2015 Month-wise Movie Cast

July Bajrangi Bhaijaan Salman Khan, Kareena KapoorDrishyam Ajay Devgan

August Brothers Akshay Kumar, Jacqueline FernandezAll is well Abishek Bachchan, AsinPhantom Saif Ali Khan, Katrina Kaif

September Welcome Back John Abraham, Shruti HassanKatti Batti Imran Khan, Kangana Ranaut

October Rocky Handsome John Abraham, Shruti HassanSingh is Bling Akshay Kumar, Amy JacksonShaandaar Shahid Kappor, Alia Bhatt

November Prem Ratan Dhan Payo Salman Khan, Sonam KapoorTamasha Ranbir Kappor, Deepika Padukone

December Bajirao Mastani Ranveer Singh, Deepika PadukoneDilwale Shahrukh Khan, KajolHera Pheri Paresh Rawal, Sunil Shetty

2016 Month-wise Movie Cast

January Airlift Akshay Kumar, Nimrat KaurJanuary Baadshaho Ajay DevganApril Fan ShahRukh KhanSource: Karvy Research

With leading exhibitors on full scale to ramp up their number of screens in next few years, we expect the scenario to shift in the favor of movie exhibitors as they gain market share in the industry. Players such as PVR which is expected to surpass 1000 screens in next couple of years will have bargaining power over distributors and advertisers which augurs well for the company.


7


Recently, dubbing of Hollywood movies in southern languages has lead to popularity of these movies. Hollywood movies box office collections are on the rise on the back of rising popularity of Sequels, 3D animation movies and aspiring middle class people. Hollywood movies contribute only 7%-10% of total box office collections and ATP is higher by 5% to 15% for these movies.

Exhibit 20: Hollywood movies GBOC 2014 (Rs. Mn)

2015 Month-wise Movie

Amazing Spider Man 2 875Transformers 4: Age of Extinction 630X- Men: Days of Future past 566Interstellar 432300: Rise of an Empire 401Godzilla 340Captian America: The Winter Soldier 310Hercules 290Dawn of the planet of Apes 224Exodus: Gods & kings 189Source: FICCI, Karvy Research

Exhibit 21: Regional Movies in 2014

Movie Language Gross Box office (Rs. Mn)

Lingaa Tamil 1480

Veeram Tamil 1300

Kathi Tamil 1240

Chaar Sahibzaade Punjabi 700

Race Gurram Telugu 590

Vella Illa Pattathari Tamil 530

Bangalore Days Malayalam 500Source: Karvy Research

Regional movies have seen phenomenal growth and have gained pan Indian attention with recent movies such as I & Bahubali which are rich in technical content and to join Rs 1000 mn club which was previously achievable only for Bollywood movies. Now with more regional movies joining Rs 1000 mn club, the box office collections are on the rise and is benefiting the multiplex players, previously dependent solely on Bollywood movies. Multiplex players expanding into Tier-2 and Tier-3 cities, contribution from regional cinemas is expected to increase to the total box office collections as patrons are more familiar with regional content.

Exhibit 22: Major Circuit Contributions for the Box Office Collections (%)

Source: FICCI, Karvy Research

Though contributions from Hollywood movies and regional movies are on the rise, Bollywood is still the major contributor to the Indian Box office collections and is solely dependent on the couple of circuits of Mumbai & Delhi/UP circuit which contribute 60% of the total collection of Bollywood movies. Popular actors’ movies are lined up for FY16E which will be helpful for pulling crowd to the multiplexes and improving the occupancy ratios.

37 39 44 40 31 39 37 36 36 35

23 20 19 23

21

22 21 24 22 27

10

30

50

70

Mumbai Delhi/UP Circuits

Exhibit 23: Ad Revenue Growth ( %)


Size of in-cinema advertising is estimated to reach Rs. 13.8 Bn in 2019 from Rs.4.9 Bn in 2014, growing at CAGR of 29%. With digital cinema, movies are released in more number of theatres and addition of screens by movie exhibitors provides scope for increasing the ad rates. Rates for ads change depending upon the timing such as screening it before the movie begins or during the interval slot or during the opening weekends for the movies. India cinema advertising grew at 25% in 2014 and is expected to grow at 20% in 2015 & 2016 supported by sectors such as FMCG & services sectors, who are major advertisers.

14

4

30

6 712

157

35

9 10

25

16

5

37

4

11

20

0

10

20

30

40

TV Print Digital Out of home

Radio Cinema

2012-2013 2013-2014 2014-2015


8


In India, Entertainment industry, especially the movie exhibition business is under-screened when compared to population i.e. with 8 screens per Mn. Hence, there is a scope for huge growth across various geographies in the country.

Entertainment industry, which is likely to benefit from increase in consumer spending and rollout of GST (Goods & Service Tax), is back on the growth track. With huge content pipeline, quality content expected to be released in future, we expect the entertainment industry to grow significantly in the coming years. Pricing remains a key driver of revenue for the industry. Increase in the ticket prices can lead to higher revenues provided if it is price inelastic. Average ticket price is likely to be higher in the coming years with increase in footfalls on back of expected quality content. The industry expects the government to relax regulations on fixed number of shows and cap on ticket pricing in selected states so that the exhibitors can decide on the ticket prices according to market forces.

Digitization has brought a tremendous change in the cinema industry. Reduced cost of prints, low storage costs and curtailment of piracy are some of the advantages offered by digitization. Screening of movies from physical prints to digital movies has brought a dramatic change in the entertainment industry. Access to differentiated content like 3D technology is gaining significant prominence in India.

Online sale of tickets has brought transparency over the years. This is likely to grow over a period of time due to expansion of markets in Tier-2 & Tier-3 cities. Major growth is likely to come from Tier-2 & Tier-3 cities in terms of growth in multiplexes.

Shortening of movie life: The movie life is getting shortend as the first week & weekend contribute almost 70% of film’s total collection. Considering this scenario, multiplexes are experimenting with pricing strategies to maximize revenue thereby adopting a differential pricing model for weekdays and weekends, and hence to maximize footfalls across the week.

High entertainment tax acts as a major hindrance to the growth of exhibition industry. We expect that the entertainment tax will be rationalized in the coming years on implementation of GST.

Finally, the future trend is likely to change from multiplexes to megaplexes going forward which can bring economies of scale for the industry.


9


Exhibit 24: Business Assumptions

Y/E Marc (Rs. Mn) FY14 FY15E FY16E FY17E Comments

Consolidated

Revenue 13475 14813 21876 26780 We expect the revenues to grow by 34.46% from FY15-FY17E. The increase in revenues is expected to grow on the back of higher ticket price, higher F&B revenues and increase in advertisement income.

Revenue Growth (%) 67.3 9.9 47.7 22.4

EBITDA 2124 2053 3179 4234 We expect EBITDA margins to improve from 13.9% in FY15 to 15.8% by FY17E. The EBITDA margins are likely to improve on quality content in the coming year which can increase footfalls.

EBITDA Margins (%) 15.8 13.9 14.5 15.8

PAT (normalized) 423 127 728 1286 PAT is likely to improve significantly due to increase in the base of the company and significant expansion plans or addition of screens in Tier-2 & Tier-3 cities.EPS 10.3 3.1 16.1 27.7

Net CFO 2132 1021 3173 4024 The free cash flows are likely to improve in the coming years on the back of higher disposable income from patrons & pricing power for the company.

Net Debt 5422 4518 6097 6111

Free cash flow 859 (552) (2142) 2925 Source: Company, Karvy Research

Exhibit 25: Karvy vs Consensus

Karvy Consensus Divergence (%) Comments

Revenues (Rs. Mn)

FY16E 21876 17937 15.0 We expect the revenues to grow significantly on higher ATP, SPH and advertisement revenues.FY17E 26780 21694 16.0

EBITDA (Rs. Mn)

FY16E 3179 2930 4.0 Increase in EBITDA is due to increase in expected footfalls.FY17E 4234 3699 6.0

EPS (Rs.)

FY16E 16.1 19.3 (16.7) Fresh issue of shares has been taken into account and also conservative estimates have been considered.FY17E 27.7 30.1 (8.0)

Source: Bloomberg, Karvy Research


10


Company Outlook: PVR is aiming to have 1000 screens by 2018. With the consolidating leadership position, we expect PVR to consistently improve its pricing power with regard to ATP, SPH & advertisement revenues. Apart from the movie exhibition business, PVR is engaged in bowling business, movie production business & food court business. PVR has decided to be conservative in bowling & movie production businesses. Finally, GST rollout can improve margins which will lead to lower entertainment tax.

Average Ticket Price (ATP): On the expectation of strong content and with whooping consolidation in the sector, i.e. acquisition of DT cinemas and Cinemax by PVR, the average ticket prices are likely to trend higher in the coming years for the company. We expect the company to maintain its leadership position and maintain high pricing power as a result of which the ATP is likely to grow @ 4.96% FY15-17E CAGR.

Exhibit 26: Average Ticket Price


The advertisement income contributes almost 12% of revenues. With the base of operations expanding for the PVR, we expect the advertisement revenues to improve as the company has the pricing power across premium localities. We expect the advertisement revenue per screen to improve going forward from Rs. 3.6 Mn per screen in FY15 to Rs. 3.9 Mn per screen in FY16E & to Rs. 4.2 Mn per screen in FY17E. i.e. CAGR growth of 8.53% from FY15 to FY17E.

PVR cinemas has acquired DT cinemas on a slump sale basis for Rs. 5000 Mn. The deal is subject to CCI approval. The deal includes acquisition of 39 screens out of which 29 screens are operational and 10 screens are to be operational by FY17E. The present 29 screens include 6200 seats. The ATP and SPH of DT cinemas are 40% and 45% higher than that of PVR respectively. The cost of refurbishing of DT cinemas will not be significant as the infrastructure of DT cinemas is good. The advertising revenues are likely to be higher due to prime locations. Though the deal seems to be expensive on EV/Screen basis of around Rs.128.2 Mn when compared to earlier deals in the industry, the higher valuations can be justified by the premium locations where the DT cinemas is located.

Exhibit 27: Advertisement Revenues / Screens


Exhibit 28: PVR-DT Cinemas Deal

LocationNo of

ScreensCity

Vasant Kunj 7 Delhi

Saket 6 Delhi

Mega mall 3 Gurgaon

City Centre 3 Gurgaon

Shalimar bagh 4 Delhi

Chandigarh 3 Chandigarh

Star mall 2 Gurgaon

DT Cinemas @ G.K -II 1 DelhiSource: Company, Karvy Research

3.43.6

3.94.2

1.5

2.5

3.5

4.5

FY14 FY15 FY 16E FY 17EAdvt revenue/screen (Rs. Mn)

168

177

186

195

150

160

170

180

190

200

FY14 FY15 FY 16E FY 17EAverage Ticket Price (Rs.)


11


The revenues expected to grow at 34.5% CAGR for the period FY15-FY17E. Due to expected increase in the base of the operations in the coming years, all the revenue generating parameters such as ATP, SPH and advertisement revenues are likely to improve. The differential ticket pricing strategies will benefit the company to increase revenues i.e. weekend pricing & week days pricing with regard to various segments in which it operates.

EBITDA is expected to grow at CAGR of 44% for FY15-FY17E and margins are likely to improve from 13.9% in FY15 to 15.8% in FY17E on the back of higher realization on increase in tickets prices, SPH and increase in advertisement revenues. We expect F&B segment to contribute significantly with rise in volumes.

Exhibit 29: Consistent Growth in Revenues


Exhibit 30: EBITDA Margins to Improve


Interest expenses are increasing consistently on significant expansion. The interest expenses are likely to rise in the coming years on the back of expansion in Tier-2 & Tier-3 cities. The interest expenses are likely to increase from Rs. 783 Mn in FY15 to Rs. 876 Mn in FY17E. The increase in interest expenses is justified by expansion plans of the company. The interest coverage ratio is likely to be around 2.2x for FY16E & 3.1x for FY17E which are at comfortable levels.

The debt levels are expected to rise on expansion plans in Tier-2 & Tier-3 cities. Debt-equity ratio is likely to be 0.9x in FY16E & 0.7x in FY17E. The debt-equity ratio is likely to settle at comfortable levels in the coming years.

Exhibit 31: Interest Coverage Ratio


Exhibit 32: Debt - Equity Ratio


8053 13

475

1481

3 2187

6 2678

0

55.8

67.3

9.9

47.7

22.4

-10

10

30

50

70

0

10000

20000

30000

FY13 FY14 FY15 FY16E FY17ERevenues (Rs. Mn) Growth (%) (RHS)

1163

2124

2053

3179

4234

14.415.8

13.9 14.5

15.8

5

10

15

20

0

1100

2200

3300

4400

FY 13 FY 14 FY 15 FY 16E FY 17EEBITDA (Rs. Mn) Margin (%) (RHS)

603 11

80

907 18

46

2713

367

795

783

834

876

1.61.5 1.2

2.2

3.1

0

1

2

3

4

0

1000

2000

3000

FY 13 FY 14 FY 15 FY 16E FY 17EEBIT (Rs. Mn)Interest expenses (Rs. Mn)ICR (x) (RHS)

5790

4790 63

55 7255

6455

6427

3993

4092

8320

9606

0.9 1.2

1.6 0.90.7

0.0

0.5

1.0

1.5

2.0

0

2500

5000

7500

10000

FY 13 FY 14 FY 15 FY 16E FY 17EDebt (Rs. Mn) Equity (Rs. Mn)Debt-equity ratio


12


Exhibit 33: Company Snapshot (Ratings)

Low High

1 2 3 4 5

Quality of Earnings 3 Domestic Sales 3 Exports 3 Net Debt/Equity 3 Working Capital requirement 3 Quality of Management 3 Depth of Management 3 Promoter 3 Corporate Governance 3 Source: Company, Karvy Research

Valuation & OutlookAt CMP of Rs.790, PVR is currently trading at 9.3x FY17E EV/EBITDA. We value the company at 11x of EV/EBITDA for FY17E EBITDA for a target price of Rs.933 based on the company future prospects. We therefore initiate coverage on PVR Limited (PVRL) with a “BUY” rating for a target price of Rs.933 representing an upside potential of 18% in a 9-12 month period.

Exhibit 34: PB Band


Exhibit 35: EV/EBITDA band


Exhibit 36(a): Comparative Valuation Summary

CMP (Rs.)Mcap

(Rs. Mn)

EV/EBITDA (x) P/E (x) EPS (Rs.)

FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E

PVR 790 33529 19.3 12.5 9.3 174.3 49.1 28.6 3.1 16.1 27.7Inox 228 22098 15.2 11.0 8.8 95.0 38.8 26.6 2.1 5.1 7.4Source: Company, Karvy Research

Exhibit 36(b): Comparative Operational Metrics SummaryCAGR % (FY15-17E) RoE (%) Price Perf (%) Net Sales (Rs. Mn)

Sales EBITDA FY15 FY16E FY17E 3m 6m 12m FY15 FY16E FY17E

PVR 34.5 44.0 3.1 8.8 13.4 41.0 27.0 36.0 14813 21876 26780Inox 22.0 31.0 2.9 6.5 8.5 8.9 9.7 19.5 10168 12457 15128Source: Company, Karvy Research

0

2

4

6

8

Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15PB Average SD1SD2 -1SD

0

10

20

30

Jul-10 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15EV/EBITDA Average SD1SD2 -1SD


13


Key Risksyy Change in the revenue sharing model between exhibitors & distributors.yy Increase in entertainment taxes & lower footfalls.yy Quality of content.


14


Financials

Exhibit 37: Income StatementYE Mar (Rs. Mn) FY13 FY14 FY15P FY16E FY17E

Revenues 8053 13475 14813 21876 26780Growth (%) 55.8 67.3 9.9 47.7 22.4Operating Expenses 6890 11351 12760 18698 22546EBITDA 1163 2124 2053 3179 4234Growth (%) 53.6 82.6 (3.3) 54.8 33.2 Depreciation & Amortization 560 944 1168 1333 1521EBIT 603 1180 907 1846 2713Interest Expenses 367 795 783 834 876PBT 236 385 124 1012 1837 Tax (124) 19 8 283 551 Adjusted PAT 361 423 127 728 1286 Growth (%) 137.8 16.9 (69.9) 473.0 76.6 Source: Company, Karvy Research

Exhibit 38: Balance SheetYE Mar (Rs. Mn) FY13 FY14 FY15P FY16E FY17E

Cash & Equivalents 368 273 257 1144 1793Sundry Debtors 425 523 767 920 1104Inventory 108 106 126 151 181Loans & Advances 358 245 384 442 508Investments 380 235 19 19 19Net Block 5888 8166 9408 13475 13154CWIP 1453 806 0 0 0Miscellaneous 6887 3179 3327 3858 4430Total Assets 15868 13533 14288 20009 21190Current Liabilities & Provisions 2715 3933 3424 4013 4704Debt 5790 4790 6355 7255 6455Other Liabilities 82 46 34 38 42Total Liabilities 8586 8769 9813 11305 11201Shareholders Equity 396 411 415 465 465Reserves & Surplus 6031 3582 3677 7855 9141Networth 6427 3993 4092 8320 9606Minority Interest 854 771 383 383 383Total Liabilities 15868 13533 14288 20009 21190Source: Company, Karvy Research


15


Exhibit 39: Cash Flow StatementYE Mar (Rs. Mn) FY13 FY14 FY15P FY16E FY17E

PBT 319 523 124 1012 1837 Depreciation 560 944 1168 1333 1521 Interest 327 743 783 834 876 Tax Paid 8 (154) (8) (283) (551)Inc/dec in Net WC (25) 91 (942) 339 398 Other Income 1 (66) (104) (62) (57)Cash flow from operating activities 1190 2132 1021 3173 4024 Inc/dec in capital expenditure (3666) (1273) (1572) (5315) (1099)Inc/dec in investments (343) 206 212 (8) 3 Others (4041) 0 0 0 0 Cash flow from investing activities (8049) (1065) (1360) (5323) (1096)Inc/dec in borrowings 4533 (433) 1565 900 (800)Issuance of equity 3232 121 4 3500 0 Dividend paid (46) (46) (46) (46) (46)Interest paid (430) (812) (783) (834) (876)Others 0 0 (416) (483) (555)Cash flow from financing activities 7289 (1170) 324 3037 (2278)Net change in cash 431 (103) (16) 886 650 Source: Company, Karvy research

Exhibit 40: Key RatiosYE Mar FY13 FY14 FY15P FY16E FY17E

EBITDA Margin (%) 14.4 15.8 13.9 14.5 15.8EBIT Margin (%) 7.5 8.8 6.1 8.4 10.1Net Profit Margin (%) 4.5 3.1 0.9 3.3 4.8Dividend Payout ratio 10.8 24.3 32.7 6.2 3.6Net Debt/Equity 0.9 1.2 1.6 0.9 0.7RoE (%) 5.6 10.6 3.1 8.8 13.4RoCE (%) 4.6 12.2 8.3 11.5 16.4Source: Company, Karvy Research

Exhibit 41: Valuation ParametersYE Mar FY13 FY14 FY15P FY16E FY17E

EPS (Rs.) 9.3 10.3 3.1 16.1 27.7DPS (Rs.) 1.0 2.5 1.0 1.0 1.0BV (Rs.) 164.8 97.4 98.6 183.9 206.6PE (x) 46.7 38.6 174.3 49.1 28.6P/BV (x) 2.1 4.9 6.8 4.6 4.1EV/EBITDA (x) 11.9 11.8 19.3 12.5 9.3EV/Sales (x) 1.7 1.9 2.3 1.8 1.5Source: Company, Karvy Research; *Represents multiples for FY13, FY14 & FY15 are based on historic market price


16


Stock Ratings Absolute ReturnsBuy : > 15%Hold : 5-15%Sell : <5%

Connect & Discuss More at

1800 425 8283 (Toll Free) [email protected] Live Chat f in YouTube

DisclaimerAnalyst certification: The following analyst(s), Uday Kiran Y & Vignesh S B K, who is (are) primarily responsible for this report and whose name(s) is/are mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.Disclaimer: Karvy Stock Broking Limited [KSBL] is a SEBI registered Stock Broker, Depository Participant, Portfolio Manager and also distributes financial products. The subsidiaries and group companies including associates of KSBL provide services as Registrars and Share Transfer Agents, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, financial consultancy and advisory services, realty services, data management, data analytics, market research, solar power, film distribution and production, profiling and related services. Therefore associates of KSBL are likely to have business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources , the respective corporate under coverage and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KSBL. While we would endeavor to update the information herein on a reasonable basis, KSBL is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL accepts any liability arising from the use of information and views mentioned in this report. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. Actual results may differ materially from those set forth in projections.

y Associates of KSBL might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the past twelve months.

y Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty services, data processing, profiling and related services or in any other capacity.

y KSBL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. y Compensation of KSBL’s Research Analyst(s) is not based on any specific merchant banking, investment banking or brokerage service transactions. y KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of

any companies that the analysts cover. y KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the

last day of the month preceding the publication of the research report. y KSBL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with

preparation of the research report and have no financial interest in the subject company mentioned in this report. y Accordingly, neither KSBL nor Research Analysts have any material conflict of interest at the time of publication of this report. y It is confirmed that KSBL and Research Analysts, primarily responsible for this report and whose name(s) is/ are mentioned therein of this report have not

received any compensation from the subject company mentioned in the report in the preceding twelve months. y It is confirmed that Uday Kiran Y & Vignesh S B K, Research Analyst did not serve as an officer, director or employee of the companies mentioned in the

report. y KSBL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. y Neither the Research Analysts nor KSBL have been engaged in market making activity for the companies mentioned in the report. y We submit that no material disciplinary action has been taken on KSBL by any Regulatory Authority impacting Equity Research Analyst activities.

Karvy Stock Broking LimitedPlot No.31, 6th Floor, Karvy Millennium Towers, Financial District, Nanakramguda, Hyderabad, 500 032, India

Tel: 91-40-2331 2454; Fax: 91-40-2331 1968For More updates & Stock Research, visit www.karvyonline.com


mailto:[email protected]

http://www.karvyonline.com/markets/AskExpert

http://www.karvyonline.com/markets/AskExpert

mailto:mailto:research%40karvy.com?subject=

https://www.facebook.com/karvystockcommunity

https://twitter.com/KarvyStock

https://plus.google.com/+KarvyOnline/posts

https://in.linkedin.com/pub/karvy-stock-broking-broker-office/98/89/9b5

https://www.youtube.com/user/KarvySBL/feed

www.karvyonline.com

Documents

PVR