PVR (PVRL IN, INR 97, Buy)

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PVR (PVRL IN, INR 97, Buy)

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

n  50-60 new screens in FY12 on the anvil

PVR is planning to add 50-60 new screens in FY12 (against 19 in FY11); capex per screen is expected to be INR ~17.5 mn. The company’s screen count stood at 142 as of December 2010.

n  Heavy cricket season takes a toll on occupancy and ATP

The company expects Q4FY11 occupancy at ~23% with movie releases slowing down as a result of the ongoing Cricket World Cup; occupancy for 9mFY11 stood at 30%. The ATP for Q4FY11 is expected to be ~INR 163 versus INR 167 in Q3FY11. Management expects the movie pipeline to revive post the cricket season. Moreover, PVR expects ~25-30 3D movie releases in FY12E against 17 in FY11. 65-70% of the company’s screens are digital and it is expected to benefit from the higher ATP for 3D movie screenings.

n  Bowling business to expand footprint in Delhi and Bengaluru

PVR is planning to add a 26-lane bowling alley at Delhi in Q1FY12 and another 28-lane bowling alley at Bengaluru in Q2FY12. Capex for the same is expected to be INR ~5 mn per lane. Revenues and PAT for the bowling business are expected to double in FY12.

n  PVR Pictures to release two movies in FY12

3 The Bhai, a Rakesh Omprakash Mehra movie, is scheduled for release in Q1FY12, followed by Shanghai, an Emraan Hashmi starrer, in Q3FY12. These are low budget films and were pre-committed. As stated earlier, the company will moderate investments in movie production post these two releases.

n  Outlook and valuations: Attractive; maintain ‘BUY’

We are positive on PVR and find the valuations attractive. Currently PVR’s assets are valued at INR 3.4 bn (cost of 142 screens is INR 2.5 bn plus sale and lease back of Phoenix Mills property to yield INR ~0.9 bn), while the current market capitalisation stands at INR 2.6 bn. We maintain our ‘BUY’ recommendation and rate it ‘Sector Performer’ on relative return basis.