PVR cinemas

28 Mar

Merged entity plans to open 200 screens per year- PVR & Inox Leisure


Update on the Indian Equity Market:

On Monday, NIFTY settled at 17,222 (+0.4%) near the day’s high of 17,232. PSU BANK (+1.2%), OIL & GAS (+0.9%), and BANK (+0.8%) were the top sectoral gainers. CONSUMER DURABLES (-0.9%), HEALTHCARE INDEX (-0.5%), and IT (-0.4%) led the sectoral losers. Among the NIFTY50 components, BHARTIARTL (+4%), COALINDIA (+2.7%), and AXISBANK (+2%) led the gainers. UPL (-2%), SBILIFE (-2%), and NESTLEIND (-1.8%) led the losers.

Film exhibitors Inox Leisure and PVR have approved a plan of merger. the combined entity will be called PVR Inox. Mr. Ajay Bijli, CMD, PVR Ltd (PVR), and Mr. Siddharth Jain, Director, Inox Leisure Ltd (INOX) explained the merger rationale in an interview with Business Standard on 28th March 2022. here are the excerpts:

  • For regulatory approvals, they have to go through the whole process- the stock exchange, Securities and Exchange Board of India (SEBI), and National Company Law Tribunal (NCLAT). The companies have been told by councils that they don’t need a Competition Commission of India (CCI) approval.
  • India has 9,500 screens and is still growing. New players are coming in and old ones are expanding. PVR and INOX will have 1,500 combined screens. From a macro angle, content is getting consumed everywhere and not just in theatres as consumer behaviors have changed. INOX and PVR are only a subset of the whole revenue pie that gets created.
  • INOX and PVR have a symbiotic relationship with their film, producers, and distributors. They require more films because, as a result of the pandemic, the majority of them have moved to OTT platforms. INOX and PVR are looking at the overall pie of the gross box office collections of India that got severely impacted.
  • They expect the revenue pie to increase if they have more screens and the full support of their stakeholders. The film fraternity is an important stakeholder for PVR and INOX and they expect to play more cinemas in theatres. They don’t intend to spoil this equation by coming together and using their pricing power.
  • In the pre-pandemic era, both companies were adding about 60-80 screens per year. They plan to increase this number to 200 per year going forward.
  • India has 9,500 screens compared to 70,000 in China. As a country, India has been adding 400 screens a year as compared to 6,000-7,000 per year in China which shows how underpenetrated the market is in our country.
  • This partnership is expected to encourage the cinema exhibition industry to continue its investments. Content creators would get encouraged as the size of the industry grows.
  • The merger process is expected to take six to nine months.
  • Smaller towns have smaller malls and shopping centers coming in. A lot of single screens are converting into two and three plexes. INOX and PVR are not against growing in any format but they would be interested to seek any opportunity that comes up organically.

Asset Multiplier Comments

  • The film exhibition sector has been one of the worst impacted sectors due to the pandemic. This has led to a majority of the films getting released on OTT platforms. The sector is expected to go back to its pre-pandemic levels on the back of new film releases and the reopening of theatres.
  • We expect revenue and cost synergies to be created out of this merger. We believe the merged entity would have improved bargaining powers in terms of rentals and advertising rates charged due to an increase in market share.
  • We expect the merged entity to ramp up screen openings over the next few years and take advantage of the underpenetrated film exhibition market in India.

Consensus Estimate: (Source: market screener website)

  • The closing price of INOX was ₹ 525/- as of 28-March-2022. It traded at 40x/ 29x the consensus earnings estimate of ₹ 13/ 18/- per share for FY23E/FY24E respectively. The consensus target price of ₹ 500/- implies a P/E Multiple of 28x on the FY24E EPS estimate of ₹ 18/-
  • The closing price of PVR was ₹ 1,883/- as of 28-March-2022. It traded at 54x/ 30x the consensus earnings estimate of ₹ 35/ 63/- per share for FY23E/FY24E respectively. The consensus target price of ₹ 1,886/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 63/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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19 Jan

Will turn EBITDA positive as new releases come – PVR

Update on the Indian Equity Market:

On Tuesday Nifty closed 1.7% higher at 14,521. Among the sectoral indices, Realty (+4.2%), Metal (+2.9%), and PSU Bank (+2.7%) closed higher. None of the sectors closed in the red. Bajaj Finserv (+6.7%), Bajaj Finance (+5.3%), and Tata Motors (+5.2%) closed on a positive note. ITC (-0.4%), Tech M (-0.3%), and Britannia (-0.1%) were among the top losers.

Excerpts from an interview of Mr. Nitin Sood, CFO, PVR with CNBC-TV18 dated 18th January 2021:

  • Speaking about footfalls, Sood said the company was given permission to open in October. While the theatres are open, there are no big releases resulting in lower footfalls.
  • The film ‘Master’ has done well for the company in the South and it gives hope of new content releasing soon.
  • On new content, he said the company is in talks with producers and the Bollywood community where big film releases have not been announced.
  • The industry is waiting for someone to take the first leap and with the movie ‘Master’ release, the release pipeline may get kicked off.
  • Speaking about earning trajectory, he said it is difficult to predict as it is dependent on the film release calendar. The company expects to turn EBITDA positive in the coming 2 to 3 months as more releases are planned.
  • The company has taken cost reduction measures during the nine months in which the business was completely shut.
  • The pre-COVID level of average break-even occupancies used to be between 23-25%, these numbers are now sub 20% led by the cost reduction initiatives taken by the company.
  • There are a lot of films pending to be released in 2021.
  • Speaking about fundraising, he says the company was sitting on the liquidity of Rs 370 crores and they have taken board approval to raise additional liquidity. This will help to keep the balance sheet strong and use to build a new screen portfolio.

 

 

Consensus Estimate: (Source: market screener and Investing.com websites)

  • The closing price of PVR was ₹ 1,526 as of 19-January-2021.  It traded at 64x/ 27x the consensus Earnings per share estimate of ₹ 23.9/56.5 for FY22E/ FY23E respectively.
  • The consensus average target price for PVR is ₹ 1567/- which implies a PE multiple of 28x on FY23E EPS of 56.5/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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11 Mar

Covid-19 advisories may impact footfall, but could be 30-60 day phenomenon: Ajay Bijli, PVR

Update on the Indian Equity Market:

On Monday, Indian shares followed a slide in global peers as fears over the spread of the Covid-19 outbreak intensified and oil prices plunged. The Nifty hit its lowest since February 2019 and the sell-off triggered by the economic fallout of the virus outbreak worsened by the turmoil at Yes Bank.

Among the Nifty 50 stocks, Yes Bank (+32.2%), BPCL (+5.5%), Infratel (+2.9%) and Eicher Motors (0.7%) were the only stocks which ended the day in the green. ONGC (-16.0%), Vedanta (-15.3%), and Reliance (-13.1%) were the top losers of the day. All the sectoral indices too ended in the red. Metal (-7.7%), Media (-6.7%), and PSU Bank (-6.1%) were the top losers.

Covid-19 advisories may impact footfall but could be 30-60 day phenomenon: Ajay Bijli, PVR

Excerpts from an interview with Mr. Ajay Bijli, Chairman and Managing Director, PVR Cinemas published in Mint dated 06th March 2020:

  • The release of the latest Bond film has been postponed. Talking about the US movie collections, he said that China, Japan, and South Korea are the big markets. India is a significant market, but not as big as these markets. So, he believes that the Indian film industry will not get impacted. Baaghi 3, which is a big franchise released on Friday. The advances are good so no delay in release was announced.
  • The Covid-19 advisory can impact footfall but it is an aberration because nobody has experienced anything like it. The safety, health, and security of the patrons are more important than the business. It is difficult to pinpoint if there has been an impact on the footfall because the content was not good in the past two weeks or is it the Covid-19. Mr. Bijli believes that this is a tide that will go away and the fundamentals of the business are very strong.
  • When asked about the pre-emptive action to combat the virus, he said that they have put sanitizers and disinfectants everywhere. PVR employees are wearing marks everywhere. They are ensuring the box office, and the seats are disinfected and cleaned thoroughly.
  • In terms of consumer spending outside the virus impact, PVR’s business has not been impacted. Before the virus issue, movies were releasing and people were coming out and watching movies, eating more.
  • Even the Q3 results were comparable to last year’s Q3. During recessionary times, people eliminate a lot of things from their discretionary spending. Since watching a movie is a small ticket item, and the content has been good, people are going out to watch a movie. Smaller films or sleeper hits as they are called, have done very well. He believes, it is a lifestyle need gap to go out and entertain oneself in India.
  • Studies show a positive correlation between OTT and cinema-going. He calls what is happening on Netflix and Amazon- long-form storytelling which is like Narcos -13 episodes, The Crown-26 episodes. The same people who consume long-form storytelling are going out and watching movies. People are consuming a lot of content but short-form storytelling is more experiential.

Consensus Estimate: (Source: market screener website)

  • The closing price of PVR Ltd was ₹ 1574/- as of 09-March-2020. It traded at 43x/ 31x/ 23x the consensus earnings estimate of ₹ 36.9/ 51.4/ 68.1 for FY20E/FY21E/FY22E respectively.
  • The consensus target price is ₹ 2060 /- which implies a PE multiple of 30x on FY22E EPS of ₹ 68.1/-.
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