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2 February 2015
3QFY15 Results Update | Sector: Media
PVR Ltd
Niket Shah ([email protected]); +91 22 3982 5426
Atul Mehra ([email protected]); +91 22 3982 5417
BSE SENSEX S&P CNX CMP: INR681 TP: INR860 (+26%) Buy 29,122 8,797
Bloomberg PVRL IN
Equity Shares (m) 41.4
M.Cap. (INR b) / (USD b) 28.2/0.5
52-Week Range (INR) 751/465
1, 6, 12 Rel. Per (%) -7/-3/-15
Avg Val (INRm)/Vol ‘000 76/122
Free float (%) 70.4
Financials & Valuation (INR Million)
y/e MAR 2015E 2016E 2017E
Net Sales 15,339 18,476 22,550
EBITDA 2,400 3,139 3,957
Adj PAT 361 785 1,163
EPS (INR) 8.8 19.1 28.3
Gr.(%) -31.8 117.2 48.2
BV/Sh INR 103.0 119.2 141.7
RoE (%) 8.8 17.2 21.7
RoCE (%) 11.2 15.8 21.3
P/E (x) 77.5 35.7 24.1
P/BV (X) 6.6 5.7 4.8
Estimate change
TP change 15%
Rating change
Strong content drives beat; aggressive screen addition to drive growth Revenue in line, strong beat on margins: PVR reported overall revenue of INR4.2b
(est. INR4.2b), against INR3.4b in 3QFY14, marking a YoY growth of 24.6%. Movie exhibition revenue grew by 25% to INR3.9b, movie production and distribution revenue grew by 75% to INR118m, while other revenue (bowling and restaurant revenue) grew marginally by 10% to INR190m. EBITDA posted strong 69% growth YoY, with margin expanding by 520bp YoY from 14.6% in 3QFY14 to 19.8% in 3QFY15 (est. 17.2%). PAT grew 123% to INR316m in 3QFY15 (est. INR167m).
Key performance indicators robust: The quarter saw strong content with four blockbuster movies - Bang Bang, Haider, Happy New Year and PK. Also, PVR followed a differentiated pricing strategy during the quarter with a mix of premium weekend blockbuster pricing along with an affordable weekday pricing. Thus, ATP marked a growth of 5.1% from INR175 in 3QFY14 to INR184 in 3QFY15. SPH marked the highest-ever growth of 24% for PVR (8% price growth and 16% volume growth) from INR56 to INR67 on account of strategic pricing change, which mirrored the blockbuster release. Advertising revenue also showed a robust growth of 28% to INR539m as better content tended to increase sponsorship income. Even as SPH-to-ATP ratio has improved over the past two years from 30% to 36%, management cited confidence of the ratio moving higher to ~45-50% going forward, thus driving significant margin improvement.
Valuation and view: PVR targets to open 70-75 new screens annually over the next two years, thus taking the total screen count to ~650 by FY17 and maintain its leadership position. Movie screening is an under-penetrated business in India and we believe PVR will be the biggest beneficiary of a revival in discretionary spends. With multiple Hollywood sequels scheduled for FY16, coupled with robust overall content, we expect 21.2% revenue CAGR and 28.4% EBTDA CAGR over FY15-17. The stock trades at 10.7x FY16E and 8.2x FY17E EV/EBITDA. We value PVR at 10x FY17E EV/EBITDA. Maintain Buy with a revised target price of INR860.
Investors are advised to refer through disclosures made at the end of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
2 February 2015 2
PVR Ltd
Revenue in-line; Strong beat on margins PVR reported overall revenue of INR4.2b (est. INR4.2b) as against INR3.4b in
3QFY14 marking a YoY growth of 24.6%. Movie exhibition revenue grew by 25% to INR3.9b, Movie production and
distribution revenue grew by 75% to INR118m while other revenues (bowling and restaurant revenue) grew marginally by 10% to INR 190m.
EBITDA posted strong 69% growth YoY with margins expanding by 520bps YoY from 14.6% in 3QFY14 to 19.8% in 3QFY15 (est. 17.2%).
Consequently, PAT grew 123% from INR142m in 3QFY14 to INR316m in 3QFY15 (est. INR167m).
Exhibit 1: Revenue trend
Source: Company, MOSL
Exhibit 2: EBITDA trend
Source: Company, MOSL
Exhibit 3: Strong property growth continues…
Source: Company, MOSL
Exhibit 4: …along with increase in number of screens
Source: Company, MOSL
Exhibit 5: Total number of seats continues to rise
Source: Company, MOSL
Exhibit 6: Quarterly footfall trend
Source: Company, MOSL
3,352 3,658 3,373 3,142 3,623 4,002 4,203
86.3 89.868.7
28.48.1
9.424.6
Q1F
Y14
Q2F
Y14
Q3F
Y14
Q4F
Y14
Q1F
Y15
Q2F
Y15
Q3F
Y15
Revenue (INR m) YoY growth (%)
594 748493 332
547 586831
17.720.4
14.610.5
15.1 14.719.8
Q1F
Y14
Q2F
Y14
Q3F
Y14
Q4F
Y14
Q1F
Y15
Q2F
Y15
Q3F
Y15
EBITDA (INR m) Margin (%)
26 30 33 39
8597 101 102 104
FY09
FY10
FY11
FY12
FY13
FY14
1QFY
15
2QFY
15
3QFY
15
Number of properties
108 123 142 166
351421 444 454 462
FY09
FY10
FY11
FY12
FY13
FY14
1QFY
15
2QFY
15
3QFY
15
Number of screens
27,88632,232 36,877 42,252
87,493101,095105,668
107,809
109,762
FY09
FY10
FY11
FY12
FY13
FY14
1QFY
15
2QFY
15
3QFY
15
Number of seats
15.2
16.6
14.313.9
15.215.7 16.0
Q1F
Y14
Q2F
Y14
Q3F
Y14
Q4F
Y14
Q1F
Y15
Q2F
Y15
Q3F
Y15
Footfalls (mn)
2 February 2015 3
PVR Ltd
Key performance indicators continue to be strong The quarter saw strong content with four hit movies - Bang Bang, Haider, Happy
New Year and PK. Infact, PK alone contributed ~15% to PVR’s 3QFY15 revenues. Led by strong content and better pricing power, ATP marked a growth of 5.1%
from INR175 in 3QFY14 to INR184 in 3QFY15. PVR followed a differentiated pricing strategy with a mix of premium weekend blockbuster pricing along with an affordable weekday pricing offering best of both worlds.
SPH marked highest ever growth of 24% for PVR (8% price growth and 16% volume growth) from INR56 to INR67 on account of strategic pricing change, which mirrored with block buster release.
SPH to ATP ratio has improved significantly over past two years from 30% to 36%. Most of the Asian markets are in similar range whereas US market has higher ratio of 40%. Management believes that this ratio can further be improved to ~45-50% over the next 3-5 years as unlike other countries India has an interval in between movies which will drive this growth.
Advertising revenue also showed a robust growth of 28% to INR539m as better content tended to increase sponsorship income.
PVR attracts premium footfalls as against peers, which is a reason why advertisers prefer to pay higher yields. Some of the peers compensate lower yield with higher ad inventory, thus compromising consumer experience.
Exhibit 7: ATP continues to be robust
Source: Company, MOSL
Exhibit 8: SPH growth strong
Source: Company, MOSL
Exhibit 9: Snapshot of key matrices Consolidated 3QFY15 3QFY14 Change % 2QFY15 Change %
Location 104 94 10.6% 102 2.0% Screens 462 404 14.4% 454 1.8% Seats 109,762 98,019 12.0% 107,809 1.8% Footfalls (lakhs) 16.0 14.3 11.9% 15.7 1.9% ATP 184 175 5.1% 180 2.2% SPH 67 54 24.1% 64 4.7%
Source: Company, MOSL Exhibit 10: Consolidated revenue break up (INR m) Particulars 3QFY15 3QFY14 Change % 2QFY15 Change %
Ticket sales 2,307 1,965 17.4% 2,281 1.1% Sale of Food and beverages 988 731 35.1% 908 8.8% Advertisement and royalty income 539 420 28.4% 407 32.3%
Source: Company, MOSL
153 163 168 164 169 169 175 160 172 180 184
Q1F
Y13
Q2F
Y13
Q3F
Y13
Q4F
Y13
Q1F
Y14
Q2F
Y14
Q3F
Y14
Q4F
Y14
Q1F
Y15
Q2F
Y15
Q3F
Y15
ATP (INR)
46 46 47 4854 54 54 56
64 64 67
Q1F
Y13
Q2F
Y13
Q3F
Y13
Q4F
Y13
Q1F
Y14
Q2F
Y14
Q3F
Y14
Q4F
Y14
Q1F
Y15
Q2F
Y15
Q3F
Y15
SPH (INR)
2 February 2015 4
PVR Ltd
Strong outlook for screen additions Management is confident of ending FY15 with 483 screens which implies 4Q
addition of 21 screens. Management targets to add 70 new screens annually in FY16 and FY17. If
delivery pipeline improves, anumber can shoot up to 100. Annual capex guidance for FY16 / 17 stands at INR1.5b to INR1.7b. Management looks to spend INR500m towards capex on Cinemax re-branding.
The process has already begun in FY15, and will be completed by FY17.
Exhibit 11: Screen distribution for PVR
Source: Company, MOSL
Other conference call highlights The company has entered into an agreement to purchase L Capital’s 46% stake
in PVR Leisure Ltd (Bowling business) for INR370m (INR200m adjusted for cash on books of PVR Leisure Ltd. This is as against INR500m invested by L Capital towards this stake in August, 2012.
Management clarified that it is completely focused on the exhibition business and is not looking to expand the bowling business.
January as well has done well for the industry with movies like Baby; further content pipeline is strong for the rest of 4Q with key movies like, Badlapur, Roy.
PVR is working on automation of sales inventory through “Plexes” & “Network operating system” which will help in better monitoring & yield analysis, full roll out of which is expected by 31st March, 2015.
PVR will continue to be MAT paying company for next two years. PVR recorded 3% like to like footfall growth as against 9% for INOX as due to
renovation, some screens of PVR in South were partially available, also Gujarat as a market contributes higher to PVR screens where PK didn’t do as well.
2 February 2015 5
PVR Ltd
Valuations and view – Maintain ‘Buy’ We value PVRL at 10x FY17E EV/EBITDA with a target price of INR860 justified by: Continued leadership in film exhibition business in India. Significant screen additions in the pipeline. Strong content outlook going forward. GST rollout which can result in 200-300bp margin expansion. We believe the following factors pose risks to our assumptions: Weaker content which can reduce footfall growth. Slower than expected roll out of GST which can delay margin expansion. Escalating rental costs which can put pressure on margins. Continued price controls by state governments in several states like Tamil Nadu
and Andhra Pradesh. Exhibit 12: Target Price Methodology Valuations (INR m)
EBITDA- FY17E 3,957
Target Multiple 10.0
Target Enterprise Value 39,568
Less:- Debt 4,683
Add:- Cash 442
Target Mcap 35,327
No of shares 41.1
Value per share 860
Source: MOSL
Exhibit 13: Historic EV/EBITDA band for PVR
10.8
49.5
12.3
5.10
12
24
36
48
60
Jan-
06
Aug-
06
Mar
-07
Oct
-07
Apr-
08
Nov
-08
Jun-
09
Dec
-09
Jul-1
0
Feb-
11
Aug-
11
Mar
-12
Oct
-12
Apr-
13
Nov
-13
Jun-
14
Dec
-14
EV/EBDITA(x) Peak(x) Avg(x) Min(x)
2 February 2015 6
PVR Ltd
Story in charts
Exhibit 14: India has the lowest screen density
Source: Company, MOSL
Exhibit 15: Multiplex penetration still quite low
Source: Company, MOSL
Exhibit 16: PVR is India’s largest multiplex chain
Source: Company, MOSL
Exhibit 17: PVR - most aggressive screen additions
Source: Company, MOSL
Exhibit 18: RoCE to improve significantly
Source: Company, MOSL
Exhibit 19: Free cash to improve significantly
Source: Company, MOSL
8
31 38 43 45 46 52 53 6177
125
Indi
a
Chin
a
UK
Bel
gium
Ger
man
y
Spai
n
Ital
y
Irel
and
Den
mar
k
Fran
ce US
Screen / mn population
8700 8600 8100 7700 7700
888 960 1104 1400 1700
2009 2010 2011 2012 2013
Single Screens Multiplex
421348
259
84 8229
PVR
+
Inox
+
Big
Ci
nem
as
Cine
polis
Fun
Cine
mas
DT
Cine
mas
No of screens (FY14 end)
166
351421
481541
596
FY12 FY13 FY14 FY15E FY16E FY17E
Number of screens
6.4 10.4
7.8 11.1 11.2
16.0
21.6
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
RoCE (%)
-153 -68 -841
859651
1,5121,922
FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Free cash flow (INR m)
2 February 2015 7
PVR Ltd
Exhibit 20: Content for Jan 15
Source: Company, MOSL
Exhibit 21: Content for Feb 2015
Source: Company, MOSL
2 February 2015 8
PVR Ltd
Exhibit 22: Content for March 2015
Source: Company, MOSL
Exhibit 23: Content for March 2015
Source: Company, MOSL
2 February 2015 9
PVR Ltd
Key operating metrics
Operating matrices Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15
Location 88 92 94 97 101 102 104
Screens 382 398 404 421 445 454 462
Screens additions during the quarter 22 16 6 17 24 9 8
Seats 93,074 96,735 98,019 101,095 105,668 107,809 109,762
Footfalls (m) 15.2 16.6 14.3 13.9 15.2 15.7 16.0
ATP (INR) 169 169 175 160 172 180 184
SPH (INR) 54 54 54 56 64 64 67
Consolidated revenues (INR mn) Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15
Ticket sales (INR m) 2,026 2,224 1,965 1,742 2,078 2,281 2,307
Sale of Food and beverages (INR m) 742 795 731 713 890 908 988 Advertisement and royalty income (INR m) 313 355 420 328 358 407 539
Other income 97 110 91 107 106 129 148
Total revenues (INR mn) 3,178 3,483 3,208 2,890 3,432 3,725 3,981
Revenue mix Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15 Q3FY15
Ticket sales 64% 64% 61% 60% 61% 61% 58%
Sale of Food and beverages 23% 23% 23% 25% 26% 24% 25%
Advertisement and royalty income 10% 10% 13% 11% 10% 11% 14%
Other income 3% 3% 3% 4% 3% 3% 4%
Total revenues 100% 100% 100% 100% 100% 100% 100%
Key Assumptions FY12 FY13 FY14 FY15E FY16E FY17E
Number of Screens 166 351 421 481 541 596
Screen additions 24 59 70 60 60 55
Number of seats 42,252 87,493 101,095 117,895 134,695 150,095
Occupancy rate 31% 34% 31% 30% 30% 30%
Number of shows per day 4.8 5.7 5.4 5.0 5.0 5.0
Total footfalls (m) 41 55 60 59 68 76
Average ticket price (INR) 156 163 168 178 189 200
ATP growth (YoY) -4% 4% 3% 6% 6% 6%
Spend per head (INR) 43 47 54 65 78 93
SPH growth (YoY) 7% 9% 15% 20% 20% 20%
Ad revenue per screen (NR/m) 4.2 3.8 3.9 4.0 4.2 4.4
2 February 2015 10
PVR Ltd
Corporate profile: PVR
Exhibit 25: Shareholding pattern (%) Dec-14 Sep-14 Dec-13
Promoter 29.6 29.0 29.8
DII 4.7 3.1 17.2
FII 26.2 27.8 18.4
Others 39.5 40.1 34.6
Note: FII Includes depository receipts
Exhibit 26: Top holders Holder Name % Holding
L Capital Eco Ltd 15.1
Multiples Pvt Equity Fund I Ltd 7.0
Major Cineplex Group Public Company Ltd 5.6
Morgan Stanley Asia (Singapore) Pte 5.3
Baron Emerging Markets Ltd 3.4
Exhibit 27: Top management
Name Designation
Ajay Bijli Chairman & Managing Director
Sanjeev Kumar Joint Managing Director
Exhibit 28: Directors Name Name
Ajay Bijli Renuka Ramnath
Sanjeev Kumar Vicha Poolvaraluk
Amit Burman* Ravinder Singh Thakran
Sanjai Vohra* Sanjay Kapoor*
Sanjay Khanna* Narayan Ramachandran
Vikram Bakshi*
*Independent
Exhibit 29: Auditors
Name Type
S R Batliboi & Co LLP Statutory
Exhibit 30: MOSL forecast v/s consensus EPS
(INR) MOSL
forecast Consensus
forecast Variation
(%)
FY15 8.8 15.1 -41.7 FY16 19.1 27.7 -31.0 FY17 28.3 37.2 -24.0
Company description PVR, a pioneer in multiplex development in India, is the largest cinema exhibition player in the country today. Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain with 102 properties, 454 screens and 108k seats. Being the only player that is still expanding aggressively, it is further extending its leadership.
Exhibit 8: Sensex rebased
450
550
650
750
850
Feb-14 May-14 Aug-14 Nov-14 Feb-15
PVR Sensex - Rebased
2 February 2015 11
PVR Ltd
Financials & valuations
Consolidated - Income Statement (INR Million) Y/E March FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Net Sales 3,341 4,593 5,171 8,053 13,475 15,339 18,476 22,550 Change (%) -5.1 37.5 12.6 55.7 67.3 13.8 20.4 22.1
Total Production Expenses 1,192 1,564 1,737 2,764 4,357 4,707 5,552 6,787
Personnel Expenses 420 473 563 796 1,244 1,529 1,813 2,182
Rent 450 506 806 1,296 2,304 2,838 3,376 3,874
Administrative & Other Expenses 934 1,164 1,303 2,027 3,453 3,866 4,595 5,750
Total Expenditure 2,997 3,706 4,410 6,884 11,358 12,940 15,336 18,593
EBITDA 344 886 761 1,169 2,117 2,400 3,139 3,957
Margin (%) 10.3 19.3 14.7 14.5 15.7 15.6 17.0 17.5
Depreciation 274 674 365 560 944 1,274 1,508 1,760
EBIT 70 212 396 609 1,173 1,126 1,631 2,197
Int. and Finance Charges 159 162 185 368 795 801 754 700
Other Income - Rec. 98 107 120 91 113 40 46 53
PBT 9 157 331 332 491 365 923 1,550
Current Tax -3 7 -5 94 140 4 138 388
Deferred Tax 4 146 62 -218 -121 0 0 0
Tax Rate (%) 11.3 97.9 18.5 -38.7 3.7 1.0 15.0 25.0
Reported PAT 14 82 254 445 560 361 785 1,163
PAT Adj for EO items 14 82 272 463 530 361 785 1,163
Change (%) -83.8 505.1 232.1 70.3 14.5 -31.8 117.2 48.2
Margin (%) 0.4 1.8 5.3 5.7 3.9 2.4 4.2 5.2
Consolidated - Balance Sheet
Y/E March FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Equity Share Capital 256 271 259 396 411 411 411 411
Total Reserves 2,834 3,142 2,571 6,031 3,582 3,824 4,489 5,413
Net Worth 3,090 3,414 2,830 6,427 3,993 4,235 4,900 5,824
Minority Interest 602 544 139 854 771 771 771 771
Deferred Liabilities 217 314 106 7 4 4 4 4
Total Loans 1,799 1,615 2,033 6,566 6,133 6,383 5,683 4,683
Capital Employed 5,709 5,886 5,109 13,854 10,902 11,394 11,359 11,283
Gross Block 4,134 5,489 4,271 7,955 11,889 13,689 15,039 16,389
Less: Accum. Deprn. 1,148 1,812 1,569 2,066 3,723 4,997 6,505 8,265
Intangible assets- Goodwill 27 4,072 31 31 31 31
Net Fixed Assets 2,986 3,677 2,728 9,960 8,197 8,724 8,565 8,155
Capital WIP 777 430 876 1,541 806 767 831 1,015
Total Investments 1,071 5 6 380 235 235 235 235
Curr. Assets, Loans&Adv. 1,414 2,444 2,516 3,970 4,294 4,358 4,778 5,530
Inventory 37 53 79 107 106 96 108 129
Account Receivables 144 300 270 425 523 420 506 618
Cash and Bank Balance 208 790 216 368 273 254 187 193
Loans and Advances 1,026 1,301 1,950 3,070 3,392 3,588 3,976 4,591
Curr. Liability & Prov. 590 670 1,017 2,014 2,631 2,690 3,051 3,652
Account Payables 541 614 918 1,888 2,392 2,407 2,712 3,229
Provisions 50 56 99 126 239 283 339 423
Net Current Assets 824 1,774 1,498 1,957 1,663 1,668 1,727 1,878
Appl. of Funds 5,709 5,886 5,108 13,855 10,902 11,394 11,359 11,283
2 February 2015 12
PVR Ltd
Financials & valuations
Ratios
Y/E March FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Basic (INR)
EPS 0.7 5.9 9.9 11.3 15.0 8.8 19.1 28.3
Cash EPS 11.0 24.9 24.5 25.8 34.5 39.8 55.8 71.1
BV/Share 120.6 125.7 109.3 162.2 97.1 103.0 119.2 141.7
DPS 1.0 1.1 6.0 1.5 4.0 4.0 4.0 7.9
Payout (%) 373.6 1,028.6 71.0 10.4 23.9 33.0 15.2 20.5
Valuation (x)
P/E
49.9 77.4 35.6 24.0
Cash P/E
19.7 17.1 12.2 9.6
P/BV
7.0 6.6 5.7 4.8
EV/Sales
2.5 2.2 1.8 1.4
EV/EBITDA
16.0 14.2 10.7 8.2
Dividend Yield (%)
0.6 0.6 0.6 1.2
Return Ratios (%)
RoE 0.5 2.5 8.1 9.6 10.8 8.8 17.2 21.7
RoCE 3.7 6.4 10.4 7.8 11.1 11.2 15.8 21.3
Working Capital Ratios
Asset Turnover (x) 0.6 0.8 1.0 0.6 1.2 1.3 1.6 2.0
Inventory (Days) 4 4 6 5 3 2 2 2
Debtor (Days) 14 22 19 19 14 9 9 9
Creditor (Days) 59 49 65 86 65 57 54 52
Working Capital Turnover (Days) 67 78 90 72 38 34 30 27
Leverage Ratio (x)
Current Ratio 2.4 3.6 2.5 2.0 1.6 1.6 1.6 1.5
Debt/Equity 0.6 0.5 0.7 1.0 1.5 1.5 1.2 0.8
Consolidated - Cash Flow Statement Y/E March FY10 FY11 FY12 FY13 FY14 FY15E FY16E FY17E
Net P / L Bef. Tax & EO Items 7 157 310 319 523 365 923 1,550
Depreciation 274 674 365 560 944 1,274 1,508 1,760
Interest & Finance Charges 159 138 159 326 743 801 754 700
Direct Taxes Paid -20 -9 -108 -233 -154 -4 -138 -388
(Inc)/Dec in WC -80 -254 -152 556 91 -24 -126 -145
CF from Operations 340 706 573 1,529 2,147 2,412 2,921 3,477
(inc)/dec in FA -900 -806 -560 -2,372 -1,273 -1,761 -1,414 -1,533
CF from Investments -854 448 -1,031 -8,073 -1,065 -1,761 -1,414 -1,533
Issue of Shares 427 26 -66 3,820 121 0 0 0
(Inc)/Dec in Debt 337 -227 427 3,278 -434 250 -700 -1,000
Interest Paid -171 -179 -207 -425 -812 -801 -754 -700
Dividend Paid -27 -31 -150 -60 -46 -119 -119 -238
CF from Fin. Activity 664 -518 -34 6,695 -1,162 -670 -1,573 -1,938
Inc/Dec of Cash 124 582 -574 151 -95 -19 -66 6
Add: Beginning Balance 84 208 790 216 368 272 253 187
Closing Balance 208 790 216 368 272 253 187 192
2 February 2015 13
PVR Ltd
N O T E S
2 February 2015 14
PVR Ltd
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