st

21 July, 2009
MEDIA
PVR BUY
CMP: Rs. 104 Target: Rs. 175

Investment Recommendation:

We initiate to Buy on PVR Limited with a 40% upside potential from current levels.
Sovid Gupta +911243024840
Equity Analyst: Fairwealth Securities Investment advice is based on company’s expertise in entertainment business, strong
Private. Ltd. growth plans over next three years in other businesses, especially bowling and gaming,
and strong domestic demand for entertainment along with rising income levels.

Results for FY09 were highly muted on number of accounts, primary being
1. Global Economic scenario and falling investor confidence.
Priced on July’10, 2009 2. Tussle between Distributors and producers.
±% potential 65% 3. Week movie line up this year, and
th
Target set on 10 July 4. Another blockbuster year of IPL, eating into the share of other modes of
entertainment, primarily outdoor entertainment

Market Data Highlights:

Beta 0.6
52 Week high- 207.8 1. PVR will invest Rs150 Crore in the exhibition business and will add 57 screens
52 week low- 58.2 across 10 properties this fiscal, taking the total to 165 screens by end of FY09.
Market cap INR 2984 cr.
Shares in issue (mn.) 23 2. PVR has plans to invest approximately Rs 2.50 billion in the next 18 months to
Reuters PVRL.BO expand its exhibition, movie production and bowling to its businesses. 150 crores
in exhibition business and remaining to be spent on movie production and bowling
Bloomberg PVRL IN
alley business.
3. Postponed plans to expand its food court business.

Share Holding Pattern (%) 4. Funding won’t be a problem and would be done through preferential allotment and
Equity dilution.
Share Holding Pattern
5. PVR launched the bowling alley as a joint venture with Thailand's Major Cineplex,
(AS ON 31-Mar-2009) (%)
which owns the premier Blu-O brand. PVR is now looking for a suitable location to
Promoters 41
launch Sub Zero in India, the Thai company's ice skating rink brand.
foreign 25
Institutions 9 6. Company plans to set up 15 entertainment centres with bowling alleys and gaming
6 zones by 2012. In 2009, the company would add two more centres. By 2012
Non Promoter Corp. Hold.
19 contribution from this business will shoot up to 20%
Public & Others

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Quarterly Result Round up (Standalone):

The performance of the company for the
th
4 quarter ended March 2009 and for Rs (mn) 4QFY08 3QFY09 4QFY09 % YoY % QoQ
FY09 was disappointing due to:
Net Sales 543 752.3 576.9 6.02 -23.3
Costs 472.3 621.9 518.9 9.9 -16.6
 Weak movie line up.
EBIDTA 70.7 130.4 58 -18 -55.5
 Tussle between producers and
Distributors. EBIDTA Margin % 13 17 10
 Weak Consumer confidence. Other Income 25.2 21.2 7.4 70.6 -65.1
 IPL eating into the market share of the Interest 17.7 31.8 28.5 61 -10.4
Industry. Depreciation 37.2 49.1 49 31.7 -0.2
 Security threat. PBT 41 70.7 -12.1 LP LP
Tax 14 51.2 -1.1
Tax Rate (%) 3.4 72 9
Net Profit 27 19.56 -11 PL PL

During the quarter under review, PVR Blu- Result Analysis:

O, a joint Venture company between PVR
Ltd and Major Cineplex Group Plc based The company during the quarter ended March 2009 reported just 5% growth in net
operating revenues at Rs 58.01 Crore. Ticket sales grew 19% at Rs 35.1 Crore, the F&B
out of Thailand, opened its first and India's
revenues grew 5% at Rs 10.97 Crore whereas the income from revenue sharing however
largest Bowling Alley Centre located at fell 54% at Rs 2.29 Crore, and advertising & royalty income fell 6% at Rs 8.39 Crore.
prestigious Ambience Mall in Gurgaon
giving fillip to outdoor retail entertainment. For the quarter footfalls increased 2% at 3.75 million however average occupancy
decreased to 27.3% from 31.9% in the corresponding quarter of the previous year.
The average ticket price increased 6% at Rs 140. ATP of comparable properties was flat at
Rs 133. The operating margins dipped 410 bps at 10.5% due to higher film
distributor's share and F&B expenses

Operating profits for the quarter hence fell 24% at Rs 6.11 Crore. Other Income for the
quarter decreased 72% at Rs 42 lakh. After providing for the interest cost and the
depreciation allowance which increased by 62% and 32% respectively the company posted
gross PBT loss of Rs 1.22 Crore during the quarter under review. After providing for tax
credit during the quarter, the net loss was Rs 1.11 Crore as compared to a net profit of
Rs 2.70 Crore during the corresponding quarter of the previous year.

The consolidated top-line for the full year ended March 2009 increased by 32% to Rs
355.39 Crore as compared to the previous fiscal.

The Consolidated accounts comprise of the Parent Company (PVR Limited) and its
subsidiaries, PVR Pictures Limited, CR Retail Malls (India) Private limited, Sunrise
Infotainment Private Limited and PVR bluO Entertainment Limited.
The OPM fell by 500 bps to 14.2%. After providing for other finance expenses the bottom-
line of the company posted a decline of 60% to Rs 8.71 Crore as compared to the previous
fiscal.

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Projection:

Rs (mn) FY2006 FY 2007 FY2008 FY2009 FY2010E FY2011E

Net Sales 1049 1667 2659 3521 4401.25 5281.5
As per a study by consultancy firm EBIDTA 159 266 489 472 704 845
KPMG, there are close to 850 multiplex Net Profit 53 102 216 87 286 343

screens in the country, which is EPS (Rs) 2.3 4.4 9.4 3.8 12.4 14.9

expected to grow to 1,500 screens in EPS Growth (%) - 91% 113% -60% 229% 20%
EBIDTA Margin
the next 2-3 years. 15% 16% 18% 13% 16% 16%
(%)
PER (%) 45.7 23.9 11.2 27.8 8.4 7.0
Book Value 75.0 78.0 86.0 102.2 114.6 129.5
Competition: P/BV (x) 1.4 1.3 1.2 1.0 0.9 0.8
Source: Fairwealth Estimates
Big Cinemas 200 screens
Fun Cinemas 185 screens
PVR Cinemas 108 screens
Inox Leisure 97 screens We have projected 25% and 20% growth rate over next two years as company has huge
projects lined up in its movie exhibition business and bowling alley business. Bowling
alley business is likely to contribute 20% of its sales by 2012.

Addition of 50 screens in FY09, mostly under Entertainment Tax exemption, will provide
a huge lift to its top line although bottom line can be strained for next 2-3 quarters.

Blu-O division’s contribution is likely to grow from less than 1% in FY09 to 5% in FY10
and approximately 9% in FY11.

Valuations:

PVR is one of the strongest players among multiplex industry. We expect the screen
count to increase from the current 108 screens to 171 screens in FY2011.

Currently the stocks is trading at 8.4x and 7x its FY 10E and FY11E earnings, which is at huge
discount to both Industry as well as Index.

Also company had raised money in FY08 for its future expansion plans, thus providing itself a
strong balance sheet. Company is trading at 0.9x and 0.8x its FY10E and FY 11E book value.

Company is more than comfortable in its Cash Flow as its Operating cash flows are highly
positive.

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Company Description:
History:
In 2005 successfully launched its IPO
PVR Ltd started as a joint venture between Village Road show Ltd., an Australian based
and got listed on NSE and BSE.
company and Priya Exhibitors Private Limited (PEPL) in 1994 and was incorporated as Priya
Village Road show Limited in 1995. PEPL was promoted by Raj Kumar Jaisinghani and Vasudev
In 2006 PVR Forayed into co-
T.Ramnani in 1974 and started its business by opening “Priya” cinema in 1975. Priya cinema
production with Aamir Khan
was upgraded in 1990 by Ajjay Bijli, PEPL purchased the entire shareholding of Village Road
Productions Limited.
show in the company and the name of the company was changed to PVR Ltd.

In 2008 PVR Pictures concludes

Rs.1.2bn private equity placement Present scenario:
with ICICI Ventures and JP Morgan PVR is amongst the largest multiplex cinema operators in India. With its 17.8 million
Mauritius Holdings. patrons, PVR having a dominant share at the box office with over 12% contribution to
All India box office collections of leading releases. Integration into film production and
In 2009 PVR Entered into the lifestyle
distribution has enlarged the company’s offerings and helped it become an integrated
retail entertainment business by
industry player. PVR’s aggressive expansion plan could be major reason for the
entering into partnership with Thailand
based PVR Blu–O Entertainment.
company into a higher growth on account of higher operational efficacy from its chain
distribution and theatre collections

PVR Subsidiaries:

PVR Blu-O: is a joint venture with Thailand based a major Cineplex JV with
proportional investment of 49:51.Subsidiary started its operation in the second week of
March 2009 and operated for ~18 days in FY09... During its subsidiary grossed an
income of Rs 6.8 mn and a net loss of Rs 3.6 mn, largely on account of opening

The Company has till date funded its Sunrise Infotainment Pvt. Ltd: is a wholly owned subsidiary of PVR Ltd and operating
subsidiaries for Rs. 57.37 Crore by with the 6 screens multiplex. The subsidiary opened the multiplex on 16th May 2008
way of equity/preference share capital and became eligible for entertainment tax exemption on 22nd August 2008. For the
(including Rs 5.87 Crore funded year ended March 2009, the subsidiary grossed an income of Rs 146.3 mn and a net
during the year ended March 2009) loss of Rs 26.3 mn.
and Rs. 39.23 Crore by way of loan
CR Retail Malls (India) Pvt. Ltd: is a wholly owned subsidiary of PVR Ltd and operates
(including Rs 14.39 Crore (net of
the Mumbai's largest, seven screens, with a capacity of 1850 screens. Company has
refunds) funded during the year
received 5 year tax exemption for the same. With this PVR now has 42% of its overall
ended March 31 2009).
seat capacity and 39% of overall screen capacity under entertainment tax exemption.

PVR Pictures is the film production and film distribution arm of the company.

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SWOT Analysis and Relative Price Movement:

Strength: Weakness:

 PVR now has 42% of its overall seat capacity and  The film exhibition business’s fortunes depend on the
success of the films they are showing
39% of overall screen capacity under entertainment
 Rapid development of digital technology and the
tax exemption. advancement in the broadband and networking space
 Integration with film production and distribution shows the great weakness for PVR.
 Strong brand equity  Low margins and seasonal factors in the movie
 Multiplexes with primes location with high Average ticket exhibition
price
Opportunity: Threat:
 The Indian film industry is the largest film industry in the  Increased competition from other entertainment sources like
world in terms of number of films produced and tickets sold IPL, affecting occupancy rates in Theatre.
each year expecting growth will be continue in upcoming  Competition from other players like Adlibs having huge
years in to producing movies. financial muscle.
 Very strong scope in other forms of Entertainment like  High Real Estate price is a huge barrier to profitability of this
Bowling alley, Gaming and Ice Skating Rink. sector.
 Piracy remains a constant threat.

PVR is a low Beta stock; with a beta 0.6.While the share has always been a laggard in terms of price movement and
volumes compared to its peers and overall industry as well. However we believe that the stock is highly beaten down and
presents a value buying opportunity for long term investors. Short term traders can also make a handsome profit of 20-25%
over next one month as share can scale back to June highs of 140-150.

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Investment Rational:
Apart from PVR Pictures, the rest of the subsidiaries commenced operations in FY09
and are getting stabilized. FY10 will also see a full year of operations of these
subsidiaries and will boost the top line of the company, Inspire of a worst Q1 FY10.
Some basic key points that deserve for upward movement in the price of this stock

1. Aggressive expansion plan

2. Rising consumer confidence and Robust Demand going forwards.
3. Delivering value by its subsidiary

Short term traders can invest for a target of 120-140 in next 2 weeks

TECHNICAL OUTLOOK:

PVR is in a long term uptrend. The stocks 20 DMA & 50 DMA is above 200 DMA .So one could go long on the
stock for a Target of 116-140 in next 3-4 months.

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Annexure:
Income Statement:
Fund Flow Statement:
Fund Flow Mar08 Mar07 Mar06
FY2008 FY2007 FY2006
INCOME : Sources of funds
Net Sales 298.5 206.8 130.4 Cash profit 35.52 22.81 12.32
Other Income 9.2 7.0 4.6 Increase in equity 0 0.13 5.78
Total Income 307.8 213.8 135.0 Increase in other net worth 2.06 0.42 110.86
EXPENDITURE : Increase in loan funds 35.42 0 14.85
Raw Materials 15.7 11.4 7.1 Decrease in working capital 0 42.5 0
Power & Fuel Cost 12.5 9.4 4.9 Others 0 0 20.54
Employee Cost 23.3 18.1 11.0 Total Inflow 73 65.86 164.35
Other Manufacturing Application of funds
99.6 66.8 36.4
Expenses Decrease in loan funds 0 1.29 0
Selling and
Administration 95.9 72.0 52.7 Increase in gross block 43.96 29.31 58.76
Expenses Increase in investments 15.63 31.97 29.72
Miscellaneous
4.2 2.6 2.3 Increase in working capital 0.37 0 73.06
Expenses
Total Expenditure 251.4 180.5 114.5 Dividend 3.04 3.29 2.81
Others 10 0 0
Operating Profit 56.4 33.3 20.5
Interest 6.3 5 3.4 Total Outflow 73 65.86 164.35
Gross Profit 50.0 28.3 17.1
Depreciation 17.0 13.3 8.3
Profit Before Tax 33.0 15.0 8.7
Tax 10.5 2.4 2.7 Cash Flow Statement:
Fringe Benefit Tax 0.6 0.5 0.3 Cash Flow Summery
Mar’08 Mar’07 Mar’06 Mar’05
Deferred Tax 0.31 1.9 0.3
Net Profit before Cash and Cash
21.6 10.1 5.2 Equivalents at Beginning 5.7 1.1 8.1 2.6
Minority Interest
Net Profit after Minority of the year
21.6 10.1 5.2
Interest Net Cash from Operating
39.7 11.5 13.2 17.6
Extraordinary Items -0.1 -0.08 -0.1 Activities

Adjusted Net Profit 21.7 10.2 5.4 Net Cash Used in

-56.6 6.6 -166.1 -41.7
Investing Activities
Net Cash Used in
20.2 -13.6 146.0 30.9
Financing Activities
Net Inc/(Dec) in Cash and
3.3 4.5 -6.9 6.8
Cash Equivalent
Cash and Cash
Equivalents at End of the 9.0 5.7 1.1 9.4
year

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Disclaimer

This publication has been prepared solely for information purpose and does not constitute a solicitation to any person to buy or sell a security. While
The information contained therein has been obtained from sources believed to be reliable; investors are advised to satisfy themselves before making
Any investments. Fairwealth Securities Pvt Ltd does not bear any responsibility for the authentication of the information contained in
the reports and consequently, is not liable for any decisions taken based on the same. Further, Fairwealth Research Reports only provide information
updates and analysis. All opinion for buying and selling are available to investors when they are registered clients of Fairwealth Investment Advisory
Services. As a matter of practice, Fairwealth refrains from publishing any individual names with its reports. As per SEBI requirements it is stated that,
Fairwealth Sec Pvt Ltd., and/or individuals thereof may have positions in securities referred herein and may make purchases or sale while this report is in
circulation.

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