PVR - improving prospects; visit note; Buy:: Edelweiss

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PVR (PVRL IN, INR 148, Buy)

We recently met the PVR management to understand their business strategy going ahead. Following are the key takeaways of our interaction:

n  Positive on exhibition business fundamentals

PVR’s share in the Indian box office is 12-13% and 22-23% in the multiplex industry. Multiplexes account for 10% of the 10,000 screens in India and ~45-50% of box-office collections. The company believes the number of multiplex screens will increase from 1,000 to 2,500-3,000 over the next three-four years and account for 65-70% of box-office collections. It posted an ATP of INR 160 in Q2FY11 (against INR 125 for the multiplex industry) and the company expects it to grow at ~7% annually. PVR also charges a premium of ~INR 50 for 3D movies in terms of ticket prices. ~65% of PVR’s screens are digital and more cost efficient. India accounts for 5% share of sales from hollywood movies and the company’s share is ~20-25%. Although, a few movies such as Guzaarish, A Flat, and Shahrukh Bola Khoobsurat Hai Tu have been lackluster, hollywood movies such as Harry Potter are enjoying good occupancies.

n  Robust outlook on new screen additions

The company is looking at setting up ~300 screens over the next four-five years. It will add ~50-60 screens a year. Also the Phoenix property sale and lease back is likely to happen by Q4FY11 as PVR is in talks with prospective buyers.

n  New movie release in Q3FY11

PVR Pictures will be releasing Khelein Hum Jee Jaan Sey on December 3, 2010.  The movie star cast includes Abhishek Bachchan and Deepika Padukone and has been directed by Ashutosh Gowarikar. The company plans to produce four-five movies a year going ahead.

n  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 ahead. The stock is currently trading at P/E of 10.4x FY12E and looks attractive. We maintain our ‘BUY’ recommendation on the stock and rate it ‘Sector Performer’ on relative return basis.