Thursday, December 31, 2015

PVR: Multiplier effect

The stock of multiplex operator PVR rose sharply following a strong performance in the June 2015 quarter; it is up 15 per cent so far this year. The company put up a good show in the September quarter too, thanks to box office hits, such as Tanu weds Manu Returns, Piku, Bajrangi Bhaijaan and Baahubali.

Now at Rs.797, the stock trades at 36 times its trailing 12-month earnings, below its five-year average valuation of 45 times. This is also lower than the 39 times that its peer Inox Leisure is trading at. The prospects for PVR too look good and investors can consider buying the stock.

With many big film releases in the current December quarter and some more to come in the otherwise relatively weak March quarter, the multiplex operator is expected to do brisk business. PVR, the country’s biggest multiplex chain, also plans to expand its presence in this space. Its proposed acquisition of DT Cinemas, the cinema exhibition business of DLF Utilities, is yet to get clearance from the Competition Commission of India. But once this is through, the company will be able to further strengthen its hold in the National Capital Region and Chandigarh.

An expected revival in urban consumption on the back of easing inflation and the payouts under the Seventh Pay Commission should benefit the company.

Movies lined up

PVR derives 60 per cent of its revenue from box office collections and 25 per cent from food and beverages. Income from these two sources is a direct function of the crowds that are drawn into theatres which, in turn, depends on the success of the movies being screened.

PVR performed well during the half-year ended September 2015, growing revenue 26 per cent (year-on-year) to ₹961 crore. This was thanks to many blockbuster movie releases during this period that translated into better performance metrics for the company.

Accordingly, PVR reported footfalls of 378 lakh (up 22 per cent), average ticket price of ₹185 (up 3 per cent) and higher spend per head on food and beverages of Rs.71 (up 13 per cent). The company’s operating profit too increased 80 per cent to Rs.203 crore and net profit grew by almost five times to Rs.99 crore. In the past too, PVR has managed to grow its key performance metrics.

Average ticket prices, for instance, went up to Rs.187 by the latest September quarter from Rs.167 in 2012-13. Spend per head too increased to Rs.68 from Rs.48 during this period.

A strong showing by movies such as Prem Ratan Dhan Payo, Dilwale, Bajirao Mastani and Spectre in the ongoing quarter and the release of others, such as Wazir, Airlift and Gangajal in early 2016 should therefore boost the company’s revenue in the near term.

Replicating a good show

PVR, which has been expanding its presence over the years, both through acquisitions and setting up new properties, has grown to the current 482 screens across 108 properties from 351 screens across 85 properties in 2012-13. PVR plans to add a further 62 screens across 10 properties by the end of this fiscal.

Until September, it had opened 13 screens and added three properties. During the December quarter, it expects to add about 22 screens that are ready but await licences.

If the acquisition of DT Cinemas goes through, it will add 29 screens across eight properties to the company’s existing portfolio. Given that DT Cinema’s properties are at prime locations, this should imply better average ticket prices and spend per head.

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