PVR - The big picture emerges; visit note; Buy :: Edelweiss

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PVR (PVRL IN, INR 140, Buy)

Recently, we met with the management of PVR. Having outlined huge expansion plans for its exhibition business, PVR plans to increase the total number of screens to ~195 and ~250 at the end of FY12 and FY13 respectively. The occupancy levels and footfalls in Q3FY12 remain on track. Overall, we remain positive on the stock and maintain ‘BUY’.

Expects 30% occupancy levels in coming quarter

PVR is confident of achieving ~30% occupancy levels in Q3FY12 with the release of major movies like Rockstar, Desi Boyz, The Dirty Picture, Twilight and Don-2. PVR plans to add ~50 new screens every year and targets to be the primary or secondary player in every market. With its increased focus on footfalls, PVR has dropped prices over weekdays in some cities in specific theatres to test price elasticity of consumers. The Average Ticket Price (ATP) in Q3FY12 is ~INR150.

To focus on retail entertainment, leveraging exhibition business

Through its 51:49 JV with Major Cineplex, a leading film and retail entertainment company based out of Thailand, PVR plans to build various retail formats like bowling alleys, ice skating rinks and karaoke rooms. Currently, PVR-BluO operates two bowling centres in India (50 lanes) and plans to add seven more centres (134 lanes) in the next couple of years. Also, the company plans to open at least one big skating rink in the next twelve months at a premier location and at a high-end property. PVR plans to use cross-leverage with the exhibition business to expand its retail entertainment business. 

Outlook and valuations: Positive; maintain ‘BUY’

In spite of the change in its pricing strategy, PVR’s primary focus remains Tier 1 cities. As compared to its US peers, PVR is trading at a significant discount in terms of P/E valuation (refer Table 2). At CMP of INR140, the stock is trading at P/E of 11.1x and 9.2x FY12E and FY13E respectively. We maintain ‘BUY’ recommendation on the stock and rate it ‘Sector Performer’ on a relative return basis.