PVR (PVRL IN, INR 203, Buy)
We recently met Mr. Nitin Sood, CFO, PVR. Mr. Sood believes that changing consumer patterns led by higher propensity to spend on movies has driven double digit growth in the company’s existing screens. PVR plans to add ~160 screens (current base of 197 screens) in the next two years and has already signed up with developers to add 300 screens in the next four years. It has inked an agreement wherein L Capital will invest ~INR1.1bn in the former’s exhibition and entertainment business. We expect the PVR stock to re-rate due to increased focus on being a lifestyle company and rising consolidation in the multiplex industry. Maintain ‘BUY’.
Capacity expansion to drive growth
PVR will be adding 50% incremental screens in FY13. Over the past two years, it has posted double digit growth in existing screens, primarily due to higher footfalls. The bowling business continues to do well and helps PVR bargain better deals with developers. Though ticket sales remain the primary source of revenue (~65%), the company expects food & beverage (20%) and ad (15%) revenues to be key growth drivers over the next three years.
Deal inked with L Capital
L Capital will invest INR577mn in PVR for 10% fully diluted stake at INR200/share. In addition, the two companies will enter into a JV to invest in entertainment, gaming, food and leisure formats. Ergo, L capital will invest ~INR501mn into a new subsidiary of PVR and the latter’s existing investment in PVR BluO will be held via this subsidiary.
Outlook and valuations: Positive; maintain ‘BUY’
We are enthused by PVR’s sharp expansion in exhibition business and also its diversification into new lifestyle businesses. At CMP, the stock is trading at P/E of 13.7x and 10.9x FY13E and FY14E, respectively. We maintain ‘BUY’ and rate it ‘Sector Performer’.
Regards,
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