Initiating

Coverage Report
11th May 2020

Research Analyst
Shantanu Basu
[email protected]

1
 Table of Contents

Sections Page No.

Executive Summary 3
Investment Rationales 4-11
Screen Portfolio of PVR 12
Industry Overview 13-17
Key Risks 18
SWOT Analysis 19
Company Overview 20
Key Milestones of PVR 21
Key Management Team 22
Key Performance Indicators 23-24
Outlook & Valuation 25
Alternative Scenario Analysis,Peer Comparison, Common Size Revenue Matrix 26
Financial Details 27-28
Content Pipeline 29-30
Disclaimer 31-34

2
 PVR Ltd.
Sector: Entertainment – Multiplex

Brief Overview PVR Ltd.: Leading successfully

We initiate coverage on PVR Ltd. (PVR) with a Strong Buy rating. PVR is
CMP (INR) (As on 8th May 2020) 894
a chain of multiplexes with its headquarters in Gurugram, India. It was
Target (INR) 1376
founded by Mr. Ajay Bijli in the year 1995. Over the years, PVR has
Upside(%) 54%
become the largest multiplex operator in India by taking up organic and
Recommendation Strong Buy inorganic growth routes (acquisition of Cinemax in 2012, DT cinemas in
2016 and SPI cinemas in 2018) and as of January 2020, PVR had presence
BSE Code 532689 in 71 cities of India and Sri Lanka (Colombo) with 825 screens across 173
NSE Code PVR cinemas. The key aspects which draw attention to PVR’s business are:
Reuters Ticker PVRL.BO
Industry leader of movie exhibition business in India: PVR is the market
Bloomberg Ticker PVRL IN leader in terms of screen count in India. As of January 2019, PVR had a
market share of 28% in the multiplex segment, based on the number of
Stock
Stock Scan
Scan screens in India.
Market cap (INR Cr.) 4591 Further expansion of screen network: PVR plans to further expand its
Outstanding Shares (Cr.) 5.13
screen network across India. For its expansion plans, PVR intends to
organically pursue cinema and screen expansion opportunities, as well as
Face Value (INR) 10.00 look out for inorganic opportunities. We have assumed 60 and 90 screens
Dividend Yield(%) 0.45 addition for FY21E and FY22E respectively.
Cost control measures taken against Covid-19 situation: PVR has taken
P/E (x) 31.30
adequate steps to control fixed costs, which normally amount to Rs 1400
P/B (x) 4.50 mln per month. Rent and Common Area Maintenance have been reduced
Debt/Equity (x) 3.9 to zero for the shutdown period. Employee expenses have been reduced
by 35%. Other major fixed expenses have been reduced by 60-65%.
Beta vs. Sensex 0.7
Leadership position across key operating metrics: PVR had the highest
52 Week High/ Low (INR) 2121/870 revenue per screen (Rs 40.4 million per screen) and EBITDA per screen (Rs
Avg. Daily Volume 638430 7.7 million per screen) among the top three multiplex operators in India,
(NSE)/1yr as of and for the year ended March 31, 2019. PVR’s high revenue per
Shareholding Pattern (%) screen is attributed to brand premiumisation and premium locations
resulting in higher average ticket price and spend per head for F&B.
Mar 2020 Dec 2019 Sep 2019
Promoters 18.54 18.44 19.57 We have valued the stock at 25x FY22E EPS to arrive at a Target Price of
Institutions 73.04 72.99 69.09 Rs 1,376, which provides an upside of 54% based on the current market
Non-Institution 8.42 8.57 11.34 price. We thus recommend a “Strong Buy” rating on the stock.

Stock vs. Nifty (Relative Returns) Financial Performance at a glance (Consolidated)

130 Particulars (INR mln) FY18 FY19 FY20E FY21E FY22E
120 Net Sales from ops. 23341 30856 35726 16108 39046
110 Growth % 10% 32% 16% -55% 142%
EBITDA 4018 5863 12848 1583 14269
100
EBITDA Margin (%) 17.2% 19.0% 36.0% 9.8% 36.5%
90
Net Profit (Adjusted) 1251 1833 1930 -6987 2825
80 Net Profit Margin (%) 5.4% 5.9% 5.4% -43.4% 7.2%
70 EPS (Adjusted) 24.29 35.69 37.58 -136.07 55.02
60 BVPS 209.43 241.39 225.41 79.12 118.81
50 P/S (x) 2.0 1.5 1.3 2.8 1.2
40
P /E (x) 36.8 25.0 23.8 -6.6 16.2
P/B (x) 4.3 3.7 4.0 11.3 7.5
ROE (%) 11.6% 14.8% 16.7% -172.0% 46.3%
PVR NIFTY
ROCE(%) 15.1% 13.8% 12.9% -5.7% 14.9%

Source: NSE Source: Company Data, SMIFS Research

3
 Investment Rationales

Multiplex Screen Operators Market Share Industry leader of movie exhibition business in India

PVR is the market leader in terms of screen count in India. As of

January 2019, PVR had a market share of 28% in the multiplex
21% 28% segment, based on the number of screens in India (Source:
13% Company Data). PVR was also the leader among the multiplex
21% operators in India in terms of admissions in FY 2018 (Source:
17%
Company Data). PVR has a pan-India presence and as of January
23, 2020 it had 825 screens in 173 cinemas in 71 cities across 21
States and Union Territories in India and Sri Lanka (1 cinema
PVR Inox Carnival Cinepolis Others
with 9 screens). PVR’s leadership position has enabled it to
Source: Company Data capitalize on movie attendance trends, consolidation
opportunities and ancillary businesses with relatively higher
margins.

Further, PVR’s large scale, brand equity and cinema experience

Screen distribution across regions has made it the preferred choice for movie exhibition for movie
distributors, production houses and real estate developers in
4%
India. PVR is the leader in terms of screens in seven out of eight
key cities in India, which include Ahmedabad, Bengaluru,
30% 33% Chennai, National Capital Territory of Delhi, Hyderabad, Mumbai
and Pune (Source: Company Data). Further, PVR is the market
leader in three out of the four regions in India, i.e., North, South
33%
and West regions of India, in terms of screens among the
multiplex operators in India as of May 2019(Source: Company
South West North East Data). As per latest available data (FY2018), PVR was the leader in
terms of Bollywood domestic box office revenues in India.
Source: Company Data
(Source: Company Data). PVR’s market share of Bollywood and
Hollywood (including Hollywood dubbed) domestic box office
collections in India was 22% and 29%, respectively, in FY2018
(Source: Company Data).

4
 Investment Rationales

Location of cinemas in strategically advantageous areas

PVR was present in 60% of the 20 largest operational malls, in

Locations of PVR’s terms of property size, in India as of March 2019. The malls
cinemas in marquee include LuLu International Shopping Mall in Kochi, DLF Mall of
malls provides it with India in Noida, VR Mall in Chennai, Ambience Mall in Gurgaon,
wide visibility and Phoenix Market City in Bengaluru, Select Citywalk in Delhi and
enables recurring Elante Mall in Chandigarh. Locations of PVR’s cinemas in such
admits and high malls provides it with wide visibility and enables recurring admits
occupancy. and high occupancy percentages.

Established relationships with various mall developers over the

years along with PVR’s ability to attract footfalls, has enabled PVR
PVR is typically the to obtain prime locations at competitive terms. PVR operates on
anchor tenant in an asset light model and accordingly all its cinemas are located
various malls across on leased premises. The tenure of PVR’s leases is typically for a
India where its cinemas period of 10 to 20 years which, in many instances, are renewable
are located. subject to mutual agreement. PVR is typically the anchor tenant in
various malls across India where its cinemas are located.

Based on PVR’s relationship with mall developers and status as

Revenue and EBITDA per screen anchor tenants, PVR should be able to secure further strategic
locations that are proposed to be developed by the mall
50.0 40.4
35.8 36.6 37.3 developers. PVR’s strategy of being present in prime retail
40.0 31.8
locations that generate significant admits, has helped in building
30.0
its leadership position in terms of revenue per screen and EBITDA
20.0
10.0 4.3 5.7 5.4 6.4 7.7 per screen.
-
FY15 FY16 FY17 FY18 FY19

Revenue per screen (Rs mln)

EBITDA per screen (Rs mln)

Source: Company Data, SMIFS Research

5
Investment Rationales

Diversified product offerings

PVR has been able to become an integral part of customers’ movie

Gross Box Office Collections viewing experience by offering multiple products and a premium
experience. PVR offers a diversified cinema viewing experience
through its different formats, including PVR Director’s Cut, PVR
Gold Class, PVR IMAX, PVR Superplex, PVR 4DX, PVR P*XL+, PVR
24.4% Playhouse, PVR Onyx, PVR ECX, PVR Premiere, PVR ICON, PVR
16.0% 59.6% Luxe, PVR Cinemas and PVR Utsav, and pursuant to its
acquisition and amalgamation of SPI Cinemas, Escape, Sathyam
and Palazzo. PVR had the highest number of premium screens
among multiplex operators in India, as of March 31, 2018 (Source:
Hindi English Regional Languages Company Data). Premium screen formats include IMAX, 4DX,
Playhouse, Gold, P*XL+, Onyx and Director’s Cut, and serve
Source: Company Data,
different customer segments. As of December 31, 2019, PVR had
88 premium screen formats, respectively. Further, PVR exhibits
diversified content to serve different regional customer segments
across India. In FY2017, Hindi, English and regional languages
accounted for 64.1%, 18.5% and 17.3%, respectively, of PVR’s
Gross Box Office Collections, while in FY2019, Hindi, English and
regional languages accounted for 59.6%, 16.0% and 24.4%,
respectively, of PVR’s Gross Box Office Collections.

Premium guest experience

PVR aims to improve customer experience by providing premium

seating, quality visual and sound experience, convenient ticketing
experience, diversified content and plush interiors. To cater to the
diverse eating habits and dietary needs, PVR has enhanced its
PVR provides premium food and beverages (“F&B”) offerings and also appointed a
seating, quality visual celebrity chef to render culinary/ cooking services at its cinemas.
and sound experience, PVR offers several seating options through its various premium
enhanced F&B formats, including loungers, recliners, beanbags and double
offerings and armrest seats. In addition, PVR has recently introduced D-Box
technology led enabled motion seats in some of its cinemas. Further, PVR’s
innovation through its technology based product offerings include its own website and
website and mobile mobile application which allows customers to browse movies and
application. trailers, select and reserve seats, pre-order F&B that can be
served at their seat, make bulk bookings, book a cab, purchase gift
cards and, have access to various offers and deals.

6
Investment Rationales

PVR has also introduced ‘quick tix machines’, a digital instant

and upcoming ticketing solution which promotes cashless
transactions, along with ‘quick response code based paperless
ticketing’ for admission into its cinemas. In order to update PVR’s
customers about upcoming releases, PVR has created ‘Movie
Calendar’ which provides updates on PVR’s mobile application to
PVR has introduced
users regularly. PVR also has an interactive online magazine, ‘PVR
quick tix machines,
Movies First’ that includes box office news, latest and upcoming
quick response code
movie releases and interviews with actors.
based paperless
ticketing, movie
PVR also provides its customers the option of purchasing pre-paid
calendar and an
gift cards, both physical and digital, which can be redeemed
interactive online
against purchase of tickets, and F&B at PVR cinemas and on PVR’s
magazine. It has also
website and mobile application. PVR offers its customers deals,
introduced pre-paid
rewards, cashbacks and offers for which it has collaborated with
gift cards and a loyalty
various banks, payment banks, digital wallet companies and
programme, PVR
online aggregator platforms. Further, PVR has introduced a
Privilege.
loyalty programme, ‘PVR Privilege’, which provides its customers
with a range of benefits, personalised offers and services,
including reward points on each purchase of tickets or F&B, bonus
points during special occasions, and an automated conversion of
reward points into vouchers that can be used to pay for tickets
and F&B. As of December 31, 2019, PVR had approximately 1
crore ‘PVR Privilege’ members.

Further expansion of screen network

PVR plans to further expand its screen network across India. For
its expansion plans, PVR intends to organically pursue cinema and
PVR continues to work screen expansion opportunities, continue to work with the
with commercial real commercial real estate developers, and focus on premium screen
estate developers to formats. PVR also aims to enhance its operations by selectively
organically pursue expanding and upgrading existing operational properties in prime
screen expansions. It locations. Further, PVR has experience in identifying and
also selectively integrating acquisitions/amalgamations of cinemas and continue
expands and upgrades to intend to expand its screen network through strategic
existing operational investments, amalgamations and acquisitions. PVR has, in the
properties and past, made certain acquisitions/amalgamations and has been
increases its screens able to successfully integrate such acquisitions/amalgamations,
through acquisitions. such as, Cinemax Cinemas in November 2012, DT Cinemas in May
2016 and SPI Cinemas in August 2018. These acquisitions added
138 screens, 32 screens and 76 screens, respectively, to PVR’s
screen network.

7
Investment Rationales

In 2017, among key international countries (such as United

States and Canada, United Kingdom and Ireland, South Korea,
China, Japan and India), India remained an under-penetrated
In 2017, India was the
country with a significantly lower movie screens per
largest in terms of
capita ,which presents a significant opportunity for expansion
movies certified/
across India including in the key cities in India. However, in 2017,
released in a country
India was the largest in terms of movies certified/ released in a
among key countries
country among key countries and was amongst the top five
and was amongst the
countries in terms of box office collections internationally, and
top five countries in
exhibited the maximum cinema attendance among the key
terms of box office
countries. PVR’s growth is also supported by the trend of
collections
increasing middle and high income groups, rising per capita
internationally, and
income, growth in working population and increase in median
exhibited the
age in India. In addition, approximately 13 million square feet of
maximum cinema
retail mall space is currently operational in the market and malls
attendance among the
with gross leasable area of approximately 43 million square feet
key countries
are planned across the key cities of India, which can be effectively
utilized for the growth of multiplexes.

The share of single screens in India in terms of overall screen

count is expected to reduce from 74% as of March 31, 2018 to
60% as of March 31, 2023, which also provides considerable
expansion scope for multiplex operators. Further, PVR believes
PVR intends to significant opportunities exist in international markets as well,
selectively pursue that offer incremental attendance-generating and revenue-
opportunities that will generating prospects. PVR has recently ventured in Sri Lanka. PVR
consolidate its market intends to selectively pursue opportunities that will consolidate its
position and enhance market position and enhance its financial position, expand its
its financial position, existing product offerings and increase its sales and marketing
expand its existing network, customers and geographical reach, enhance its customer
product offerings and experience and help it in technological advancements. These
increase its sales and opportunities could be by way of strategic acquisitions, joint
marketing network, ventures, technical collaborations, new partner tie-ups and asset
customers and purchases.
geographical reach.

8
Investment Rationales

Focus on increasing non-box office revenue

PVR intends to increase its non-box office revenues particularly in
PVR has and further F&B, advertising and convenience fees. The F&B segment is a
intends to expand its high margin business with approximately 70% to 75% gross
menu of F&B to include margin. The F&B revenue has increased at a CAGR of 20% during
more options for FY2015 and 2018, and accounted for approximately 22% of the
meals, mixed drinks, total movie exhibition industry revenues in FY2018. However, the
organic food and other ratio of spend per head/ average ticket price for certain Indian
gourmet products. PVR
multiplexes is lower in comparison with certain international
also intends to focus on
counterparts. As a result, PVR has and further intends to expand
offers on F&B, ‘combo’
products, sale of F&B its menu of F&B products to include more options for meals,
along with movie healthy snacks, mixed drinks, organic food and other gourmet
tickets which will help products. PVR also intends to focus on offers on F&B, ‘combo’
it in increasing the products, sale of F&B along with movie tickets which will help it in
average value of increasing the average value of transaction. Further, the launch of
transaction. premium properties will increase the average spend per head on
F&B, resulting in the growth of the cinema exhibition industry.
As a percentage of total advertising revenue, in-cinema
advertising has increased its share and is further expected to
increase at a CAGR of approximately 10% from Rs 11 billion in
PVR intends to grow FY2019 to Rs 16 billion in FY2023. However, as of December 2018,
revenues from its Indian multiplex operators’advertisement revenues were lower in
advertising offerings comparison with international counterparts. The key drivers for
through deepening growth of in-cinema advertising in India include the increase in
advertiser number of multiplex screens and number of advertisers selecting
engagement, attracting cinemas as a mode of advertising, and the presence of digital
new advertisers to its panels in multiplex lobbies. Accordingly, PVR intends to capitalize
platform, expanding its on this opportunity and grow revenues from its advertising
on-screen and off- offerings through deepening advertiser engagement, attracting
screen advertising new advertisers to its platform, expanding its on-screen and off-
offerings and growing screen advertising offerings and growing its advertising spot rates.
its advertising spot In addition, PVR is exploring innovative mechanisms for
rates. advertisements such as advertisements on seat covers, ticketing
windows and other publicly accessible places in cinema.

9
Investment Rationales

PVR’s online Gross Box Office Collection contribution (as a

Online Gross Box Office Collections percentage of Gross Box Office Collection) has been steadily
increasing and was 50.7%, 54.7%, 59.3% and 63.0% in FY2017,
70.0% 63.0%
59.3% 2018, 2019 and in the six months ended September 30, 2019,
60.0% 54.7%
50.7% respectively. PVR has and further intends to increase the share of
50.0%
online Gross Box Office Collection through its partnerships with
40.0%
Paytm and BookMyShow and its website and mobile application
30.0%
by offering various offers and services including ticket
20.0%
cancellation, booking a cab, loyalty rewards, redemption of
10.0%
coupons, pre-paid cards and discounts and cashbacks. In addition,
0.0%
FY17 FY18 FY19 6MFY20 the information collected through such platforms will help PVR in
determining the customers’ behaviour and preferences, which will
Source: Company Data,
consequently enable it to improve its customer experience.

Leadership position across key operating metrics and stable

financial performance

PVR had the highest revenue per screen (Rs 40.4 million per
screen) and EBITDA per screen (Rs 7.7 million per screen) among
the top three multiplex operators in India, as of and for the year
ended March 31, 2019. PVR’s high revenue per screen is
attributed to brand premiumisation and premium locations
resulting in higher average ticket price and spend per head, and
PVR had the highest certain key factors, such as, premium and innovative screen
revenue per screen and formats, including Director’s Cut, Gold Class, 4DX, Playhouse,
EBITDA per screen Onyx, P*XL+, and a differentiated F&B menu.
among the top 3
multiplex operators in PVR has diversified revenue streams and generate revenues
India in FY19. In FY18, primarily from: (i) income from sale of movie tickets (ii) sale of
PVR had the highest food and beverages (iii) advertisement income; and (iv) other
average ticket price operating revenue which includes income from movie
and spend per head production/ distribution, convenience fees, virtual print fees,
among the top 4 food court rental income, gaming income and management fees.
multiplex operators in PVR’s income from sale of movie tickets increased from Rs 11,249
India. mln in FY2017 to Rs 16,354 mln in FY2019. Further, PVR’s income
from sale of movie tickets was Rs 14,016 mln in the nine months
ended December 31, 2019. In FY2018, PVR had the highest
average ticket price and spend per head among the top four
multiplex operators in India. PVR’s Average Ticket Price increased
from Rs 196 in FY2017 to Rs 207 in FY2019 and was Rs 204 in the
nine months ended December 31, 2019. PVR’s Spend Per Head
increased from Rs 81 in FY2017 to Rs 91 in FY2019 and was Rs 100
in the nine months ended December 31, 2019. PVR’s revenue
from sale of food and beverages has also been steadily increasing
10
Investment Rationales

from Rs 5794 mln in FY2017 to Rs 8584 mln in FY2019. Further,

PVR’s revenue from sale of food and beverages was Rs 7,737 mln
in the nine months ended December 31, 2019. PVR’s occupancy
rates were 31.3% and 36.2% in FY2018 and FY2019, respectively.

In FY2018, PVR also had the highest share of advertising income to

total operating income among the multiplex operators in India
In FY18, PVR also had and had a market share of approximately 33% in the in-cinema
the highest share of advertising segment for multiplex operators in India. PVR has
advertising income to proven the advertising monetization potential of its platform by
total operating income increasing advertisement income from Rs 2,518 mln in FY2017 to
among the multiplex Rs 3,535 mln in FY2019. Further, the advertisement income was
operators in India and Rs 3,073 mln in the nine months ended December 31, 2019. The
had a market share of premium associated with PVR’s brand has helped it in charging
approximately 33% in high in-cinema advertising rates from advertisers. PVR has a
the in-cinema relatively higher gross margin on advertisement revenue as its
advertising segment for costs are limited to the extent of the manpower hired.
multiplex operators in
India. In addition, PVR’s revenue from convenience fees has also
increased from Rs 582 mln in FY2017 to Rs 1,304 mln in FY2019.
PVR renewed PVR’s revenue from convenience fees was Rs 1,338 mln in the
arrangements with nine months ended December 31, 2019. PVR renewed
Paytm and arrangements with Paytm and BookMyShow, for booking and
BookMyShow, for selling the ticketing inventory through their digital platforms for a
booking and selling the period of three years commencing from July 2018.
ticketing inventory
through their digital Cost control measures taken against Covid-19 situation
platforms for a period
of three years PVR has taken adequate steps to control fixed costs, which
commencing from July normally amount to Rs 1400 mln per month. Rent and Common
2018. Area Maintenance have been reduced to zero for the shutdown
period. Employee expenses have been reduced by 35%. Electricity
and Water charges have been reduced by 80%. Other major fixed
expenses have been reduced by 60-65%. It is expected that PVR
should be able to maintain the cost reductions throughout the
current and proposed shutdown period.

11
Screen Portfolio of PVR

Source: Company Data

12
Industry Overview

Average spending per household on Average spending on movies per household in India is expected to
movies (Rs) be in the range of Rs 589 to Rs 609 by Fiscal 2023
1000
599 The Indian media and entertainment industry is an evolving industry
378 443 and exercises influence on a large segment of the population. The
500
experience of going to watch a movie in a movie theatre with family
0 is still considered as one of the most popular options for
FY15 FY18 FY23E entertainment in rural and urban households in India. The spend on
media and entertainment is primarily a discretionary expense and
Source: Industry Data
generally, it is dependent on the middle and upper income
households for its growth. The average spending per household on
movies in India has grown from the range of approximately Rs 368 to
Rs 388 per household in FY2015 to the range of approximately Rs 433
to Rs 453 per household in FY2018. The average spending on movies
is expected to reach the range of Rs 589 to Rs 609 per household in
FY2023.

While the content of movies remains the key factor, certain other
key factors, such as, the trend of increasing middle and high income
Factors such as groups, rising per capita income, growth in working population and
increase in other increase in median age are expected to further increase the average
entertainment options, spending on movies per household in India. In addition, an increase
including, live shows in the average ticket prices and spend per head on account of
particularity in urban increasing premiumisation of cinema halls is also contributing to the
areas, and growth of increase in movie spends per household in India. At the same time,
digital content on factors, such as increase in other entertainment options, including,
account of increased live shows particularity in urban areas, and growth of digital content
penetration of smart on account of increased penetration of smart phones and internet
phones and internet connectivity, are expected to weigh down on the overall spend on
connectivity, are movies per household in India.
expected to weigh
down on the overall
spend on movies per
household in India.

13
Industry Overview

Multiplex cinemas are quickly gaining prominence

The film exhibition sector can be broadly divided into two segments,
namely, single screen cinemas and multiplex cinemas. Approximately
75% of the cinema screens in India are single-screen cinemas owned
by individual entrepreneurs, operating in a mostly unorganised
market. In comparison, in most of the developed countries,
Approximately 75% of
multiplexes account for approximately 70% to 80% of the total
the cinema screens in
screens. However, this situation is quickly changing in India with the
India are single-screen
emergence and spread of multiplexes.
cinemas. Multiplex
cinemas are gaining
Multiplex cinemas are quickly changing the manner in which movies
prominence because of
are viewed, particularly in big cities in India. Historically, most movie
their better ambience,
theatres in India were set up as single screen theatres with large
quality viewing with
high-end sound seating capacities, ranging between 750 and 1,500 seats per screen.
systems, comfortable However, due to the lack of adequate maintenance and upgradation
seating arrangements, on account of less investments, the overall experience for cinema
good quality service as viewers at single screen theatres was impacted. In comparison,
well as food and multiplex cinemas, characterised by limited seating capacity of 250
beverages. to 400 seats per screen, better ambience, quality viewing with high-
end sound systems, comfortable seating arrangements, good
quality service as well as food and beverages, have succeeded in
attracting family audiences back to movie theatres. There has been
a consolidation in the multiplex industry over the past few years, with
PVR Limited acquiring Cinemax, DT Cinemas and SPI Cinemas, INOX
Leisure Limited acquiring Fame and Satyam Cineplexes, and Carnival
Cinemas acquiring BIG cinemas, Glitz Cinemas and Broadway
Cinemas. This trend is expected to continue as multiplex players are
aiming to grow both organically and inorganically in order to increase
The share of multiplex
their market share.
screens in overall
screens is expected to
Multiplex cinemas are quickly changing the manner in which movies
increase from 26% in
are viewed, particularly in big cities in India. The number of multiplex
FY2018 to
screens have grown approximately 16% year-on-year to
approximately 40% in
approximately 2,450 in FY2018. The number of screens was
FY2023. The share of
approximately 2,676 as of February 2019. The number of screens is
single screens in overall
expected to grow at approximately 6% CAGR between FY2019 and
screens is expected to
FY2023 to reach approximately 3,420 screens. As a result, the share
reduce from 74% in
of multiplex screens in overall screens is expected to increase from
FY2018 to 60% in
26% in FY2018 to approximately 40% in FY2023. In India, the number
FY2023.
of single screens is estimated to approximately be 7,000 as of March
31, 2018. The share of single screens in overall screens is expected to
reduce from 74% in FY2018 to 60% in FY2023.

14
Industry Overview

The growth will increasingly be driven by Tier II and III cities, as metro
cities are generally more competitive in terms of out-of home
entertainment options, such as live events and plays. In addition,
rising disposable incomes, uniqueness of multiplexes and digital
technology incentivize the opening of more screens in Tier II and III
cities.

Multiplexes are projected to be the key growth drivers for the film
industry in India

The industry is expected to increase its screen count in the multiplex

cinemas due to the following reasons:
a) Revenue-earning potential: Multiplex cinemas can shift a movie
across various screens, depending upon the response to the movie.
For example, multiplexes often exhibit a movie in multiple screens in
the first week of its release and subsequently, the movie is then
shifted to the screen with the largest capacity and thereafter to
Multiplexes are smaller capacity screens. As a result, the maximum revenue earning
projected to be the key potential of a movie is achieved.
growth drivers for the b) Higher occupancy rates and better realisations: Multiplex
film industry in India operators have better occupancy levels and realisations in
because of their comparison with single screen cinemas. At an industry level, the
revenue earning average occupancy of multiplexes is estimated to be between 25%
potential, higher and 30%, while for single-screen cinemas it is estimated to be
occupancy rates and between 20% and 25%. However, multiplex ticket prices are also
better realisations, higher than single-screen tickets.
sharing facilities and c) Sharing facilities reduces the overhead costs and improves
diversified revenue profitability: All screens of a multiplex are able to equally share its
streams. facilities, such as, ticketing window, food and beverage outlets and
manpower, which results in lower overheads and thereby, improving
profitability.
d) Diversified revenue stream: Multiplexes have a diversified revenue
model and typically, multiplexes account for 65% to 70% of their
revenue from the sale of tickets, 15% to 20% from food and
beverages, and the remaining from advertising, sponsorship and
renting out retail space. Single-screen cinemas typically earn a large
share of their revenues from the sale of movie tickets.

15
Industry Overview

Multiplexes are beneficial to all stakeholders across the value chain

Every stakeholder across the film industry value chain benefits from a
multiplex in the following manner:
a) Consumer: Consumers are provided with a relatively improved
movie-watching experience vis-a-vis single screen cinemas with a
wider option of movies to choose from.
Multiplexes are b) Exhibitors: Multiplex theatre owners are able to maximize a film’s
beneficial to all commercial value in a relatively superior manner, as occupancy rates
stakeholders across the are higher in multiplex cinemas.
value chain, i.e., c) Distributor: Typically, all sales are reported in a multiplex on
consumers, exhibitors, account of computerised ticketing system, which results in less scope
distributors, producers for any revenue leakage on account of under-reporting. This would
and mall developers. potentially help the distributors in increasing their revenues.
d) Producers: Higher revenue collections would result in improved
returns for the producer as well. Multiplexes also provide producers
with increased scope for producing unique and low-budget films.
e) Mall developers: Multiplex operators share an important
relationship with mall developers as they act as anchor tenants in
malls due to their ability to attract more footfalls.

Occupancy levels are projected to stabilise in next four to five fiscals

Occupancy levels (i.e. ratio of number of footfalls per screen per

annum to total capacity per screen) primarily depend upon the film
content. Overall occupancy levels for multiplexes was approximately
29% in FY2019, and is projected to reach approximately 30% by
FY2023. Reduction in GST rates, from 28% to 18% for tickets priced
above Rs 100, is also expected to have a positive impact on admits
and consequently, the cinema exhibition industry.

16
Industry Overview

ATPs for multiplexes are expected to grow at a CAGR of 4% to 5%

over the next four to five fiscals

ATPs for multiplexes are expected to increase at a CAGR of 4% to 5%

ATPs are expected to
from FY2018 to FY2023, due to:
grow at a CAGR of 4%
a) the increase in the number of premium properties, such as ‘PVR
to 5% because of the
Directors Cut, ‘PVR Gold Class’, ‘Inox Insignia’, which have the latest
increase in the number
technology, by multiplex operators with the aim of providing a
of premium properties,
luxurious experience to movie viewers.
advent of on-demand
b) the advent of on-demand services with diverse content choices by
services and increase in
top multiplex players. For example,’Vkaao’ by PVR allows consumers
rental costs. Change in
to choose the content of their own choice.
property mix would
c) the increase in rental cost for multiplex operators. The rental
also influence the
expense for the top multiplex players account for approximately 15%
ATPs.
to 20% of their respective revenues, which could result in multiplexes
passing on such costs to the customers.
The extent of increase in the average ticket price will also depend on
the change in property mix resulting from expansion in Tier II and
Tier III cities.

17
Key Risks

Poor performance of movies or a lack of movie production can result

in a decline in movie attendance. This could adversely affect PVR’s
business, financial condition and results of operations.

PVR’s success is dependent on its ability to successfully identify and

secure strategic locations for its cinemas and timely develop and
expand its operations in existing and new markets. Any downturn in
the commercial real estate market in India may adversely affect the
growth of PVR’s business.

An increase in the use of alternative content and movie distribution

channels, including over-the-top (“OTT”) content and home-videos,
movie DVDs, and other competing forms of entertainment may result
in a decline in cinema attendance and limit ticket pricing.

PVR has entered into lease agreements with various mall developers
for use of the premises on which its cinemas are operated. In the
event of termination or non-renewal of such agreements or renewal
on non-favourable terms, PVR’s business, financial condition and
results of operations would be adversely affected.

PVR derives a significant portion of its revenue from the sale of F&B
in its cinemas. If PVR is unable to enhance its menu or if outside F&B
are permitted in PVR’s cinemas pursuant to judicial proceedings or if
PVR fails to timely respond to changes in customer tastes and
preferences or if PVR is unable to maintain high food quality
standards, PVR’s reputation, business and results of operations would
be adversely affected.

PVR’s advertisement income is dependent on maintaining or

establishing relationships with advertisers along with certain
factors, such as, content, number of screenings of movies and
inventory. If any of these factors disappoint, advertising income
would suffer.

PVR’s inability to enter into or renew agreements, or maintain or

establish new relationships, with its online aggregator platforms
(Book My Show and PayTM), could have an adverse impact on its
business, prospects, financial condition and results of operations.

PVR’s operations may get adversely affected by strikes, work

stoppages or increased wage demands or any other such kind of
events, such as the current Covid-19 lockdown along with social
distancing.

18
SWOT Analysis

Strengths Weaknesses

Largest theatre network. Dependency on malls for growth.

Strategically located cinemas. Continuous technology evolution.

Diversified product offerings. Dependency on movie performance.

Leadership position across key metrics.

Opportunities Threats

Large untapped Indian market. Piracy and live-streaming videos.

Growing discretionary spending. Competition from OTT platforms.

Diversified content (Bollywood, Hollywood Termination/non-renewal of lease

and Regional). agreements.

Allowing outside food within cinemas.

19
Company Overview

PVR is the leading multiplex operator in India. It is the market leader

in terms of screen count in India, as of January 2019, with a market
share of 28% in the multiplex segment based on the number of
screens in India. It has a pan-India presence and as of January 23,
2020 it had 825 screens in 173 cinemas in 71 cities across 21 States
and Union Territories in India and Sri Lanka (1 cinema with 9 screens).
PVR’s leadership position has enabled it to capitalize on movie
attendance trends, consolidation opportunities and ancillary
businesses with relatively higher margins.
PVR is the leading
multiplex operator in Further, PVR’s large scale, brand equity and cinema experience has
India. It is the market made it the preferred choice for movie exhibition for movie
leader in terms of distributors, production houses and real estate developers in India.
screen count in India, PVR is the leader in terms of screens in seven out of eight key cities
as of January 2019, in India, which include Ahmedabad, Bengaluru, Chennai, National
with a market share of Capital Territory of Delhi, Hyderabad, Mumbai and Pune. Further,
28% in total PVR is the market leader in three out of the four regions in India, i.e.
multiplexes based on North, South and West regions of India, in terms of screens among
the number of screens the multiplex operators in India. PVR has over the years, acquired
in India. It has a pan- and successfully integrated strategic acquisitions into its operations,
India presence and as such as its acquisitions of ‘Cinemax Cinemas’ for Rs 5,354 mln in
of January 23, 2020 it November 2012 and ‘DT Cinemas’ for Rs 4,330 mln in May 2016,
had 825 screens in 173 which added 138 screens and 32 screens, respectively, to its screen
cinemas in 71 cities network. Following PVR’s acquisition and amalgamation of SPI
across 21 States and Cinemas in August 2018 for Rs 8,856 mln in a cash cum stock deal, it
Union Territories in added 76 screens to its screen network. Further, consequent to its
India and Sri Lanka (1 acquisition and amalgamation of SPI Cinemas, it became the leader
cinema with 9 screens). in terms of screens in Chennai and further consolidated its
leadership position in terms of screens in Bengaluru and Hyderabad.

In addition, brand and reputation are important for customers and

PVR’s history, market leadership position, and quality cinema
experience have led to wide recognition of the PVR brand in India,
which has enabled it to effectively target new customers, increase the
scale of its operations and enter into new geographical areas. PVR
entered Sri Lanka in Q3FY20 by opening a nine screen theatre in
Colombo.

PVR did a QIP of Rs 500 crores in October 2019 by allotting 29.08

lakhs shares at a price of Rs 1719.05 per share. The proceeds will
generally be used for increasing the screen count.

20
Key Milestones of PVR

Source: Company Data

21
Key Management Team

Mr. Ajay Bijli

Mr. Ajay Bijli is the Chairman cum Managing Director. He established
PVR in 1995 and has over two decades of experience in the movie
exhibition industry. He was awarded the ‘E&Y Entrepreneurial Award
2013 for Business Transformation', among others.
Mr. Sanjeev Kumar Bijli
Mr. Sanjeev Kumar Bijli is the Joint Managing Director. He has over
two decades of experience in the movie exhibition industry and
manages the film acquisition and distribution business and
programming activities of PVR. He is also involved in the development
and growth strategy of PVR.
Mr. Gautam Dutta
Mr. Gautam Dutta is the Chief Executive Officer. He has worked in
PVR for over thirteen years and is responsible for managing the entire
day to day operations of the business to ensure the effective
management of resources and delivery of the P&L.
Mr. Kamal Gianchandani
Mr. Kamal Gianchandani is the Chief Executive Officer of PVR Pictures
and Chief of Business Planning and Strategy of PVR Ltd. He has
worked in PVR for over nineteen years. He handles film financing,
distribution, syndication, licensing and cinema exhibition for both
Indian and foreign language films in India and also oversees business
planning and strategy at PVR.
Mr. Nitin Sood
Mr. Nitin Sood is the Group Chief Financial Officer. He has worked in
PVR for over seventeen years and oversees Accounting and Finance,
Legal and Compliance for the group & is responsible for managing
business and funding strategy for the group including M&A, Equity
and Debt raise, and strategic business expansion opportunities .
Mr. Pramod Arora
Mr. Pramod Arora is the Chief Officer—Growth and Development. He
has worked in PVR for over twenty years and oversees growth and
development of new screen portfolio and execution and fit outs of
new screens.

22
Key Performance Indicators

Revenue & Revenue Growth

45,000 200%

40,000
Revenue from operations is expected to grow
150%
35,000 at a CAGR of 8% between FY19 and FY22E.
30,000 100%

25,000
50% Revenue
20,000
Revenue Growth
15,000 0%

10,000
-50%
5,000

- -100%
FY17 FY18 FY19 FY20E FY21E FY22E

Source: Company Data, SMIFS Research

Profit Margins
30%

20% EBIT Margin is expected to improve from

10%
12.8% in FY19 to 21.9% in FY22E (Post IND AS
0%
116 impact). PAT Margin is expected to
FY17 FY18 FY19 FY20E FY21E FY22E EBIT Margin improve from 5.9% in FY19 to 7.2% in FY22E.
-10%
PAT Margin
-20%

-30%

-40%

-50%

Source: Company Data, SMIFS Research

RoE and RoCE

100%

RoE and RoCE are expected to improve from

50%
14.8% and 13.8% respectively in FY19 to 46.3%
0% and 14.9% respectively in FY22E.
FY17 FY18 FY19 FY20E FY21E FY22E
RoE
-50%
RoCE

-100%

-150%

-200%

Source: Company Data, SMIFS Research

23
Key Performance Indicators

EPS Growth
100
EPS is expected to grow at a CAGR of 16%
50 between FY19 and FY22E.

-
FY17 FY18 FY19 FY20E FY21E FY22E
EPS
(50)

(100)

(150)
Source: Company Data, SMIFS Research

Debt/Equity Ratio
14.00

12.00 Debt/Equity ratio is increasing from 1.03 in

10.00
FY19 to 7.80 in FY22E. It is peaking at 12.36 in
FY21E. From FY20E onwards IND AS 116
8.00
impact has been considered.
Debt/Equity
6.00

4.00

2.00

-
FY17 FY18 FY19 FY20E FY21E FY22E

Source: Company Data, SMIFS Research

Free Cash Flow Generation

14000

12000 Due to improvement in cash flow from

10000 operations, free cash flow is expected to
8000 improve from Rs (1,408) mln in FY19 to Rs
6000 12,542 mln in FY22E. FY21E is expected to
Free Cash Flow
4000 generate negative free cash flow of Rs 1,969
2000 mln because of losses in that year.
0
FY17 FY18 FY19 FY20E FY21E FY22E
-2000

-4000

Source: Company Data, SMIFS Research

24
Outlook and Valuation

PVR is an outstanding franchise and is the leader in operating and financial metrics across multiplex operators in
India. PVR has a pan-India presence and as of January 23, 2020 it had 825 screens in 173 cinemas in 71 cities across
21 States and Union Territories in India and Sri Lanka (1 cinema with 9 screens). PVR’s leadership position has
enabled it to capitalize on movie attendance trends, consolidation opportunities and ancillary businesses with
relatively higher margins.

PVR aims to improve customer experience by providing premium seating, quality visual and sound experience,
convenient ticketing experience, diversified content and plush interiors. To cater to the diverse eating habits and
dietary needs, PVR has enhanced its food and beverages (“F&B”) offerings and also appointed a celebrity chef to
render culinary/ cooking services at its cinemas.

PVR plans to further expand its screen network across India. For its expansion plans, PVR intends to organically
pursue cinema and screen expansion opportunities, continue to work with the commercial real estate developers,
and focus on premium screen formats. PVR also aims to enhance its operations by selectively expanding and
upgrading existing operational properties in prime locations. Further, PVR has experience in identifying and
integrating acquisitions/amalgamations of cinemas and continue to intend to expand its screen network through
strategic investments, amalgamations and acquisitions.

The Covid-19 situation prevailing currently has resulted in the shutdown of PVR’s operation at the time of writing
(Nationwide lockdown started on 25th March, 2020) and we believe that shutdowns would continue for some more
time after the nationwide lockdown is lifted. Further, hesitation of people to go to cinema theatres in order to
maintain social distancing is expected to be prevalent even after normal operations in PVR are restored. Our base
case assumes a shutdown period of 90 days for PVR in FY21E and hesitation of people to visit the theatres for
remaining nine months, bringing down the overall occupancy level to 22% in FY21E.

Further, in our base case, we have assumed 60 and 90 screens addition for FY21E and FY22E respectively. The
capex assumptions for FY21E and FY22E are Rs 2,500 mln and Rs 4,000 mln respectively. Box office revenues, F&B
revenue and Advertisement revenue are assumed to grow at a CAGR of 4.9%,2.4% and 5% respectively between
FY20E and FY22E. Net Debt to Equity (after IND AS 116 impact) is supposed to increase from 3.5 in FY20E to 7.5 in
FY22E. Occupancy level is assumed to increase to 32% in FY22E.

There may be tailwinds from reduction in movie exhibition cost (percentage of box office collections paid to
producers) and GST rates of movie tickets in light of the Covid-19 situation, if movie producers and government
respectively agree to alleviate the current situation of movie exhibitors, however, we have not factored these in
our estimates.

We value PVR at 25x FY22E EPS of Rs 55.02 to arrive at a Target Price of Rs 1,376. This gives an upside of 54%
based on the current market price. We thus recommend a “Strong Buy” rating on the stock.

25
Alternative Scenario analysis

Our base case has assumed a shutdown period of 3 months in FY21E for PVR on account of the Covid-19 crisis. This
leads to EPS’ of Rs (136.07) and Rs 55.02 in FY21E and FY22E respectively. As already stated, based on FY22E EPS,
at a P/E of 25x , the target price works out to Rs 1,376.

We have also analysed an alternative scenario, in which we have assumed a shutdown period of 6 months in FY21E
for PVR on account of the Covid-19 crisis, keeping all other assumptions same as in our base case. This leads to EPS’
of Rs (122.13) and Rs 53.65 in FY21E and FY22E respectively— EPS of FY21E in the alternative scenario is higher
than the base case because of the net effect of lower revenues and lower costs attributable to the higher shutdown
period of 6 months. Based on FY22E EPS, at a P/E of 25x, the target price in the alternative scenario works out as Rs
1,341.

Peer Comparison
P/E P/B P/CF RoE(%)
Peers FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E FY20E FY21E FY22E
PVR 27.1 -7.4 18.8 4.3 11.8 8.2 4.7 69.1 3.0 15.9% -159.0% 43.3%
INOX Leisure 16.3 42.4 12.7 2.8 2.6 2.2 5.7 6.6 4.8 14.5% 8.9% 17.3%
Source: SMIFS Research, Bloomberg Consensus Estimates

PVR’s Common Size Revenue Matrix (Consolidated)

Particulars FY15 FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Income from sale of movie tickets 56% 54% 53% 53% 53% 52% 52% 53%
Advertisement income 12% 12% 12% 13% 11% 11% 8% 11%
Sale of food and beverages 25% 27% 27% 27% 28% 28% 20% 27%
Others 7% 8% 8% 7% 8% 9% 19% 9%
Revenue from operations 100% 100% 100% 100% 100% 100% 100% 100%
Source: Company Data, SMIFS Research

26
 Financial Details

Income Statement (Consolidated)

Particulars (INR mln.) FY18 FY19 FY20E FY21E FY22E
Revenue from operations 23341 30856 35726 16108 39046
Revenue Growth 10% 32% 16% -55% 142%
Cost of goods sold 7459 9847 11201 4957 12160
Employee benefits expenses 2541 3373 4169 3861 4256
Other expenses 9323 11772 7507 5707 8361
EBITDA 4018 5863 12848 1583 14269
EBITDA Margin 17.2% 19.0% 36.0% 9.8% 36.5%
EBITDA Growth 28% 46% 119% -88% 801%
Depreciation & Amortisation 1537 1913 5336 4486 5700
EBIT 2482 3951 7512 -2903 8570
Interest Cost 837 1280 4862 4418 5140
Other Income 313 331 322 327 325
PBT (Adjusted) 1951 2990 2962 -6992 3759
Minority Interest 7 -61 4 5 6
Tax expense 704 1097 1037 0 940
PAT (Adjusted) 1251 1833 1930 -6987 2825
PAT Margin 5.4% 5.9% 5.4% -43.4% 7.2%
PAT Growth (Adjusted) 27% 47% 5% -462% -140%

Balance Sheet (Consolidated)

Particulars (INR mln.) FY18 FY19 FY20E FY21E FY22E
Share Capital 467 467 513 513 513
Reserves & Surplus 10294 14494 13623 6106 8138
Networth 10762 14961 14136 6619 8652
Long term Borrowings 5616 10188 42781 43036 45177
Other Non-Current Liabilities 106 3409 1518 1538 3528
Short term Borrowings 998 852 852 4978 852
Other Current Liabilities 6007 9681 10734 6451 10615
Total Equity & Liabilities 23488 39090 70020 62622 68824
Net Tangibile Asset 12286 17108 43176 43358 44799
Other Non Current Assets 8224 18048 17943 16939 18139
Inventories 198 303 330 138 365
Trade Receivables 1556 1839 2073 698 2283
Cash and Cash Equivalents 278 282 5038 561 1620
Other Current assets 946 1510 1460 927 1618
Total Assets 23488 39090 70020 62622 68824

Source: Company Data, SMIFS Research

27
 Financial Details

Cash Flow Statement Extract (Consolidated)

Particulars (INR mln.) FY18 FY19 FY20E FY21E FY22E
PBT 1945 2990 2962 (6992) 3759
Depreciation & Amortisation 1537 1913 5336 4486 5700
Interest expense 758 1198 4862 4418 5140
(Increase)/Decrease in CA (330) (735) (145) 3084 (3717)
Increase/(Decrease) in CL 912 3720 492 (2413) 6805
Taxes Paid (417) (834) (1037) 0 (940)
Cash Flow from Operating Activities 4463 8296 10719 731 16742
Capital Expenditure (3671) (9705) (3960) (2700) (4200)
Cash Flow Investing Activities (4,054) (10,154) (3,955) (2,699) (4,201)
Increase/(Decrease) in Borrowings 255 2,570 (1,785) 1,910 (6,343)
Dividend payments including tax (113) (113) (360) 0 0
Cash Flow from Financing Activities (660) 1424 (2007) (2509) (11483)
Net Cash Flow (251) (434) 4756 (4477) 1059
Closing Balance 268 282 5038 561 1620

Key Ratios (Consolidated)

Particulars FY18 FY19 FY20E FY21E FY22E
Margins
Gross Margin 68.0% 68.1% 68.6% 69.2% 68.9%
EBITDA Margin 17.2% 19.0% 36.0% 9.8% 36.5%
PBT Margin (Adjusted) 8.4% 9.7% 8.3% -43.4% 9.6%
PAT Margin (Adjusted) 5.4% 5.9% 5.4% -43.4% 7.2%
DPS (INR) 2.00 2.00 4.00 0.00 4.00
Solvency Ratios
Current Ratio 0.4 0.4 0.8 0.2 0.5
Debt/Equity 0.8 1.0 4.0 12.4 7.8
Net Debt/Equity 0.7 1.0 3.5 12.2 7.5
Interest Coverage 3.0 3.1 1.5 -0.7 1.7
Profitability Ratios
RoE 11.6% 14.8% 16.7% -172.0% 46.3%
RoCE 15.1% 13.8% 12.9% -5.7% 14.9%
Valuation Ratios(x)
P/S 2.0 1.5 1.3 2.8 1.2
P/CF 10.3 5.5 4.3 62.8 2.7
P/E 36.8 25.0 23.8 -6.6 16.2
P/B 4.3 3.7 4.0 11.3 7.5

Source: Company Data, SMIFS Research

28
Content Pipeline (Ignore the Dates of Releases)

Source: Industry Data. Baaghi 3 and Angrezi Medium have already released

29
Content Pipeline Continued (Ignore the Dates of Releases)

Source: Industry Data

30
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