Scripting a Blockbuster Jul 24, 215 Consumer Discretionary Jul 24, 215 Bloomberg Code: PVRL IN India Research - Stock Broking Market 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 215 with 53 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 2% 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.8 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 62 seats across 29 screens with eight properties in NCR & Chandigarh. PVR has acquired DT cinemas for Rs 5Mn on slump sale basis in June 215, 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 1 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.79, 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 Risks ychange in the revenue sharing model between exhibitors & distributors. yincrease in entertainment taxes & lower footfalls. yquality of content. Recommendation (Rs.) BUY CMP 79 Target Price 933 Upside (%) 18 Stock Information Mkt Cap (Rs.mn/US$ mn) 33529 / 524 52-wk High/Low (Rs.) 885 / 572 3M Avg. daily volume (mn).2 Beta (x).8 Sensex/Nifty 28323 / 8579 O/S Shares(mn) 41.5 Face Value (Rs.) 1. Shareholding Pattern (%) Promoters 29.5 FIIs 23.5 DIIs 7.7 Others 39.3 Stock Performance (%) 1M 3M 6M 12M Absolute 33 41 27 36 Relative to Sensex 3 37 31 25 Source: Bloomberg Relative Performance* 135 12 15 9 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 PVR Source: Bloomberg; *Index 1 Sensex Exhibit 1: Valuation Summary (Rs. Mn) YE Mar (Rs. Mn) FY13 FY14 FY15P FY16E FY17E Net Sales 853 13475 14813 21876 2678 EBITDA 1163 2124 253 3179 4234 EBITDA Margin (%) 14.4 15.8 13.9 14.5 15.8 Adj. Net Profit 361 423 127 728 1286 EPS (Rs.) 9.3 1.3 3.1 16.1 27.7 RoE (%) 5.6 1.6 3.1 8.8 13.4 PE (x) 46.7 38.6 174.3 49.1 28.6 ; *Represents multiples for FY13, FY14 & FY15 are based on historic market price 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 Analysts Contact Uday Kiran Y 4-3321 6273 uday.kiran@karvy.com Vignesh S B K 4-3321 6271 vignesh.sbk@karvy.com 1
Jul 24, 215 Company Financial Snapshot (Y/E Mar) Profit & Loss (Rs. Mn) FY15P FY16E FY17E Net sales 14813 21876 2678 Optg. Exp (Adj for OI) 1276 18698 22546 EBITDA 253 3179 4234 Depreciation 1168 1333 1521 Interest 783 834 876 PBT 124 112 1837 Tax 8 283 551 PAT 116 728 1286 Adj. PAT* 127 728 1286 Profit & Loss Ratios EBITDA margin (%) 13.9 14.5 15.8 Net margin (%).9 3.3 4.8 P/E (x) 174.3 49.1 28.6 EV/EBITDA (x) 19.3 12.5 9.3 Dividend yield (%).1.1.1, *Including Minority Interest Balance sheet (Rs. Mn) FY15P FY16E FY17E Total Assets 1432 29 21191 Net Fixed assets 948 13475 13154 Current assets 1569 2696 363 Other assets 3343 3838 447 Total Liabilities 1432 29 21191 Networth 492 832 966 Debt 6355 7255 6455 Current Liabilities 3341 3921 463 Deferred Tax 11 11 11 Miscellenous 522 52 516 Balance Sheet Ratios RoE (%) 3.1 8.8 13.4 RoCE (%) 8.3 11.5 16.4 Net Debt/Equity 1.6.9.7 Equity/Total Assets.3.4.5 P/BV (x) 6.8 4.6 4.1 Exhibit 2: Shareholding Pattern (%) Company Background 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 53 screens at 16 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. Cash Flow (Rs. Mn) FY15P FY16E FY17E PBT 124 112 1837 Depreciation 1168 1333 1521 Interest (net) 783 834 876 Tax (8) (283) (551) Changes in WC (942) 339 398 Others (14) (62) (57) CF from Operations 121 3173 424 Capex (1572) (5315) (199) Investment 212 (8) 3 CF from Investing (136) (5323) (196) Change in Equity 4 35 Change in Debt 1565 9 (8) Others (1198) (1317) (1432) Dividends (46) (46) (46) CF from Financing 324 337 (2278) Change in Cash (16) 886 65 Exhibit 3: Revenue Segmentation: Product-wise (%) Others 39.3% Promoters 29.5% F&B 25% Advertsiement 12% Others 3% DIIs 7.7% FIIs 23.5% Tickets 6% 2
Consolidation in industry will lead to higher bargaining power for the leading multiplex players Jul 24, 215 India s Media & Entertainment Industry (M&E) is worth Rs.126 Bn at the end of 214 and is expected to grow at CAGR of 14% for the next five years and reach Rs.1964 Bn at the end of 219, according to KPMG. Indian M&E industry is estimated to grow twice at the rate of global M&E industry. Exhibit 4: India Media & Entertainment Industry: Size & Projections Overall industry size (Rs. Bn) 212 213 214 India media & entertainment industry: Size & Projections Film industry plays an integral part of India s M&E industry which has share of 12.3% in 214. Size of film industry stood at Rs.126 Bn at the end of 214 and is expected to grow at CAGR of 1% and reach Rs.29 Bn at the end of 219. 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) % Segment share in Industry 215P 216P 217P 218P 219P 5 year CAGR (214-219) % Market share in Industry TV 37 417 475 46.3 543 631 74 855 976 15.5 49.7 Print 224 243 263 25.7 285 37 332 358 387 8. 19.7 Films 112 125 126 12.3 136 156 171 186 24 1. 1.4 Radio 13 15 17 1.7 2 22 27 33 4 18.1 2. Music 11 1 1 1. 1 12 14 17 19 14. 1. OOH 18 19 22 2.1 24 27 3 32 35 9.8 1.8 Animation and VFX 35 4 45 4.4 51 59 69 81 96 16.3 4.9 Gaming 15 19 24 2.3 28 32 35 4 46 14.3 2.3 Digital Advertising 22 3 44 4.2 63 84 115 138 163 3.2 8.3 Total 82 918 126 1. 1159 133 1532 174 1964 13.9 1. Source: FICCI Report, Karvy Research 2 15 1 5 62 69 85 93 94 1 114 124 134 145 21 211 212 213 214 215P 216P 217P 218P 219P Domestic Theatrical Overseas Theatrical Home Video Cable & Satellite Rights Ancillary Revenue Source: FICCI Report, Karvy Research Exhibit 6: Consumer spending trend of Indians by 22 Category Spending in $ Bn Spending in $ Bn % CAGR Growth % Segment Share in % Segment Share 21 22 Rate Spending (21) in Spending (22) Food 328 895 1.6 33.1 25. Housing & Consumer durables 186 752 15. 18.8 21. Transportation & Communication 168 664 14.7 17. 18.5 Education & Leisure 71 296 15.3 7.2 8.3 Clothes & Footwear 59 225 14.3 6. 6.3 Health 49 183 14.1 4.9 5.1 Others 129 57 16. 13. 15.9 Source: Euro Monitor, National Sample Survey Office, Karvy Research 3
Low Density of Screens Jul 24, 215 India has approximately 96 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 12 movies in 214 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 214 stood at $4.5 Bn which is the second largest market for box office and has produced ~618 movies and has close to 22 screens. In India, movies are one of the cheapest forms of entertainment compared to theme parks, plays, music concerts & sports. Exhibit 7: Screen penetration is lowest in India Exhibit 8: Domestic Box Office Collections (in $ Bn) 5 125 4 4.7 85 82 61 57 26 31 8 US France Spain UK Germany Japan China India Screens per million 3 2 1 3.5 2.7 2 1.5 1.6 1.6 1.4.9 1.1 1 1.1 CY9 CY1 CY11 CY12 CY13 CY14 China India Source: FICCI, Karvy Research Source: SAPPRFT, Karvy Research Exhibit 9: Global Box Office Collections ($ Bn) 12 1 8 6 4 2 1.8 1.9 1.4 2.8 3.6 4.8 2.4 2.4 2. 1.7 1.6 1.8 1.7 1.7 1.7 1.4 1.5 1.7 1.3 1.4 1.6 1.3 1.3 1.3 US/Canada China Source: MPAA, Karvy Research Japan France U.K India S. Korea Germany 212 213 214 1.2 Russia 1.4 1.2 1.2 Australia 1.1 1. Exhibit 1: Correlation between No. of Screens and GBOC 25 Exhibit 11: Number of Movies Produced Annually 2 15 1 5 147 4723 27 6256 274 92 28 13118 357 18195 48 22 29 21 211 212 213 214 China box office collections ($ Mn) No of screens 1255 India 819 USA 584 China 441 Japan 299 UK 272 France Movies produced 216 Rep of Korea 212 Germany 199 Spain 155 Italy Source: SAPPRFT, Karvy Research Source: UNESCO Institute of Statistics, Karvy Research 4
Jul 24, 215 Exhibit 12: Cheapest form of Entertainment Price Range (Rs.) Multiplex Tickets 8-5 Sport Events 15-2 Plays 5-3 Live Concert 5-2 Theme Parks 5-35 Source: Book My Show, Karvy Research Exhibit 13: Footfalls in major countries ( In Mn) India 294 USA 1284 China 37 France 217 Mexico 25 UK 172 Rep of Korea 16 Russia 153 Japan 145 Brazil 144 5 1 15 2 25 3 35 Source: UNESCO Institute of Statistics, Karvy Research Exhibit 14: Market share of Movie Exhibitors Major Players Number of Screens Market Share in 214 (%) PVR 421 26 Inox 31 19 Big Cinemas 254 16 Cinepolis 84 5 Fun Cinemas 73 5 Carnival 5 3 SRS Cinemas 39 2 Satyam Cinemas (Delhi) 39 2 SPI Cinemas 3 2 DT Cinemas 29 2 Wave 24 2 Movie time 29 2 Others 218 14 Total 16 1 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. Source: Respective companies, Karvy Research Exhibit 15: Consolidation Pattern in Indian Movie Exhibition Industry Major Players Number of Screens 215* Exhibitor Acquired Screens Total No of screens 215* (Including Acquisition) Market Share (%) PVR 464 DT Cinemas 39 53 29 Inox 334 Satyam Cinemas 38 372 22 Big Cinemas 252 Carnival 54 Stargaze Entertainment 3 346 2 HDIL Broadway 1 Cinepolis 11 Fun Cinemas 83 193 11 SPI Cinemas 5 5 3 SRS Cinemas 48 48 3 Wave Cinemas 39 39 2 Movie time 29 29 2 Others 148 148 9 Total 1276 452 1728 1 Source: Respective companies, Karvy Research, * 215 Year to Date 5
Jul 24, 215 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 1 screens in next couple of years will have bargaining power over distributors and advertisers which augurs well for the company. Exhibit 16: Distributors Share Exhibit 17: Target Vs Existing Week 1 Week 2 Week 3 Thereafter (%) (%) (%) (%) Multiplex 5 42 37 3 SPI Cinemas Cinepolis 9 5 193 4 Single Screens 7-9 7-9 7-9 7-9 Carnival 346 1 Inox 372 558 PVR 464 1 5 1 Target 218 215 Source: Respective companies, Karvy Research PVR expanding its presence and strengthening its presence in Movie Exhibition industry Exhibit 17: No of Screens Additions by PVR & its Competitors 7 6 5 4 3 2 1 24 18 59 28 7 25 6 62 6 55 6 6 FY12 FY13 FY14 FY15 FY16E FY17E PVR INOX PVR has 53 screens and is the largest player in Indian multiplex industry with market share of 29%. The company is planning to add 6 screens per annum for the next couple of years and has target of 1 screens by 218. The target of 1 screens can be achieved by aggressive expansion and through inorganic route. The capex required for a screen is Rs.2 mn and capex of Rs.12-14 mn would be required per annum for the addition of targeted 6-7 screens. The average ticket price & spent per head is likely to increase on the back of expansion plans. Exhibit 19: Movie Pipeline 215 Month-wise Movie Cast July Bajrangi Bhaijaan Salman Khan, Kareena Kapoor Drishyam Ajay Devgan August Brothers Akshay Kumar, Jacqueline Fernandez All is well Abishek Bachchan, Asin Phantom Saif Ali Khan, Katrina Kaif September Welcome Back John Abraham, Shruti Hassan Katti Batti Imran Khan, Kangana Ranaut October Rocky Handsome John Abraham, Shruti Hassan Singh is Bling Akshay Kumar, Amy Jackson Shaandaar Shahid Kappor, Alia Bhatt November Prem Ratan Dhan Payo Salman Khan, Sonam Kapoor Tamasha Ranbir Kappor, Deepika Padukone December Bajirao Mastani Ranveer Singh, Deepika Padukone Dilwale Shahrukh Khan, Kajol Hera Pheri Paresh Rawal, Sunil Shetty 216 Month-wise Movie Cast January Airlift Akshay Kumar, Nimrat Kaur January Baadshaho Ajay Devgan April Fan ShahRukh Khan Source: Karvy Research 6
Jul 24, 215 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%-1% of total box office collections and ATP is higher by 5% to 15% for these movies. Exhibit 2: Hollywood movies GBOC 214 (Rs. Mn) 215 Month-wise Movie Amazing Spider Man 2 875 Transformers 4: Age of Extinction 63 X- Men: Days of Future past 566 Interstellar 432 3: Rise of an Empire 41 Godzilla 34 Captian America: The Winter Soldier 31 Hercules 29 Dawn of the planet of Apes 224 Exodus: Gods & kings 189 Source: FICCI, Karvy Research Exhibit 21: Regional Movies in 214 Movie Language Gross Box office (Rs. Mn) Lingaa Tamil 148 Veeram Tamil 13 Kathi Tamil 124 Chaar Sahibzaade Punjabi 7 Race Gurram Telugu 59 Vella Illa Pattathari Tamil 53 Bangalore Days Malayalam 5 Source: 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 1 mn club which was previously achievable only for Bollywood movies. Now with more regional movies joining Rs 1 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 (%) 7 5 3 1 23 37 2 39 19 44 23 4 21 31 22 39 21 37 24 36 22 36 27 35 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 6% 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. Mumbai Delhi/UP Circuits Source: FICCI, Karvy Research Exhibit 23: Ad Revenue Growth ( %) 4 3 2 1 14 15 16 4 7 5 3 35 37 TV Print Digital Out of home 11 6 7 9 4 1 Radio 12 25 2 Cinema 212-213 213-214 214-215 Size of in-cinema advertising is estimated to reach Rs. 13.8 Bn in 219 from Rs.4.9 Bn in 214, 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 214 and is expected to grow at 2% in 215 & 216 supported by sectors such as FMCG & services sectors, who are major advertisers. 7
Jul 24, 215 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 7% 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. 8
Jul 24, 215 Exhibit 24: Business Assumptions Y/E Marc (Rs. Mn) FY14 FY15E FY16E FY17E Comments Consolidated Revenue 13475 14813 21876 2678 Revenue Growth (%) 67.3 9.9 47.7 22.4 EBITDA 2124 253 3179 4234 EBITDA Margins (%) 15.8 13.9 14.5 15.8 PAT (normalized) 423 127 728 1286 EPS 1.3 3.1 16.1 27.7 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. 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. 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. Net CFO 2132 121 3173 424 The free cash flows are likely to improve in the Net Debt 5422 4518 697 6111 coming years on the back of higher disposable income from patrons & pricing power for the Free cash flow 859 (552) (2142) 2925 company. Exhibit 25: Karvy vs Consensus Revenues (Rs. Mn) Karvy Consensus Divergence (%) Comments FY16E 21876 17937 15. We expect the revenues to grow significantly on FY17E 2678 21694 16. higher ATP, SPH and advertisement revenues. EBITDA (Rs. Mn) FY16E 3179 293 4. Increase in EBITDA is due to increase in FY17E 4234 3699 6. EPS (Rs.) expected footfalls. FY16E 16.1 19.3 (16.7) Fresh issue of shares has been taken into account and also conservative estimates have FY17E 27.7 3.1 (8.) been considered. Source: Bloomberg, Karvy Research 9
Company Outlook: Jul 24, 215 PVR is aiming to have 1 screens by 218. 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. Exhibit 26: Average Ticket Price 2 19 18 17 16 15 195 186 177 168 FY14 FY15 FY 16E FY 17E Average Ticket Price (Rs.) 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 27: Advertisement Revenues / Screens 4.5 3.5 2.5 1.5 3.4 3.6 3.9 4.2 FY14 FY15 FY 16E FY 17E Advt revenue/screen (Rs. Mn) 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. Exhibit 28: PVR-DT Cinemas Deal Location No of Screens City 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 Delhi PVR cinemas has acquired DT cinemas on a slump sale basis for Rs. 5 Mn. The deal is subject to CCI approval. The deal includes acquisition of 39 screens out of which 29 screens are operational and 1 screens are to be operational by FY17E. The present 29 screens include 62 seats. The ATP and SPH of DT cinemas are 4% 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. 1
Jul 24, 215 Exhibit 29: Consistent Growth in Revenues 3 2 1 55.8 67.3 9.9 853 13475 14813 47.7 21876 22.4 2678 FY13 FY14 FY15 FY16E FY17E 7 5 3 1-1 Revenues (Rs. Mn) Growth (%) (RHS) 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. Exhibit 3: EBITDA Margins to Improve 44 33 22 11 15.8 14.4 13.9 14.5 1163 2124 253 3179 15.8 2 4234 FY 13 FY 14 FY 15 FY 16E FY 17E EBITDA (Rs. Mn) Margin (%) (RHS) 15 1 5 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 31: Interest Coverage Ratio 3 2 1 63 1.6 367 1.5 118 795 1.2 97 783 2.2 1846 834 3.1 2713 876 FY 13 FY 14 FY 15 FY 16E FY 17E EBIT (Rs. Mn) Interest expenses (Rs. Mn) ICR (x) (RHS) 4 3 2 1 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. Exhibit 32: Debt - Equity Ratio 1 75 5 25 2. 1.6.9.9 1.2.7 1.5 1..5 FY 13 FY 14 FY 15 FY 16E FY 17E. Debt (Rs. Mn) Equity (Rs. Mn) Debt-equity ratio 579 6427 479 3993 6355 492 7255 832 6455 966 The debt levels are expected to rise on expansion plans in Tier-2 & Tier-3 cities. Debt-equity ratio is likely to be.9x in FY16E &.7x in FY17E. The debt-equity ratio is likely to settle at comfortable levels in the coming years. 11
Jul 24, 215 Exhibit 33: Company Snapshot (Ratings) Low High 1 2 3 4 5 Quality of Earnings 33 Domestic Sales 33 Exports 33 Net Debt/Equity 33 Working Capital requirement 33 Quality of Management 33 Depth of Management 33 Promoter 33 Corporate Governance 33 Valuation & Outlook At CMP of Rs.79, 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 (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 8 Exhibit 35: EV/EBITDA band 3 6 4 2 Jul-1 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 PB Average SD1 SD2-1SD 2 1 Jul-1 Jul-11 Jul-12 Jul-13 Jul-14 Jul-15 EV/EBITDA Average SD1 SD2-1SD Exhibit 36(a): Comparative Valuation Summary CMP (Rs.) Mcap EV/EBITDA (x) P/E (x) EPS (Rs.) (Rs. Mn) FY15 FY16E FY17E FY15 FY16E FY17E FY15 FY16E FY17E PVR 79 33529 19.3 12.5 9.3 174.3 49.1 28.6 3.1 16.1 27.7 Inox 228 2298 15.2 11. 8.8 95. 38.8 26.6 2.1 5.1 7.4 Exhibit 36(b): Comparative Operational Metrics Summary CAGR % (FY15-17E) RoE (%) Price Perf (%) Net Sales (Rs. Mn) Sales EBITDA FY15 FY16E FY17E 3m 6m 12m FY15 FY16E FY17E PVR 34.5 44. 3.1 8.8 13.4 41. 27. 36. 14813 21876 2678 Inox 22. 31. 2.9 6.5 8.5 8.9 9.7 19.5 1168 12457 15128 12
Jul 24, 215 Key Risks ychange in the revenue sharing model between exhibitors & distributors. yincrease in entertainment taxes & lower footfalls. yquality of content. 13
Jul 24, 215 Financials Exhibit 37: Income Statement YE Mar (Rs. Mn) FY13 FY14 FY15P FY16E FY17E Revenues 853 13475 14813 21876 2678 Growth (%) 55.8 67.3 9.9 47.7 22.4 Operating Expenses 689 11351 1276 18698 22546 EBITDA 1163 2124 253 3179 4234 Growth (%) 53.6 82.6 (3.3) 54.8 33.2 Depreciation & Amortization 56 944 1168 1333 1521 EBIT 63 118 97 1846 2713 Interest Expenses 367 795 783 834 876 PBT 236 385 124 112 1837 Tax (124) 19 8 283 551 Adjusted PAT 361 423 127 728 1286 Growth (%) 137.8 16.9 (69.9) 473. 76.6 Exhibit 38: Balance Sheet YE Mar (Rs. Mn) FY13 FY14 FY15P FY16E FY17E Cash & Equivalents 368 273 257 1144 1793 Sundry Debtors 425 523 767 92 114 Inventory 18 16 126 151 181 Loans & Advances 358 245 384 442 58 Investments 38 235 19 19 19 Net Block 5888 8166 948 13475 13154 CWIP 1453 86 Miscellaneous 6887 3179 3327 3858 443 Total Assets 15868 13533 14288 29 2119 Current Liabilities & Provisions 2715 3933 3424 413 474 Debt 579 479 6355 7255 6455 Other Liabilities 82 46 34 38 42 Total Liabilities 8586 8769 9813 1135 1121 Shareholders Equity 396 411 415 465 465 Reserves & Surplus 631 3582 3677 7855 9141 Networth 6427 3993 492 832 966 Minority Interest 854 771 383 383 383 Total Liabilities 15868 13533 14288 29 2119 14
Jul 24, 215 Exhibit 39: Cash Flow Statement YE Mar (Rs. Mn) FY13 FY14 FY15P FY16E FY17E PBT 319 523 124 112 1837 Depreciation 56 944 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) (14) (62) (57) Cash flow from operating activities 119 2132 121 3173 424 Inc/dec in capital expenditure (3666) (1273) (1572) (5315) (199) Inc/dec in investments (343) 26 212 (8) 3 Others (441) Cash flow from investing activities (849) (165) (136) (5323) (196) Inc/dec in borrowings 4533 (433) 1565 9 (8) Issuance of equity 3232 121 4 35 Dividend paid (46) (46) (46) (46) (46) Interest paid (43) (812) (783) (834) (876) Others (416) (483) (555) Cash flow from financing activities 7289 (117) 324 337 (2278) Net change in cash 431 (13) (16) 886 65 Source: Company, Karvy research Exhibit 4: Key Ratios YE Mar FY13 FY14 FY15P FY16E FY17E EBITDA Margin (%) 14.4 15.8 13.9 14.5 15.8 EBIT Margin (%) 7.5 8.8 6.1 8.4 1.1 Net Profit Margin (%) 4.5 3.1.9 3.3 4.8 Dividend Payout ratio 1.8 24.3 32.7 6.2 3.6 Net Debt/Equity.9 1.2 1.6.9.7 RoE (%) 5.6 1.6 3.1 8.8 13.4 RoCE (%) 4.6 12.2 8.3 11.5 16.4 Exhibit 41: Valuation Parameters YE Mar FY13 FY14 FY15P FY16E FY17E EPS (Rs.) 9.3 1.3 3.1 16.1 27.7 DPS (Rs.) 1. 2.5 1. 1. 1. BV (Rs.) 164.8 97.4 98.6 183.9 26.6 PE (x) 46.7 38.6 174.3 49.1 28.6 P/BV (x) 2.1 4.9 6.8 4.6 4.1 EV/EBITDA (x) 11.9 11.8 19.3 12.5 9.3 EV/Sales (x) 1.7 1.9 2.3 1.8 1.5 ; *Represents multiples for FY13, FY14 & FY15 are based on historic market price 15
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