Stock Report - PVR Cinemas

Stock market investment research team of Angel Securities is bullish on PVR cinemas and has recommended to buy stocks of PVR in its June 1, 2010 research report.

The stock report says "We highlight that PVR allotted 0.26cr shares at a premium of Rs155 per to Major Cineplex Group on a preferential basis in 4QFY2010, which led to
equity dilution of ~11% for PVR and a cash infusion of ~Rs40cr. For the quarter, PVR reported Top-line growth of 16.9% yoy, aided by a substantial increase of Rs23 in ATP to Rs163, a 40bp yoy increase in occupancy and a 10.2% yoy increase in average F&B realisation. The company registered profit of Rs0.3cr, aided by reduced Depreciation charges, despite Margin contraction.


After 4QFY2010 results, we have revised our estimates upwards to factor in –

1) addition of 28 screens from February till April 2010,
2) visibility in the production pipeline for PVR Pictures,
3) promising movie pipeline for 1HFY2011,
4) continued
focus on cost curtailment and
5) higher Depreciation cost on account of increased capex and higher contribution from the movie division.

The EPS estimate for FY2012E is revised downward, despite higher revenue estimate and margin expansion, to account for higher depreciation charge and a tax rate of 30%.

PVR added 15 screens and 4,198 seats under operation in 4QFY2010 (between
February and March 2010) and for the full year. The company has further added 13
screens and 3,176 seats under operation in April 2010. Going forward, substantially higher footfalls are expected in 1H FY2011 (due to increased traction from the 15
screens opened in the latter half of 4QFY2010 and 13 new screen additions). Moreover, a promising movie pipeline for 1QFY2011 (LSD, Housefull, Kites, Prince
of Persia, Shrek 3, Rajneeti, Raavana and Robin Hood Adventures) is expected to
help PVR register higher occupancies.

Modeled ~26mn footfalls and a ~300bp yoy increase in occupancy for FY2011E, resulting from the addition of 27 screens and 6,750 seats in FY2011E.
Moreover, PVR is expected to add 25 screens and 6,250 seats in FY2012E, leading to
a total of 175 screens and 45,025 seats from 40 properties under operation at the
end of FY2012.

During FY2010-12E, PVR is expected to register a 34% CAGR in Top-line, primarily
aided by seat additions (as factored in only 3% improvements in ATP and F&B
spends), 56% CAGR in revenue from film distribution and 42% CAGR in revenue
from Blu-O’Ray. Earnings are expected to register a CAGR of 394% over the same
period. High Earnings growth is on account of low base (FY2010 earnings were
affected due to weak movie pipeline and 1QFY2010 washout on account of the
strike) and Margin expansion (on low base, operating margins could be 16-17%
in FY2011-12E).

Stock Valuation
At CMP of Rs. 146, the stock trades at attractive valuations of 11.4x FY2012E EPS.
Stock research team maintains "Buy stocks" recommendation with a revised Target Price of Rs. 192 based on 15x FY2012E EPS of Rs 12.8