PVR - BUY

Investors with a two-year horizon can consider buying the shares of PVR, a player in the multiplex movie exhibition space, considering its good business prospects and relatively better positioning among peers.

At Rs 85, the stock trades at eight times its likely 2008-09 per share earnings. This is at a discount to the multiple that Inox Leisure enjoys, despite PVR having a bigger scale of operation in terms of the number of screens operated and better profit margins (over eight per cent), the highest among listed movie exhibition players.


Improving average ticket price, strength in food and beverages sales and continuing strength in garnering advertising revenues are key positives for PVR.

Other positives are increasing spend per head of visitors, improving contribution of revenues from its screens to movies leading to a higher share for PVR and profits to be booked from runaway hit Jaane Tu Ya Jaane Na, which its subsidiary co-produced.

A decline in occupancy levels, largely due to lower footfalls on the back of terror attacks and threats, and a slowdown in the real-estate market, forcing developers to decrease pace of development in malls and multiplexes, are areas of concern.

PVR has 101 screens across 25 locations in 14 cities in the country. Its performance in 2005-08 has been impressive with revenues growing at a compounded annual rate of 57.3 per cent to Rs 265.9 crore and profits at 79.2 per cent to Rs 21.6 crore. The potential for the film industry and, ipso facto, box-office collections is high for a country such as India, where there is a lack of alternative sources of cheap entertainment.

A recent report of PWC-FICCI on Indian entertainment and media, expects the film industry to grow annually at 13 per cent to Rs 17,550 crore by 2012, while domestic box-office collection is set to grow at 11 per cent to Rs 12,250 crore.

PVR appears well-placed with its dual model of super high-priced tickets in key metros and low-priced ones in tier-I and tier-II cities.
Ticket pricing and other businesses expand

One of the key parameters of cinema screens is the average ticket price level. Ticket sales and revenue share from screens (franchisee developers) operations contribute over 60 per cent of revenues.

PVR has seen its average ticket price (ATP) improve continuously over the last five quarters to Rs 140 currently.

This has been made possible by a hybrid pricing model adopted by the company, depending on the location where it operates. In places such as Saket in Delhi, its ATP is as high as Rs 225. This represents its pricing power on the back of patronage that it enjoys.

The spending per head on other utilities such as food and beverages has also been impressive.

This stands at Rs 39 currently, up 25 per cent over last year. This is a relatively high-margin business, which has increased its contribution to revenues to nearly 21 per cent currently, and is growing by over 30 per cent annually.

Advertising, the other key contributor to revenues (13 per cent) has seen increasing growth rates. From 59 per cent growth in 2008-09, it has improved to over 65 per cent in the first half of this year.

As a more easily accountable form of viewer-ship compared to television or radio, advertisers may be less inclined to cut spends on this medium.

However, concerns may stem from the fact that PVR’s occupancy has declined to 36.5 per cent compared to above 40 per cent levels in 2007.

Footfalls have also declined, on the back of terror threats. However, there is a seasonality associated with movie screens as the December and June quarter are the usually stronger ones. This may also prompt advertisers to tailor budgets accordingly.
Movies and distribution look good

PVR has consistently accounted for over 10 per cent of collections of movie revenues from its screens. In movies such as the hits Jab We Met and Taare Zameen Par this figure went to over 18 per cent.

This movie-screening and distribution has a twin effect for the company. One, it improves revenue share for itself. 0Two, its success and wider reach means that it can pay a lower share to the distributor. In fact, the share paid to distributors has been falling consistently. This, in turn, would improve margins for PVR as it is the chief cost component.

PVR Pictures, a subsidiary, is in the business of producing and distributing films. It has co-produced films such as Taare Zameen Par and , both of which were runaway hits. The latter movie was launched in the second quarter of this fiscal and waits booking of profits.

This division has received a shot in the arm with an investment of Rs 120 crore from JP Morgan and ICICI Venture. PVR Picture hopes to produce 8-10 films over the next year.



Improving average ticket price, strength in food and beverages sales and in garnering advertising revenues are key positives for PVR.




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