PVR has an interest coverage of 2.86, which while ok right now, can be threatening in-case profits fall. at a PE of 50+ i think that Mr Market expects phenomenal growth to happen in the future. The movie industry is inherently unpredictable and has so many moving parts. Not to be a party pooper or anything, but in my opinion its just too risky an industry to be in - long term or otherwise
I dont think movie exhibition business is unpredictable at all. When was last year when we did not witness bollywood/hollywood blockbusters not hitting the screens???
Plus there are only 3 major multiplex players in India which in itself is a hugely under penetrated mkt. Growth opportunities are huge.
Valuations however are a concern. In that case INOX can be looked at.
The unpredictability arises from alternative forms of movie watching, like Netflix etc.
@Quest4Value…Hi,
Movies don’t release on Netflix on the date of their Box Office release. In fact, for Hit movies it takes 6-12 months for them to release on Netflix. Sometimes even more. So, I don’t see any threats here.
Why do u perceive it as a threat??
I see it as a potential threat.I feel that you are taking the present arrangement as an unchangeable.At this high valuations dont we need to consider all potential changes that might occur.I feel there is no margin of safety here.
@Quest4Value…as far as margin of safety is concerned, u r right. I was only commenting on the business.
Netflix cannot necessarily dislodge the exhibition industry. In my personal opinion and what Mr. Ajay Bijli has also reiterated on earnings concalls, movie watching in India is considered as a special occasion, a reason to socialise - for friends and families. Evident from the kind of movies are released and money made on Eid, Diwali, Christmas, etc. Considering the Indian strata and people’s mindset, the industry cannot be threatened by Netflix in the near to medium term. My personal opinion.
Interesting Article ,
PVR is Foraying in Luxury segment. Revenue from Premium Advertising and Product Promotion should help the Bottomline.
Article on BusinessLine :
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@hbpank… Encouraging article. A lot of synergies add up once you get into the higher/luxury league.
Thanks for sharing.
Netflix has been around in US for far longer and it hasn’t exactly closed down hollywood exhibition industry has it ?
india is still way behind, i would say it will take a decade to reach the current level of netflix/amazon prime penetration in U.S .it isnt just hooking up people with a internet connection , you need unlimited high quality bandwidth and download to get there .
overall the footfalls are slowly declining but multiplex are getting a higher share plus hikes in ATP has more than made up for it . Premiumization is the name of the game here and PVR is leagues ahead of its closest competitor in that department . personally , i would worry more about corrosive effects of piracy in india than netflix , piracy is almost legal here and it doesn’t look like government is about to do anything about it.
PVR valuations are of course in stratosphere giving very little margin of safety, but its true for all quality companies in india .
Here are my inputs for PVR,
US Cinema total ticket collection is roughly 11.2B$ yearly and the total tickets sold yearly are approx 1.3B. Basically 1 person on an average watch 3 movies in US. Now in India the numbers are approx 1.8B tickets but our ATP is approx 1/10 th of US (for PVR ATP is 170Rs). Our tickets are expensive because of higher taxes that govt charge us as entertainment tax. Our population is 1.3 B officially and unofficially should be around 1.5 B. With sheer numbers, the market size looks huge. Now I will list down the things that are going to increase the growth rate further in India for PVR.
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Demographic dividend - Approx there will be an increase of 20% or more people in working age for India in the next 20 years. Now if India grows, those people will get job, money and hence will watch movies. I think growth in PVR should 3X atleast of nominal GDP growth if PVR keeps expanding judiciously. Why 3X? because our base itself is very low and there will ticket rise and younger people still go out with family
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Cost Reduction- I have to praise PVR for adding ticket vending kiosks for buying directly. It reduces cost of labor. Now though online ticket is a bigger platform but still in smaller cities people go and buy tickets at the hall.
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Reduction in Taxes - In the longer run I expect corporate as well as entertainment taxes going down. Even if govt adds non profit clause in GST, reduction in prices will lead to higher footfall. Operating Leverage will help PVR in improving margins
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Unorganized to Organised - Self explanatory.
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Rise in F&B spending. More discretionary income will lead to more F&B spending. In my opinion it will easily come closer to ATP. College students avoid F&B spend and so does many of us but since last 6 years my avg is only decreasing.
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New revenue streams - In future, I am hoping that PVR will start attracting school kids during day time and show good educational stuff after tying up with educational institutions. This will lead to higher occupancy ratios and better margins. This will provide a new market itself.
Key risks.
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Over competition and price killing. PVR prices are 10% or so higher than their competitors but their comfort is again better. But in case, price war starts, their margins will erode.
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Content risk - I invested PVR very late (at around 800 levels and still buying ). I bought it after their interest cost stabilized. The content risk will hurt PVR the least if they become debt free, which I expect them to become in next 2-3 years. On the brighter side, weaker players will die out. Recently srs cinemas is up for auction because parent is highly leveraged.
Disc. Invested and not baised.
@ranvir and @sharemarketgen_ any inputs?
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Unorganized to Organised - Self explanatory.
No could not understand this point.
Did you mean Reduction of taxes after GST ??
What is the Unorganized sector here??
I am too watching this stock so that is why asking.
Regards,
Kapil
Unorganized - Single screen
Organized - Multiplexes
Taxes - Little from GST a little from corporate taxes
@Donald
Hello Sir, Today promoters and a PE fund Multiples India PE sold some 14% stake (5% promoters and 9% multiples) and a PE fund Warburg Pincus bought 14% stake in PVR. This lowered the promoter holding to 20.25% and multiples holding to 14% and added a new PE fund with 14% stake. I want to understand that how should I look at this development?
I give all the credit to Ajay Bijli and his team for making PVR what it is today. So, I won’t like to hold the business if there is a management change. They converted a commodity business to a brand business.
I am tagging you because of my inexperience with such kind of a situations and I am a little skeptical. Because PVR forms largest part of my portfolio this spooked me.
Thank you
Kanv
Ajay Bijili and family continues to be the largest shareholder of the company and continues to be the MD of the company. My understanding after management interaction is that the business running methodology is not get hampered. Infact look at this way, at a deal price of ~Rs1,220 Warbug Pincus does still see value in PVR and hence invested. As an investor in this stock, a new PE entering the stock vindicates your research and your buying in PVR. So congratulations to you
In my opinion (which may be wrong and the reason I am seeking help), a promoter would always want to have higher holding in his company if he sees higher growth. For PE funds, a company is just an investment and for a promoter it is more than it. As an investor, if Mr Bijli starts another venture, then his interests might deviate from PVR which is negative for me. In an interview, he said that his family wants liquidity and question should be for what purpose? I sold PI industries when promoters sold some stake and still feel the ache for selling that.
Kanv.
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Your fears are not unfounded. However, you need to understand that this industry (read multiplex) is extremely capital intensive. The entire business model revolves around the number of seats. For instance, ticket sales are based on number of seats available for sale, occupancy is dependant on number of tickets sold, F&B is dependant on the occupancy… I hope you get the drift. So to grow the business, the company has to continuously expand and increase number of seats. Over last 10 years, PVR has been injected funds through rights issue, which has overtime resulted in dilution of promoters’ stake. So this new dilution is not an isolated case, it has to be read in context of its history. Further, as per the recent BSE announcement, Mr. Bijli has reward agreements with its PE investors (Multiples), that indicates that methods are placed to make sure the original promoter stays with the company and continues to grow. Please find the BSE link herewith this post for your ready reference
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My apologies on the reward agreements. This was old news and disclosed only recently. The rewards agreement has been terminated in December after a furor was created by analyst community.
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As you mentioned yourself, it is a capital intensive business and in case they need cash they will have to go for QIP which will result in further decrease in promoter holding. However, in the interview Mr Bijli said that they are not looking for inorganic expansion. Their plan is open 80-100 screens a year.
With the current cash flows I don’t any reason for raising money even via debt or QIP. I added PVR some 7-8 month back looking at this only. With the ROCE of 21+ for matured screens and around 80% of them being matured, there shouldn’t be any need for debt raising. Let’s see how the market responds tomorrow. Also i don’t want to pay capital gains tax 
Interesting strategy by PVR
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