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Quick Company Analysis

PVR Limited

Disclaimer

The purpose of this document is purely educational in nature. The idea is to help someone kick-start
their analysis on this company. However, this is not to be construed as a recommendation of any sort
on the company or its stock. All information has been sourced from publicly available data such as
annual reports and news items and the veracity of the sources has not been independently
established. Kindly use your judgement while analysing further or using this document.

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Contents
Introduction ........................................................................................................................................ 2
Business............................................................................................................................................... 2
Revenue Drivers .................................................................................................................................. 5
Cost Drivers ......................................................................................................................................... 7
Ratio Analysis ...................................................................................................................................... 8
Management’s Quality........................................................................................................................ 9
Broad Valuation Parameters ............................................................................................................... 9

Introduction
PVR Limited (PVR) is the largest cinema chain in India with 748 screens spread over 161 properties in
64 cities across the country as on January 2018. PVR is the dominant leader with 30‐35% share of box
office collections for Hollywood movies in India & 20‐25% share of Bollywood movies.

Business
• Before understanding the company, one must understand how things function in theatre
business.
• After the movie is produced, distributor acquires right to distribute the film in a particular
territory, for a limited period of time by paying a minimum guarantee to the producer.
• Distributor then talks with exhibitors for release of the movie. Exhibitors are responsible for
public screening for paying customers, they generally consist of the movie theatre.
• Distributor secures a written contract stipulating the amount of the gross ticket sales the
exhibitor will be allowed to retain (usually a percentage of the gross). The distributor collects
the amount due to him from exhibitors takes his commission and remits the rest to the movie
producer. 2
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The Company is in the business of

• Operating theatres in India

• Films exhibition, distribution & production

The Business verticals of PVR are:

Net box office collection

• Net box office collection refers to the collective sum of the ticket value sold by the theatre.
• The net box office collection depends on average ticket price and the number of visitors.
• Ticket pricing for a movie is determined well in advance and can be changed on Monday for
the following week starting Friday.
• The net box office collection for PVR has grown at a CAGR of 15% from 2015 to 2018 while the
average ticket prices have grown by CAGR 6% in the same period. The number of visitors have
increased from 590 lakhs to 760 lakhs i.e. growth of 9% CAGR.

Average Ticket prices

220
210
210

200 196
188
190
178
180

170

160
2015 2016 2017 2018

* As per company’s annual report

• It is important to note that online bookings have touched ~50% of PVRs total ticketing sale.
Consequently, PVR’s income from online booking in form convenience fees is continuously
increasing from 20 crore in 2015 to 60 crore in 2018.

Sale of food and beverages

• PVR on an average earns nearly 27% of its revenue from the sale of food and beverages in the
theatre.
• Revenue from this segment depends on amount spend by each customers on food and
beverages and the number of visitors.
• The revenue from this segment has grown at a CAGR of 19% from 2015 to 2018 while F&B
spend per customer has grown at a CAGR of 12% in the same period.
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 F&B spend per patron
100 89
81
80 72
64
60

40

20

0
2015 2016 2017 2018

*As per company’s annual report

Advertisement
• Theatres are used as a medium of advertising by many corporates.
• This segment is the third largest contributor to the revenues of the company. Company enjoys
a leadership position in advertisement, as well as sponsorship revenue, a near double of that
of its nearest competitor in both.
• The revenue from this segment has grown at a CAGR of 19% from 2015 to 2018. Revenue from
this segment depends on ad rates and number of screens.
• FMCG, Telecom, Consumer Electronics and Automobiles are the main advertisers, new sectors
like BFSI have also started advertising through PVR.
• Per screen advertising revenue has increased from 38 lakhs in 2015 to 48 lakhs in 2018.

Per screen advertising revenue (in lakhs)

48
50 43
42
38
40

30

20

10

0
2015 2016 2017 2018

Movie production and distributing

• PVR also earns revenue through co production and distribution of movies.

• PVR Pictures has become the largest independent distributor of Hollywood films in India. PVR
signs distribution agreements on commission and revenue sharing basis, which ensures that
it does not lose money even if the film fails to do well.
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In the year 2018, company sold its stake in bluO, PVR’s bowling & entertainment JV, which is in line
with its strategy to divest non-core assets. Stake was sold for a consideration of ` 86 crores.

Revenue Drivers
• Company’s revenue has grown at a CAGR of 28% from Rs.334 crore in 2010 to Rs.2334 crore
in 2018.
• In 2018, company’s year on year revenue grew by 10% in 2018.
• This was mainly due to increase in revenue from Net box office by 11%, food and beverage
revenue showed a growth of 8%, and advertising income showed a rise of 18% in 2018 vis-à-
vis previous year.

Distribution of revenue
100%
7% 8% 8% 7%
12% 12% 12% 13%
80%
25% 27% 27% 27%
60%

40%
56% 54% 53% 53%
20%

0%
2015 2016 2017 2018

Income from sale of movie tickets Sale of food and beverages

Advertisement income Others

• The share of income from sale of movie tickets is reducing in revenue pie while the share of
advertising income and sale of food and beverages is increasing in the revenue pie. This is
considered as a positive sign as margins on sale of food and beverages and advertising income
are generally high. F&B and advertisement generate gross margin of ~75% and ~95%,
respectively, against ~55% of box office.
• Despite of increase in revenue, the occupancy of theatre is continuously decreasing and
footfall per screen has decreased this is due to increase in number of screens.

Occupancy level (%)

35%
34%
34%
33%
33%

32%
31% 31%
31%

30%
5

29%
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2015 2016 2017 2018

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 Footfalls in lakhs per screen
1.40
1.35
1.35
1.30
1.30 1.28

1.25 1.22
1.20

1.15
2015 2016 2017 2018

• PVR is aggressively increasing its number of screens. Company is anticipating a significant

increase in the screen roll-out for FY 2018-19 with 90 screens expected to be added in the
year. PVRL will be opening its first international screen in Sri Lanka in FY19.
• In august 2018, PVR has acquired South India’s largest premium cinema exhibitor SPI Cinemas
at an enterprises valuation of over Rs.850 crore. This added more 72 screens to the total
screen of the company.
• Addition of SPI screens has led to significant improvement in market position of PVR in South
India and helped it to diversify content as Tamil, Telugu, and Kannada languages which
account for 37% of total box office collection in India.

Number of screens
800
700 72
600 3
29
500
400
622 676
300 138 550
464 516
200 421
100 166 213
0
FY12 FY13 FY14 FY15 FY16 FY17 FY18 Jan-18

Own Screens Acquisitions

• During FY 2017-18, PVR invested in iPic – Gold Class Entertainment, it’s first-ever stake
purchase outside India. In a $4 million deal, PVR has gained a 2% interest in the American
cinema chain. This company owns 121 screens with a superior revenue mix of F&B (51% share)
and theatricals (33% share).
• PVR also operates in premium screen category. As on 31st March 18, the Company was
operating the premium screen category with 36 screens of Gold Class, 7 of IMAX, 7 of 4DX, 4
6

of PXL and 4 of Playhouse across the country.

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 • The quality of the content at the box office directly impacts footfalls which in- turn impacts
the revenues of multiplexes.
• The another key drivers for increase in revenues for PVR is rising income level among Indian
population, which leads to increase in consumer discretionary spending thus increasing
income of Theatres.

Cost Drivers
• The largest cost for company is movie exhibition cost, rent and employee benefit expense.

Cost as a percentage of sales 2015 2016 2017 2018

Movie exhibition cost 23% 23% 22% 23%
Rent 19% 18% 18% 18%
Employee benefit expense 10% 10% 10% 11%

• Movie exhibition cost is the amount paid to movie producer or distributors out of the money
collected from ticket sales. PVR signs a one-week agreement with every producer and the
agreement for the next week is renewed every Monday. It provides pricing details for every
week to the producer.

• Company is expected to have a high rental cost as it is present in attractive real estate
locations, with an asset-light model, free from ownership of real estate. It has long-term rental
agreements with well-known mall developers in the country. Company has anchor tenant in
more than 60% of top 20 Malls in India.
• Company has nearly 50% of its capital employed in fixed assets. It mainly consist of leasehold
improvement and plant & machinery. Leasehold improvement is change made to the rental
property by PVR.
• Other financial assets forms 9% of the balance sheet, these are majorly security deposits paid
by PVR to Landlord.
• Company’ goodwill forms 18% of its balance sheet. Goodwill includes the amount paid to
acquire Cinema exhibition undertaking of DLF Utilities Limited and Cinemax India Limited over
and above their net assets. Goodwill is subjected to annual tests of impairment.
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Ratio Analysis
• Company has a stable net profit margin for 3 years. Margins improved in 2016 due to superior
revenue mix. Greater contribution of advertising and income from food and beverages to
revenue.

Profitability ratio 2015 2016 2017 2018

Operating profit margin 14% 19% 18% 19%

Net profit margin 1% 5% 5% 5%
EBIT/sales 6% 13% 11% 12%

• Borrowings form nearly 30% of the capital employed. Company has reduced its borrowings
by 9% in 2018. Company’s interest coverage ratio has improved.

Stability ratio 2015 2016 2017 2018

Debt equity ratio 1.5 0.6 0.8 0.6

Long term debt equity ratio 1.5 0.6 0.6 0.5
Interest coverage ratio 1.2 2.9 2.9 3.3
Cost of debt 12% 15% 11% 13%

• Company has negligible inventory. Inventory mainly consists of food, beverages, stores and
spares.
• Company’s receivable days have increased by 7 days in 2018. Receivables are generally with
respect to advertising business and movie production and distribution business.
• Company has a negative cash conversion cycle indicating that company’s creditors are funding
the working capital requirement of the company.
• Working capital as a percentage of sales is stable indicating company is efficient in managing
its working capital.

Efficiency ratio 2015 2016 2017 2018

Cash Conversion Cycle -12 -12 -13 -12

Working capital as
percentage of sales -3% -3% -4% -3%

Receivables days 19 18 17 24

• Company’s return of equity has improved due to improvement in asset turnover ratio.
• Company’s return on capital employed has increased due to increase in EBITDA and reduction
in borrowings.

Return Ratios (%) 2015 2016 2017 2018

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ROE 3% 11% 10% 12%

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 ROCE 20% 24% 24% 26%
Asset turnover 1.02 0.97 0.95 0.99

• Company’s cash flow from operations are nearly thrice of its net profits. The reason for the
vast difference in net profit and operating cash flow is depreciation, finance cost and deferred
rent (Rent holiday offered by landlord to tenant for few months as incentive) which are added
back to net profit to arrive at cash flow from operations.
• Company’s cash flow from investing activity is negative indicating company is investing in
CAPEX.
• Company’s cash flow from financing activity is positive till 2017 indicating it is borrowing.
However in 2018 company has a negative cash flow indicating company is paying back its
loans.

Cash flow 2015 2016 2017 2018

Cash flow from operating 15526 35434 31961 44626
activity
Cash flow from investing -20542 -29917 -63209 -40539
activity
Cash flow from financing 4880 21684 6015 -6595
activity

Management’s Quality
• Shareholding of promoter is 20.25% in March 2018.

Name Shareholding as on Shareholding as on

1/4/2017 (in %) 31/3/2018 (in %)
BERRY CREEK INVESTMENT LTD. 7.67 7.67
GRAY BIRCH INVESTMENT LTD. 6.33 6.33
PLENTY PRIVATE EQUITY FUND I LIMITED 4.21 4.21
MULTIPLES PRIVATE EQUITY FUND I LIMITED 3.79 3.79
ICICI PRUDENTIAL VALUE FUND - SERIES 4 4.5 4.5
• FIIs hold 43% of shareholding

• Company has 8 board of directors out of which 4 are independent directors.

Particulars 2015 2016 2017 2018

Remuneration of management 1642 1623 1938 1797
Remuneration of management as % of net 141% 16% 20% 14%
profit
Year on year change in remuneration 138% -1% 19% -7%
Year on year change in net profit -79% 747% -3% 29%

Broad Valuation Parameters

• Market Capitalisation - Rs. 6,880 crores as on 8th February 2019
• EPS- 26.68
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• PE- 57

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 • Price to sales- 3
• EV to EBITDA- 17.4

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