PVR Ltd.- Play on increasing disposable income

Stock Opportunities
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**PVR Ltd.

CMP- Rs.396…P/E: 19.
MCap: 1620 cr.
Quoting SRK “When you are going through a(bad)phase in the economy,the only vent you have is participating in some unwinding activity.I think entertainment provides that.It could be Televison or Sports or Movies or just dressing up- you feel good about yourself.I think entertainment is like lipstick,it makes people feel good about themselves.I think movies are the greatest escape & I feel its alright to escape for a while.Different people different preferences & movies are the most effective means.”
Of late,movies have done scorching business-Yeh Jawaani Hai Deewani,Chennai Express.I gather Madras Cafe is also doing well.Many big-ticket releases are also lined up- Dhoom 3,Krrish 3,Grand Masti,Besharam,etc.Anyways,its a proven fact that movies do great biz in recessionary/bad times.
No. of films in 2009: 90…Box Office collections(revenues): 1797 cr.
No. of films in 2008: 87…Box Office collections(revenues): 1830 cr.
Talking about the company,PVR is the largest listed player in the segment.Managed by the Bijli family,the company started in 1992.With the Cinemax acquisition,the co. has widened its reach by a good deal(we all know that) There is little competition in the multiplex segment for PVR,so the risk of Market Share loss is low.Presently the market share is around 25%.The Indian film industry is projected to grow at a CAGR of 10.5% to INR 150 billion by 2016.The screens are slated to reach 2200+ by 2016.
The sales CAGR of the co. has been a robust 30%+ in the past 3 years(all without ‘bad’ times) The Net profits too have recorded a scorching growth of 60%+.The penetration of multiplexes is increasing,PVR too is on the train.PVR presently has 385 screens in 90 locations & 37 cities.They plan to take the no. of screens to 437 by 2014 & 500 by 2015.PVR has a strong presence in Delhi,NCR,Mumbai,Chennai,Hyderabad,Bangalore.They own the largest multiplex in India,located in Chandigarh,with 11 screens.They opened India’s first2K Dolby Digital Multiplex & have an expanding chain of premium screens(PVR Premiere)The co. is opening their first multiplex here soon,in Dehradun.So,they are also looking to expand reach in Tier II/Tier III cities.**

**Basically,I feel the company is like a quasi-consumption play and it doesn’t need much head scratching to figure out the potential of the industry(which has been a very consistent sector in the past too) The increasing transparency in Ticket sales is an added positive.
Indian movies have started to gain much higher sales abroad: US,UK,Russia are key markets(Asian ones too) I believe the co. will expand abroad too.The company recently entered into a 5-year ‘strategic partnership’ with BookMyshow.com.
The company reported a negative cash flow for FY2013.Largely owing to the Cinemax acquisition.Though the expansions(cost=150 cr. for 75 screens,slated by 2014)may put a stress,I feel they should report positive cash flows for FY2014.

RISKS:
The stock has more than doubled in the past 1 year.Good performance over a 2 year period as well.
Content based industry.Implying that poor content can have an adverse impact(the management has no control over this content)
Big brands flocking to the industry in the future may dilute the growth rate.

Take two:
All in all,I feel the stock provides an excellent hedge in these markets.At a time when markets are expected to go much deeper,even ValuePickr picks shall bear the brunt.No doubt,we would like to buy them then.So,why not swap 'em with PVR for the time being.The stock has seen some very good accumulation in the past few days/weeks.It touched a new high today itself.The management is efficient & is constantly on the lookout for opportunities.The dividend yield too is decent at 1.5%.
Though I feel there is enough,I apologise beforehand for the things I missed.

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The 1st thing to ask in Indian share market — “promoter kaisa hai ???”

Few more negatives from screener.in

Cons:

)- Promoters have pledged 26.78% of their holding

)- Promoter holding is low: 31.00%

)- Company has a low return on equity of 3.54% for last 3 years.

)- Stock is trading at 4.77 times its book value

)- Company has low interest coverage ratio.

)- Promoter’s stake has decreased

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The expansion spree makes sure that there will be stress on RoE.We will have to live with that.
The pledging will come down with improving cash flows.
The low promoter holding shouldn’t be a deterrent: FIIs hold 38% of the company.In HDFC Bk,the promoter holding stands at 23%,there are many other good companies with low promoter holding.
Many pharma stocks trade at 6X+ their Book value.
The Debt/Networth is around 0.6.I realise Interest coverage is an important parameter,but I am weak on that front(don’t understand that stuff)
The Bijli’s have made a strong brand in PVR from the past 20 years.Its one thing to be skeptical & another to be cynical.I don’t think promoter integrity is an issue here.
Anyways,I view this as a trading bet & not an investment.The time horizon being 6-9 months at the most.

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Promoters sold part of their stake and did a preferential allotment to Multiples and L Capital , both long term PE players .This was done to fund the cinemax acquistion partly by equity and partly by debt (hence the pledging) .

The rational being cinemax acquisition will give PVR more or less a monopoly by controlling around 33% screens in the country andprovides operating leverage and synergy which would be more than adequate to service the debt .

As far as i have tracked Promoters are best in their business ,thats why PVR trades at a huge premium to the second equally sized player - inox(whenever they decide to show profits i.e!) .i dont hold pledging and equity reduction as negative if it was done to take the business to next level.

Had invested here for few years from 100 odd levels and booked out couple of months back in 300-330 rangesimply because of the debt company undertook to fund cinemax acquistion was little out of my comfort rangeand felt that company would take sometime to digest the cinemax acquisition and i would get in at a lower price .Alas, Mr.Market thinks otherwise !stock has held firm and continues to rally in a horrible market.

ROE should improve going forward as the company has been in huge expansion phase for last few years .

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hi sagar

not sure where you got the PE or div yield figures for pvr , they are not accurate . They paid only 1 buck dividend this year , which is understandable given that they had loaded on debt on expanded equity base . Also , PE if you go by last year’s EPS , works out to 24-25.

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accurate.PE

Check the Bse website,the EPS for June '12-June '13 works out to be Rs.21.1.The dividend for Q1 was Re 1.You can’t just look at one quarter for div. yield.For the full year,they gave out Rs.6/share which gives a no. of 1.52%.

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Please check the history of warrat issuance and subscription by promoters in the past. If I am not wrong , the promoters issued the warrant and did not subscribe when prices fell. Second, please check the price performance of the company during 2007-09. That should tell you how company will perform during bear market.

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Hi Sagar,

Havent studied the company, but just a thought.

Dont you think the opportunity cost for investing/trading in PVR is high since u plan to keep it as a part of portfolio for limited period of time, at a time when proved and tested good business are available at similar if not lower valuation levels already.?

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If want to buy for nine months then one can buy Cinemax which will be merged with PVR.

http://www.bseindia.com/corporates/anndet_new.aspx?newsid=6b2e07ad-3a0d-4ca6-b363-01d5ca71ab08

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high…at

First of all,PVR too is a proven/tested business with a track record of 20 years :slight_smile: The biggest trigger is the oncoming releases which should provide an excellent quarter,even a content driven film like Madras Cafe is doing well.Yes,financials,autos & many of our fav midcaps are at attractive prices but does it seem that this market is halting to make a turn? As of now,there is little/no light at the end of the tunnel.So,for the time being lets stay in a biz which is in a sweet spot.

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Not subscribing to warrants does look bad.But,on the other hand,the co. did complete a buyback in 2011,of 10% equity.
Its better to compare PVR of 2008 & PVR of 2013.Is it still a smallcap stock? Aren’t they in a better position now? Business wise?(multiplexes have been a booming industry in the past 5 years) I gather the Institutional holding has increased a lot since then.Also,past performance shouldn’t be the lone parameter.Even Gruh fell from 40 to 16 in that market.ARBL too had corrected from 65 to 16.Does that mean it will be repeated?

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Cinemax has trebled in the past 1 year.The synergies would ultimately flow to PVR & its a good deal for them too.The interest cost has risen,but after Q1,in an interview,Mr. Ajay Bijli said that the cost as a % of earnings,is still the same.Their reach is very large now.

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[quote="sharemarketgen_, post:6, topic:363637904"] works out to just look at [/quote]

Sagar

Check the dividend history on bse itself, the full year dividend was Rs .1 . If you are referring to dividend for last FY, They paid a paid a special interim dividend of Rs.4 from the proceeds of sale of real estate assets (phoenix mills multiplex ), this is unlikely to repeat.

Date Purpose
23/09/2013 Final Dividend 1.00
24/09/2012 Final Dividend 2.00
05/10/2011 Interim Dividend 4.00
01/08/2011 Final Dividend 1.00
20/09/2010 Final Dividend 1.00

Calculating the EPS that way might be tricky for PVR , they included the cinemax numbers starting Q4-2013 and equity base was also expanded from Q4-2013 , if i go by consolidated EPS for the full year , it

be around 15 . Also , please consider consolidated EPS for your calculation , they also have a bowling business too (Blu-0) which has been making losses and reflects in the consolidated P&L.

Either way iam excited about the prospects of the company but feel current price doesnt give any margin of safety. Doesn't give room for any negative surprises .

Film exhibition business is not as smooth to warrant this kind of valuations , past 5 year history . Its largely driven by the content that is churned out by the indian film industry, which isn't exactly very consistent over the years and goes through cycles . Also , big ticket events like IPL etc impact occupancies in a big way so much so that until last year bollywood used to avoid big releases in Q1 to avert clashing with IPL schedule.

Additionally , getting swayed by Sales growth numbers over the years for PVR can be somewhat misleading , as company has partly increased revenues by continuing to add newer screens but this may not have led to improved profitability or increased overall occupancies. Something like same store sales growth would be a more accurate guage if they provide it .

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Shadab,
5.76+5.28+5.94+4.1=21.08.I don’t know where’s the dispute on EPS?
Regarding dividend,you might well be right.
IPL now has a much smaller impact on sales.Shootout at Wadala,Aashiqui 2,Chashme Baddoor did brisk business even though they released right in the middle of the IPL

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Shadab**,** IPL

i guess you are looking at standalone numbers and iam looking at consolidated numbers . Plus there has been substantial equity dilution between June '12 and June '13 which will skew the EPS figures .

Yeah looks like the industry has finally slayed the IPL bogeyman.

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Hi Sagar,

It seems you had not checked the link of BSE,where in it is mentioned that on merger,7 shares of Cinemax will be exchanged with 4 shares of PVR. So at todays close of 177 if you buy Cinemax,on completion of merger you will get PVR @310 against close of 390.So if one is convinced about PVR for investment ,then should go for Cinemax

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PVR remains one of the better bets in the movie exhibition/lifestyle space.

But with current market carnage, I think there are better options available.

And the belief that stocks that have held firm till now are never going to fall during the ongoing correction is a myth… Even so called “firm or strong” stocks usually correct during the later stages of a correction… This correction in fundamentally great companies will not be too much but still a stock correcting around 15-20% from its recent top is not unknown.

case in point being kaveri, PI inds, etc which to those convinced looks like a no brainer and still these correct along with overall markets.

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**
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Thanks :slight_smile:

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For the immediate short term,the upsides maybe capped at 420 levels.350 should act as a base(/support) However,there have been a few block deals in PVR at 350+ levels…I clearly remember Kajaria being accumulated the same way after the Midcap carnage in April-May this year(good accumulation in a good company) I strongly feel that PVR provides a good hiding place in the current markets.
I took small positions at 360 & will add on 5% declines.

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So if one is convinced Cinemax.

THanks :slight_smile: