PVR - improving prospects; Buy:: Edelweiss

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􀂃 Exhibition business PAT, at INR 80 mn, surpasses estimate
PVR’s Q2FY11 exhibition business revenue and PAT stood at INR 1,062 mn and
INR 80 mn (against our estimate of INR 970 mn and INR 63 mn), respectively.
Q-o-Q, exhibition business revenues rose 12% and PAT jumped 76.3%. Film
distributor’s share as a percentage of revenues increased 160bps Y-o-Y on
account of higher e-tax payment as certain cinemas moved out of exemption.
Employee costs were higher at 28.5% Y-o-Y on account of new properties. Other
expenses as a percentage of revenues jumped 90bps Y-o-Y. EBITDA and PAT
margins for the quarter stood at 20.8% and 7.5%, respectively.


􀂃 Occupancy at 30%; ATP up 10.3% Y-o-Y
The company enjoyed 30% occupancy in Q2FY11 against 33% in Q2FY10 and
29.3% in Q1FY11. Footfalls increased 18.8% to 5.7 mn from 4.8 mn in Q2FY10.
ATP for the quarter grew at 10.3% over Q2FY10 (from INR 145 to INR 160). F&B
spending per head and advertising & royalty income increased 4.5% and 8.8%,
Y-o-Y, respectively. PVR added one six screens, 1,847 seater property during the
quarter at Phoenix United Mall (Lucknow). The company is expected to start
operations at 25 more screens over the next six months.

􀂃 Increased contribution from movie production and distribution segment
In Q2FY11, the company’s movie production and distribution segment reported
revenue of INR 290 mn against INR 12 mn in Q2FY10 and INR 53 mn in Q1FY11.
Segment EBIT level profit stood at INR 9 mn against a loss of INR 20 mn and
INR 11 mn in Q2FY10 and Q1FY11, respectively. Bowling business generated
revenue of INR 37 mn with an EBIT margin of 25.7%.

􀂃 Outlook and valuations: Positive; maintain ‘BUY’
PVR is planning to expand its exhibition business further and intends to add 25
more screens during FY11. Further, new businesses such as movie production
and distribution and alternative entertainment are expected to contribute
positively to the company’s overall performance, going forward. The stock is
currently trading at P/E of 12.4x FY12E and looks attractive. We maintain our
‘BUY’ recommendation on the stock and rate it ‘Sector Performer’ on relative
return basis.