PVR Cinemas

Investors with a two-year horizon can consider buying the shares of PVR, a leading multiplex operator, given the revival in the movie exhibition business, increasing average ticket price as well as occupancies.



A broad-based revival in the economy, a slew of movie releases that held/hold promise and increasing consumer spends which could help augment earnings, with higher food and beverages sales, also underscore our recommendation.

At Rs 173, the share trades at 13 times its likely FY-12 earnings. That is lower than its peer Inox Leisure as well as its own historic valuation levels, which also makes it an attractive bet.

The multiplex industry had an extremely challenging FY-10, what with their standoff with distributors over revenue-sharing and a string of unsuccessful movies.

Almost the entire first quarter of last fiscal went without any movie releases as a result of the tiff with distributors. A recovering economy not enabling discretionary consumer spends and, critically, two IPLs within one year also took away audiences

This is reflected in revenues for PVR in FY-10 falling by 5.1 per cent to Rs 334.1 crore, while net profits at a mere Rs 1.3 crore took an 84.5 per cent dent over FY-09. But starting from the fourth quarter of FY10 and the recent June quarter, the company's growth trajectory appears back on track.

Helped by a series of good movie releases, the two quarters saw PVR register triple-digit profit growth over the corresponding previous period. The company has also opened several new screens in metros such as Chennai and other cities over the last several months with reasonable occupancies.

Key metrics expand

PVR has been able to systematically drive up its average ticket price (ATP) quite strongly over the last one year. With a resurgent economy and a revival in the job market leading to more discretionary spends, the company has seen ATP increase from Rs 132 last year to Rs 159 currently. Ticket sales contribute 60 per cent of PVR's revenues.

The spending by audience on food and beverages too has increased. The realisation per person (spend per head) is now at Rs 40.9, up nearly 9 per cent over the past year. This trend is especially desirable for PVR as the segment is a high-margin one and contributes to over 18 percent of overall revenues. Occupancies that had dipped to a dismal sub-20 per cent level last year too are witnessing significant revival. It now has occupancies of over 29 percent across its properties. Advertising revenues too are up substantially from last year.

PVR presently has 136 screens in operation, up 26 per cent from last year. Movies such as 3 Idiots, Avatar, Rajneeti, Kaminey, and My Name is Khan drew a large audience to its screens.

Recent hit movies such as The Inception, Peepli Live, and Once Upon a Time in Mumbai too are expected to set the cash registers ringing for PVR. That PVR's screens consistently account for over 10 percent of most movies' revenues, makes it an attractive proposition for movie makers to screen their films here.

Concerns and challenges

However, its film production division, being dependent on film content, remains vulnerable to the vagaries of the box office hits and misses. Aisha, a film that PVR co-produced, has not been successful and, therefore, could turn out to be a drag.

The rapid growth of DTH has meant that some new movies may be broadcast quickly on television. This has the potential to reduce occupancies. That this phenomenon so far has mostly been restricted to films that have bombed at the box-office provides some comfort.

via BL