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Successes in distribution & production along with a pan-India multiplex presence have put PVR in the limelight

Profile
PVR Limited holds the distinction of initiating the concept of multiplexes in India. Established in 1997, PVR set up India's first multiplex in Delhi and since then, the company has never looked backed and has now grown into a pan-India player with close to 101 screens.

It had the early mover advantage but now PVR is working hard to maintain its position and to be a trendsetter. In 2001, PVR Limited floated a subsidiary - PVR Pictures - to venture into the lucrative business of film production and distribution. PVR holds 60 per cent stake in the subsidiary with the balance 40 per cent stake held by JP Morgan Mauritius Holding Ltd and ICICI Venture in equal proportion. This subsidiary is credited for producing Taare Zameen Par, Contract, etc. And for distributing popular films like Ghajini.

The company's future plans include expanding its presence to 250 screens across India.

Promoter
Priya Village Roadshow was set-up as a Joint-Venture between Ajay Bijli and Village Roadshow of Australia. In 2006, the company went public and got listed itself in the Bombay Stock Exchange and and National Stock Exchange. The promoter and now the Chairman and Managing Director, Ajay Bijli, still holds the majority stake in the company through various investment firms.

Investment Rationale
Dominant Theatrical Collections
In the cities where PVR multiplexes are present, they are among the preferred choices for movie-goers. Moreover, PVR offers online ticketing; mobile based information & ticketing services as well as credit card based ticketing. These factors have enabled the company to maintain dominance over theatrical collections.

Lucrative Distribution Business
So far, distribution wing has distributed over 100 national and international movies. The distribution business is one of the most lucrative avenues of the film industry by itself, but with its chain of multiplexes, PVR has a competitive advantage over other players.

Successful Start in Production
PVR couldn't have chosen a better movie than Taare Zameen Par to venture into film production. The movie was a major success and boosted PVR's credulities. In 2008, PVR produced two other movies, Jaane Tu Ya Jaane Na and Contract. Both the movies did well at the box office. With the kind of start PVR has in production, this avenue in the coming years will help to boost the revenues.

Risk & Concerns
Lower Occupancy Levels
The IPL, terrorist attacks, security threats and the lack of quality content in 2008 adversely affected PVR's occupancy levels, which hit a low of 32 per cent in Q1FY09. Historically, PVR's occupancy rate used to be at 41 per cent. However, towards the end of the year, things looked brighter with the release of big-ticket movies like Rab Ne Bana Di Jodi and Ghajini. In the coming times, the quality of the movies will be a critical factor in elevating PVR's occupancy levels.

Delay in Screen Launches
PVR has seen delays in the launching of new screens. Construction delays and the ongoing recession are the reasons behind the slowdown in PVR's expansion plans. The dull global sentiments are also expected to hit the film industry, which spells bad news for PVR as well.

Increase in Ticket Prices
The average ticket price in FY08 was Rs 127, which is estimated to increase to Rs 142 through FY09E. Furthermore, food and beverage prices have been on the rise. From Rs 32 in FY08, the average food and beverage spend is expected to increase to Rs 42 through FY09E. Higher spend per patron will partially offset the impact of lower occupancy, but at the same time, it may turn movie-goers away from multiplexes.

Declining EBITDA Margins
EBITDA margins are expected to fall from 19 per cent in FY08 to 16.7 per cent in FY09E. Lower occupancy, higher publicity expense on new properties and higher fixed cost expenses are the reasons behind the average operational performance. However, the recent launches in Mumbai will contribute to the EBITDA from FY10E, which is estimated to rise to 18.7 per cent.

Valuation
At the current market price of Rs 99, PVR trades at P/E of 12x FY09E and 7.5x FY10E earnings. Current valuations are compelling as the company is trading at a discount of 15 per cent to its peers, even though it commands higher occupancy and higher average spends per patron. Further-more, the company is also trading at a 42 per cent discount to its replacement costs and its return ratios are going forward as well. All in all, PVR can be termed as 'value buy' right now.



Financials
  FY06  FY07  FY08  9 Mths*
Net sales (Rs cr)  107 166 238 216
PAT (Rs cr)  5 11 21 14
Operating profit (Rs cr)  10 14 32 32
Interest payments (Rs cr) 3 6 7 39
Borrowings (Rs cr) 62 60 96 -
Return on networth (%) 5 5 10 -
Ret on capital employed (%)  15 16 25 -
* FY09