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The stock of PVR, which has been consistently rising since the last two years and more specifically since October 2012, made a new all-time high of Rs 442.75 on Thursday. While the recent gains can be attributed to the commissioning of new multiplexes that will aid growth, the rise in the last one year follows the company’s acquisition of Cinemax.
What’s more, the gains are likely to continue. Most analysts remain positive on the company's future prospects and expect its consolidated revenues to grow at a compounded annual rate of 45 per cent to Rs 1,700 crore and net profit by 47 per cent to Rs 98 crore over FY13-15. As merger synergies fructify and the company's capital expenditure (capex) growth gradually tapers, PVR's return ratios such as return on capital employed and return on equity are also expected to expand 20 basis points (to 7.8 per cent) and 170 basis points (to 15 per cent), respectively, by FY15. At the current price of Rs 432, the stock trades at a price earning of 17.8 times its FY15 estimated earnings, and hence, investors could look at buying on dips.
PVR’s acquisition of Cinemax in November last year made it India's largest multiplex chain with 383 screens and 89 properties as on June 30, 2013 (versus INOX and Fame’s 287 screens and Big Cinemas’ 254 screens). However, the gains therefrom will start fully reflecting in the coming quarters in the form of improved synergies, higher bargaining power with advertisers, lower food and beverage spends, reduced film hire costs as well as economies of scale. Consequently, its Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin is expected to expand from 14.5 per cent in FY13 to 17 per cent in FY15, believe analysts.
Despite a slowing economy, PVR continues to expand its businesses. It plans to add 140-150 screens over the next two years, taking its total tally to 500 by FY15, which should further bolster its position in the sector. “With zero content differentiation and little service differentiation, the pace of execution and occupying the right catchment areas are the key success parameters in the multiplex business. PVR has prime retail space of 3.2 million square feet (msf) across 36 cities in India, likely to reach 3.9 msf across 44 cities by the end of FY14. We believe this is a key entry barrier and will help PVR to protect its turf,” says Niket Shah, analyst at Motilal Oswal Securities.
PVR is also expanding in other businesses such as restaurants, gaming zones and in-mall entertainment, which currently account for less than five per cent of revenues and 10 per cent of profits. The company has 110 bowling lanes across five bowling centres and plans to take this tally to 220 lanes by FY15. The management expects annual revenues of Rs 100 crore from the bowling business. In addition to its ‘Mistral’ restaurant in Delhi, PVR plans to open another restaurant, Mr Hong, in Bangalore by October. Put together, PVR has lined up a total capex of Rs 300 crore over the next two years for expanding its multiplexes and other businesses, compared to Rs 380 crore in last two years.
“We are enthused by PVR’s sharp expansion in movie exhibition and its diversification into lifestyle businesses. However, a spike in interest costs is a key concern,” says Abneesh Roy, media analyst at Edelweiss Securities. PVR, on its part, is looking at lowering its net debt from Rs 600 crore currently to Rs 500 crore by FY15.What’s more, the gains are likely to continue. Most analysts remain positive on the company's future prospects and expect its consolidated revenues to grow at a compounded annual rate of 45 per cent to Rs 1,700 crore and net profit by 47 per cent to Rs 98 crore over FY13-15. As merger synergies fructify and the company's capital expenditure (capex) growth gradually tapers, PVR's return ratios such as return on capital employed and return on equity are also expected to expand 20 basis points (to 7.8 per cent) and 170 basis points (to 15 per cent), respectively, by FY15. At the current price of Rs 432, the stock trades at a price earning of 17.8 times its FY15 estimated earnings, and hence, investors could look at buying on dips.
PVR’s acquisition of Cinemax in November last year made it India's largest multiplex chain with 383 screens and 89 properties as on June 30, 2013 (versus INOX and Fame’s 287 screens and Big Cinemas’ 254 screens). However, the gains therefrom will start fully reflecting in the coming quarters in the form of improved synergies, higher bargaining power with advertisers, lower food and beverage spends, reduced film hire costs as well as economies of scale. Consequently, its Ebitda (earnings before interest, taxes, depreciation, and amortisation) margin is expected to expand from 14.5 per cent in FY13 to 17 per cent in FY15, believe analysts.
Despite a slowing economy, PVR continues to expand its businesses. It plans to add 140-150 screens over the next two years, taking its total tally to 500 by FY15, which should further bolster its position in the sector. “With zero content differentiation and little service differentiation, the pace of execution and occupying the right catchment areas are the key success parameters in the multiplex business. PVR has prime retail space of 3.2 million square feet (msf) across 36 cities in India, likely to reach 3.9 msf across 44 cities by the end of FY14. We believe this is a key entry barrier and will help PVR to protect its turf,” says Niket Shah, analyst at Motilal Oswal Securities.
PVR is also expanding in other businesses such as restaurants, gaming zones and in-mall entertainment, which currently account for less than five per cent of revenues and 10 per cent of profits. The company has 110 bowling lanes across five bowling centres and plans to take this tally to 220 lanes by FY15. The management expects annual revenues of Rs 100 crore from the bowling business. In addition to its ‘Mistral’ restaurant in Delhi, PVR plans to open another restaurant, Mr Hong, in Bangalore by October. Put together, PVR has lined up a total capex of Rs 300 crore over the next two years for expanding its multiplexes and other businesses, compared to Rs 380 crore in last two years.
For now, though, at current levels, operating profits are over three times its interest costs, and provide comfort. Besides, analysts expect PVR’s cash flow generation to improve due to new screen additions and peg free cash-flows (post capex) of Rs 130 crore in FY15.
Among key risks are delays in launching screens, which could impact revenue growth, and weak box-office performance of movies, which could lead to low occupancy rates and impact PVR’s profitability.
