Pvr

st

21 July, 2009

PVR

MEDIA

CMP:

BUY Rs. 104

Target:

Rs. 175

Investment Recommendation: We initiate to Buy on PVR Limited with a 40% upside potential from current levels.

Sovid Gupta

+911243024840 Equity Analyst: Fairwealth Securities Private. Ltd.

Investment advice is based on company’s expertise in entertainment business, strong growth plans over next three years in other businesses, especially bowling and gaming, and strong domestic demand for entertainment along with rising income levels.

Results for FY09 were highly muted on number of accounts, primary being

Priced on July’10, 2009

Global Economic scenario and falling investor confidence.

2.

Tussle between Distributors and producers.

65%

3.

Week movie line up this year, and

10 July

4.

Another blockbuster year of IPL, eating into the share of other modes of

±% potential th

Target set on

1.

entertainment, primarily outdoor entertainment

Market Data

Highlights:

Beta

0.6

52 Week high-

207.8

52 week lowMarket cap

Bloomberg

23

Fairwealth Securities

2.

PVR has plans to invest approximately Rs 2.50 billion in the next 18 months to expand its exhibition, movie production and bowling to its businesses. 150 crores in exhibition business and remaining to be spent on movie production and bowling alley business.

3.

Postponed plans to expand its food court business.

4.

Funding won’t be a problem and would be done through preferential allotment and Equity dilution.

5.

PVR launched the bowling alley as a joint venture with Thailand's Major Cineplex, which owns the premier Blu-O brand. PVR is now looking for a suitable location to launch Sub Zero in India, the Thai company's ice skating rink brand.

6.

Company plans to set up 15 entertainment centres with bowling alleys and gaming zones by 2012. In 2009, the company would add two more centres. By 2012 contribution from this business will shoot up to 20%

PVRL.BO PVRL IN

Share Holding Pattern (%) Share Holding Pattern (AS ON 31-Mar-2009) Promoters foreign Institutions Non Promoter Corp. Hold. Public & Others

PVR will invest Rs150 Crore in the exhibition business and will add 57 screens across 10 properties this fiscal, taking the total to 165 screens by end of FY09.

INR 2984 cr.

Shares in issue (mn.) Reuters

1.

58.2

(%) 41 25 9 6 19

Page 1

Buy-PVR

Quarterly Result Round up (Standalone): The performance of the company for the th 4 quarter ended March 2009 and for FY09 was disappointing due to:     

Weak movie line up. Tussle between producers and Distributors. Weak Consumer confidence. IPL eating into the market share of the Industry. Security threat.

During the quarter under review, PVR Blu-

Rs (mn) Net Sales Costs EBIDTA EBIDTA Margin %

4QFY08

3QFY09

4QFY09

% YoY

% QoQ

543

752.3

576.9

6.02

-23.3

472.3

621.9

518.9

9.9

-16.6

70.7

130.4

58

-18

-55.5

70.6

-65.1

13

17

10

Other Income

25.2

21.2

7.4

Interest

17.7

31.8

28.5

61

-10.4

Depreciation

37.2

49.1

49

31.7

-0.2

41

70.7

-12.1

LP

LP

Tax

14

51.2

-1.1

Tax Rate (%)

3.4

72

9

Net Profit

27

19.56

-11

PL

PL

PBT

Result Analysis:

O, a joint Venture company between PVR Ltd and Major Cineplex Group Plc based out of Thailand, opened its first and India's largest Bowling Alley Centre located at

The company during the quarter ended March 2009 reported just 5% growth in net operating revenues at Rs 58.01 Crore. Ticket sales grew 19% at Rs 35.1 Crore, the F&B revenues grew 5% at Rs 10.97 Crore whereas the income from revenue sharing however fell 54% at Rs 2.29 Crore, and advertising & royalty income fell 6% at Rs 8.39 Crore.

prestigious Ambience Mall in Gurgaon giving fillip to outdoor retail entertainment.

For the quarter footfalls increased 2% at 3.75 million however average occupancy decreased to 27.3% from 31.9% in the corresponding quarter of the previous year. The average ticket price increased 6% at Rs 140. ATP of comparable properties was flat at Rs 133. The operating margins dipped 410 bps at 10.5% due to higher film distributor's share and F&B expenses Operating profits for the quarter hence fell 24% at Rs 6.11 Crore. Other Income for the quarter decreased 72% at Rs 42 lakh. After providing for the interest cost and the depreciation allowance which increased by 62% and 32% respectively the company posted gross PBT loss of Rs 1.22 Crore during the quarter under review. After providing for tax credit during the quarter, the net loss was Rs 1.11 Crore as compared to a net profit of Rs 2.70 Crore during the corresponding quarter of the previous year. The consolidated top-line for the full year ended March 2009 increased by 32% to Rs 355.39 Crore as compared to the previous fiscal. The Consolidated accounts comprise of the Parent Company (PVR Limited) and its subsidiaries, PVR Pictures Limited, CR Retail Malls (India) Private limited, Sunrise Infotainment Private Limited and PVR bluO Entertainment Limited. The OPM fell by 500 bps to 14.2%. After providing for other finance expenses the bottomline of the company posted a decline of 60% to Rs 8.71 Crore as compared to the previous fiscal.

Fairwealth Securities

Page 2

Buy-PVR

Projection: Rs (mn) Net Sales

FY2006

FY 2007

FY2008

FY2009

FY2010E

FY2011E

1049

1667

2659

3521

4401.25

5281.5

159

266

489

472

704

845

As per a study by consultancy firm

EBIDTA

KPMG, there are close to 850 multiplex

Net Profit

53

102

216

87

286

343

screens in the country, which is

EPS (Rs)

2.3

4.4

9.4

3.8

12.4

14.9

expected to grow to 1,500 screens in

EPS Growth (%) EBIDTA Margin (%) PER (%)

-

91%

113%

-60%

229%

20%

15%

16%

18%

13%

16%

16%

45.7

23.9

11.2

27.8

8.4

7.0

Book Value

75.0

78.0

86.0

102.2

114.6

129.5

1.4

1.3

1.2

1.0

0.9

0.8

the next 2-3 years.

Competition:

P/BV (x) Source: Fairwealth Estimates

Big Cinemas Fun Cinemas PVR Cinemas Inox Leisure

200 screens 185 screens 108 screens 97 screens

We have projected 25% and 20% growth rate over next two years as company has huge projects lined up in its movie exhibition business and bowling alley business. Bowling alley business is likely to contribute 20% of its sales by 2012. Addition of 50 screens in FY09, mostly under Entertainment Tax exemption, will provide a huge lift to its top line although bottom line can be strained for next 2-3 quarters. Blu-O division’s contribution is likely to grow from less than 1% in FY09 to 5% in FY10 and approximately 9% in FY11.

Valuations: PVR is one of the strongest players among multiplex industry. We expect the screen count to increase from the current 108 screens to 171 screens in FY2011. Currently the stocks is trading at 8.4x and 7x its FY 10E and FY11E earnings, which is at huge discount to both Industry as well as Index. Also company had raised money in FY08 for its future expansion plans, thus providing itself a strong balance sheet. Company is trading at 0.9x and 0.8x its FY10E and FY 11E book value. Company is more than comfortable in its Cash Flow as its Operating cash flows are highly positive.

Fairwealth Securities

Page 3

Buy-PVR Company Description: History: In 2005 successfully launched its IPO and got listed on NSE and BSE.

PVR Ltd started as a joint venture between Village Road show Ltd., an Australian based company and Priya Exhibitors Private Limited (PEPL) in 1994 and was incorporated as Priya Village Road show Limited in 1995. PEPL was promoted by Raj Kumar Jaisinghani and Vasudev

In

2006

production

PVR

Forayed

with

into

Aamir

coKhan

Productions Limited.

T.Ramnani in 1974 and started its business by opening “Priya” cinema in 1975. Priya cinema was upgraded in 1990 by Ajjay Bijli, PEPL purchased the entire shareholding of Village Road show in the company and the name of the company was changed to PVR Ltd.

In 2008 PVR Pictures concludes Rs.1.2bn private equity placement

Present scenario:

with ICICI Ventures and JP Morgan

PVR is amongst the largest multiplex cinema operators in India. With its 17.8 million

Mauritius Holdings.

patrons, PVR having a dominant share at the box office with over 12% contribution to All India box office collections of leading releases. Integration into film production and

In 2009 PVR Entered into the lifestyle retail

entertainment

business

by

entering into partnership with Thailand

distribution has enlarged the company’s offerings and helped it become an integrated industry player. PVR’s aggressive expansion plan could be major

reason for the

company into a higher growth on account of higher operational efficacy from its chain

based PVR Blu–O Entertainment.

distribution and theatre collections PVR Subsidiaries: PVR Blu-O: is a joint venture with Thailand based a major Cineplex JV with proportional investment of 49:51.Subsidiary started its operation in the second week of March 2009 and operated for ~18 days in FY09... During its subsidiary grossed an income of Rs 6.8 mn and a net loss of Rs 3.6 mn, largely on account of opening

The Company has till date funded its

Sunrise Infotainment Pvt. Ltd: is a wholly owned subsidiary of PVR Ltd and operating

subsidiaries for Rs. 57.37 Crore by

with the 6 screens multiplex. The subsidiary opened the multiplex on 16th May 2008

way of equity/preference share capital

and became eligible for entertainment tax exemption on 22nd August 2008. For the

(including

year ended March 2009, the subsidiary grossed an income of Rs 146.3 mn and a net

Rs 5.87

Crore funded

during the year ended March 2009) and Rs. 39.23 Crore by way of loan (including Rs 14.39 Crore (net of refunds)

funded

during

ended March 31 2009).

the

year

loss of Rs 26.3 mn. CR Retail Malls (India) Pvt. Ltd: is a wholly owned subsidiary of PVR Ltd and operates the Mumbai's largest, seven screens, with a capacity of 1850 screens. Company has received 5 year tax exemption for the same. With this PVR now has 42% of its overall seat capacity and 39% of overall screen capacity under entertainment tax exemption.

PVR Pictures is the film production and film distribution arm of the company.

Fairwealth Securities

Page 4

Buy-PVR SWOT Analysis and Relative Price Movement: Strength:

Weakness:





PVR now has 42% of its overall seat capacity and 39% of overall screen capacity under entertainment

The film exhibition business’s fortunes depend on the success of the films they are showing



Rapid development of digital technology and the

tax exemption.

advancement in the broadband and networking space



Integration with film production and distribution

shows the great weakness for PVR.



Strong brand equity



Multiplexes with primes location with high Average ticket



Low margins and seasonal factors in the movie exhibition

price Opportunity:

Threat:



 Increased competition from other entertainment sources like

The Indian film industry is the largest film industry in the world in terms of number of films produced and tickets sold each year expecting growth will be continue in upcoming

IPL, affecting occupancy rates in Theatre.  Competition from other players like Adlibs having huge

years in to producing movies. 

Very strong scope in other forms of Entertainment like

financial muscle.  High Real Estate price is a huge barrier to profitability of this

Bowling alley, Gaming and Ice Skating Rink.

sector. 

Piracy remains a constant threat.

PVR is a low Beta stock; with a beta 0.6.While the share has always been a laggard in terms of price movement and volumes compared to its peers and overall industry as well. However we believe that the stock is highly beaten down and presents a value buying opportunity for long term investors. Short term traders can also make a handsome profit of 20-25% over next one month as share can scale back to June highs of 140-150.

Fairwealth Securities

Page 5

Buy-PVR Investment Rational: Apart from PVR Pictures, the rest of the subsidiaries commenced operations in FY09 and are getting stabilized. FY10 will also see a full year of operations of these subsidiaries and will boost the top line of the company, Inspire of a worst Q1 FY10. Some basic key points that deserve for upward movement in the price of this stock

1.

Aggressive expansion plan

2.

Rising consumer confidence and Robust Demand going forwards.

3.

Delivering value by its subsidiary

Short term traders can invest for a target of 120-140 in next 2 weeks

TECHNICAL OUTLOOK:

PVR is in a long term uptrend. The stocks 20 DMA & 50 DMA is above 200 DMA .So one could go long on the stock for a Target of 116-140 in next 3-4 months.

Fairwealth Securities

Page 6

Buy-PVR

Annexure: Income Statement:

Fund Flow Statement: FY2008

FY2007

FY2006

Fund Flow

298.5 9.2

206.8 7.0

130.4 4.6

Total Income

307.8

213.8

135.0

EXPENDITURE :

Cash profit Increase in equity Increase in other net worth Increase in loan funds

Raw Materials

15.7

11.4

7.1

Decrease in working capital

Power & Fuel Cost

12.5

9.4

4.9

Others

Other Manufacturing Expenses Selling and Administration Expenses Miscellaneous Expenses

23.3

18.1

11.0

99.6

66.8

36.4

95.9

72.0

52.7

4.2

2.6

2.3

Total Expenditure

251.4

180.5

114.5

Operating Profit Interest Gross Profit

56.4 6.3 50.0

33.3 5 28.3

20.5 3.4 17.1

Depreciation

17.0

13.3

8.3

Profit Before Tax

33.0

15.0

8.7

Tax

10.5

2.4

2.7

0.6

0.5

0.3

0.31

1.9

0.3

21.6

10.1

5.2

21.6

10.1

5.2

Extraordinary Items

-0.1

-0.08

-0.1

Adjusted Net Profit

21.7

10.2

5.4

Fringe Benefit Tax Deferred Tax Net Profit before Minority Interest Net Profit after Minority Interest

Fairwealth Securities

Mar07

Mar06

35.52

22.81

12.32

Sources of funds

INCOME : Net Sales Other Income

Employee Cost

Mar08

0

0.13

5.78

2.06

0.42

110.86

35.42

0

14.85

0

42.5

0

0

0

20.54

73

65.86

164.35

Decrease in loan funds

0

1.29

0

Increase in gross block

43.96

29.31

58.76

Increase in investments

15.63

31.97

29.72

Increase in working capital

0.37

0

73.06

Dividend

3.04

3.29

2.81

Total Inflow Application of funds

Others

10

0

0

Total Outflow

73

65.86

164.35

Cash Flow Statement: Cash Flow Summery Mar’08

Mar’07

Mar’06

Mar’05

Cash and Cash Equivalents at Beginning of the year

5.7

1.1

8.1

2.6

Net Cash from Operating Activities

39.7

11.5

13.2

17.6

Net Cash Used in Investing Activities

-56.6

6.6

-166.1

-41.7

Net Cash Used in Financing Activities

20.2

-13.6

146.0

30.9

Net Inc/(Dec) in Cash and Cash Equivalent

3.3

4.5

-6.9

6.8

Cash and Cash Equivalents at End of the year

9.0

5.7

1.1

9.4

Page 7

Buy-PVR

Disclaimer This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While The information contained therein has been obtained from sources believed to be reliable; investors are advised to satisfy themselves before making Any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for the authentication of the information contained in the reports and consequently, is not liable for any decisions taken based on the same. Further, Fairwealth Research Reports only provide information updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of Fairwealth Investment Advisory Services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that, Fairwealth Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is in circulation.

Fairwealth Securities

Page 8

Buy-PVR

Fairwealth Securities

Page 9