PVR: First choice; aggressive expansion extending leadership

Initiating Coverage | 26 August 2013

Sector: Entertainment

PVR

BSE SENSEX

S&P CNX

18,519

5,472

CMP: INR368

TP: INR470

Buy

First choice; aggressive expansion extending leadership

Initiating coverage with a Buy rating



Bloomberg

Equity Shares (m)

M.Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel. Perf. (%)

PVR IN

39.6

14.4/0.3

375/179

13/18/94



Financials & Valuation (INR b)

Y/E March

Sales

EBITDA

EPS (INR)

EPS Gr. (%)

BV/Sh (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div. Yield (%)

*Prices as on 23

2013 2014E 2015E

8.1

1.2

0.4

11.2

14.7

9.6

7.8

10.4

14.3

2.3

0.6

15.4

36.6

9.3

12.2

15.1

17.3

2.9

1.0

24.2

57.5

13.3

15.1

14.4



Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain with 89

properties, 383 screens and 93k seats. Being the only player that is still expanding

aggressively, it is further extending its leadership.

With 55m footfalls annually, 23-25% Bollywood box office share and 30-35% Hollywood

box office share, we expect PVR to attract greater ad spends. Post amalgamation of

Cinemax, PVR will get the benefit of economies of scale, helping to reduce costs in the

F&B segment, a 70% gross margin business.

Besides film exhibition and distribution, it is expanding in lifestyle/entertainment

businesses like restaurants, coffee shops, gaming zones and in-mall entertainment.

We expect PVR’s revenues to grow at a CAGR of 47% and net profit at a CAGR of 49%

over FY13-15. RoCE and RoE should improve from 7.6% and 7.8%, respectively, to

13.3% and 15% in FY15, aided by merger synergies and lower capex.

We value PVR at 8.5x FY15E EV/EBITDA, in line with most global players. We initiate

coverage with a Buy rating and a target price of INR470.

162.2 171.2 191.9

India’s largest and fastest growing multiplex chain

Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain,

with 383 screens as against INOX+Fame’s 287 screens and Big Cinemas’ 254

screens. It is also the only player that is still expanding aggressively. It intends to

add 140-150 screens, taking its total number of screens to over 500 by the end of

FY15. With zero content differentiation and little service differentiation, pace of

execution and occupying the right catchment areas are the key success

parameters in the multiplex business. PVR has prime retail space of 3.2msf across

36 cities in India, likely to reach 3.9msf across 44 cities by the end of FY14. We

believe this is a key entry barrier and will help PVR, which has already established

itself as the first choice for cinema viewers in India, to protect its turf.

32.4 23.7 15.1

2.2

2.1

1.9

17.6

8.9

6.9

0.4

0.9

1.3

August 2013

Shareholding pattern (%)

As on

Jun-13 Mar-13

Promoter

31.0

Dom. Inst 19.6

25.2

Foreign

38.2

30.0

Others

11.1

13.7

Jun-12

44.7

16.8

17.8

20.7

Profitability higher than peers; to improve further

PVR’s average ticket price (ATP) is significantly higher than peers, primarily due

to its prime location strategy, impeccable interiors, design and consistent viewing

experience. We expect its ATP (consolidated) to increase from INR163 in FY13 to

INR180 in FY15. With 55m footfalls annually, 23-25% Bollywood box office share

and 30-35% Hollywood box office share, we expect PVR to attract greater ad

spends. Post amalgamation of Cinemax, PVR will get the benefit of economies of

scale, helping to reduce costs in the F&B segment, a 70% gross margin business.

We expect EBITDA margin to expand from 14.5% in FY13 to 17% in FY15, primarily

driven by higher growth in advertisement and F&B revenues, and lower film hire

cost owing to synergies from the Cinemax acquisition.

Stock performance (1 year)

Evolving into a lifestyle entertainment company

Besides film exhibition, PVR is engaged in film distribution. It has reduced its

focus on film production after huge losses in

Khelein Hum Jee Jaan Sey.

Also, it is

26 August 2013

PVR

expanding its lifestyle/entertainment businesses like restaurants, coffee shops,

gaming zones and in-mall entertainment. It has five bowling centers so far, with a

total of 110 lanes in four cities. It plans to add another 100 lanes by FY15 and expects

annual revenues of INR1b from this business. It has opened its first full service

restaurant, Mistral in New Delhi and expects to open another restaurant, Mr Hong in

Bangalore in October 2013.

Expect earnings CAGR of 49% over FY13-15

We expect PAT to grow at a CAGR of 49% over FY13-15, driven by 47% sales CAGR and

270bp margin expansion. PVR is currently in investment phase and is likely to incur

capex of INR3b over the next two years, as it plans to open 140-150 new screens and

100 new bowling lanes. However, in FY15, we expect PVR to report free cash flow of

INR1.3b, which will increase going forward, as operating cash flow improves due to

new screen additions.

Initiating coverage with a Buy rating

We expect PVR’s revenues to grow at a CAGR of 47% and net profit at a CAGR of 49%

over FY13-15, driven by synergies from the Cinemax acquisition and aggressive screen

addition. Post the acquisition of Cinemax, PVR’s bargaining power has increased

considerably. Aided by closure of the loss-making production business, merger

synergies and lower capex, we expect RoCE and RoE to improve from 7.6% and 7.8%,

respectively, to 13.3% and 15% in FY15. We value PVR at 8.5x FY15E EV/EBITDA, in line

with most global players. We initiate coverage with a

Buy

rating and a target price of

INR470.

Key operating matrics

Number of properties

Number of screens

Number of seats

Occupancy (%)

Footfalls ('000)

ATP (INR)

SPH (INR)

FY10

123

32,232

16,200

152

39.1

FY11

142

36,877

19,600

162

40.5

FY12

166

42,252

24,700

156

43.3

FY13

360

89,166

54,860

163

47.0

FY14E

FY15E

102

114

435

485

108,666

121,666

63,563

73,239

172

180

51.7

55.3

Source: Company, MOSL

26 August 2013

PVR

India’s largest and fastest growing multiplex chain

Prime retail space key entry barrier, to help protect turf



PVR becomes leader with

383 screens, 93k seats

and 3.2msf across 36

cities post acquisition of

Cinemax



Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain, with 383

screens (INOX+Fame’s 287 screens and Big Cinemas’ 254 screens) as on June 2013.

It is also the fastest growing and the only player that is still expanding aggressively. It

intends to add 140-150 screens, taking its total number of screens to over 500 by the end

of FY15.

With zero content differentiation and little service differentiation, pace of execution and

occupying the right catchment areas are the key success parameters in the multiplex

business.

PVR has prime retail space of 3.2msf across 36 cities in India, likely to reach 3.9msf across

44 cities by the end of FY14. We believe this is a key entry barrier.

Its location strategy, impeccable interiors, design and consistent viewing experience have

enabled PVR to establish itself as the first choice for cinema viewers in India.

Spearheading the multiplex revolution in India

Starting out as a single screen location, PVR has spearheaded the multiplex revolution

in India over the past decade. It is the fastest growing multiplex player in India, with

383 screens across 89 properties in 36 cities, ~93k seats and ~55m annual patrons (as

on March 2013). Having gained dominance in North India by expanding organically for

the last seven years, PVR acquired Cinemax, a rival multiplex chain for INR5.3b,

establishing a strong foothold in West and South India.

PVR leading in terms of properties and number of screens

Number of screens

Revenue/screen for PVR highest amongst peers

Source: Company, MOSL

26 August 2013

PVR

Rapidly adding prime retail space – a key entry barrier

With zero content differentiation and little service differentiation, pace of execution

and occupying the right catchment areas are the key success parameters in the

multiplex business. We believe that the acquisition of Cinemax not only provides

PVR operating synergies and access to new geographies, but also helps it to add

critical retail space, which we believe is a challenge for any new entrant.

Cinemax acquisition

helps PVR triple

its retail space

PVR has nearly tripled its retail space from 1.3msf in FY11 to 3.2msf post the acquisition

of Cinemax. We expect PVR’s overall retail space to reach 3.9msf by the end of FY14.

Apart from its location strategy, its impeccable interiors, design and consistent viewing

experience have enabled PVR to establish itself as the first choice for cinema viewers

over the last 14 years.

PVR's retail space tripples in three years

Area msf

Source: Company, MOSL

World class cinema designs with luxurious experience

Source: Company, MOSL

26 August 2013

PVR

Only player with aggressive expansion plans

Aggressive plans to add

140-150 screens to reach

over 500 screens by FY15

To enhance its presence in South India and strengthen its overall dominance further,

PVR intends to add 89 screens in FY14 and another 50-60 screens in FY15, taking its

total number of screens to over 500 by the end of FY15. We have factored in 75 screen

additions in FY14 and 50 screen additions in FY15, taking the total to 485 screens by

the end of FY15.

PVR plans to expand its presence from 36 cities to 44 cities by the end of FY14E and to

50 cities by the end of FY15E. The capex per screen stands at INR20m, with breakeven

in 12 months. However, it is important to note that screens over 12 months old generate

an RoCE of 20-25%.

Typically, PVR signs agreements with mall owners 3-5 years before the mall becomes

operational. Hence, it has fair visibility on the number of screen additions. It pays

~15% at the time of signing the agreement and the balance in installments, with

major payment at occupation. We believe multiplexes are like anchor investors, as

they are key to driving footfalls within the malls. Given PVR’s size and scale, and its

premium positioning, we believe it has significant bargaining power to acquire prime

locations.

Aggresive screen addition to drive growth

S.No

Location

Screens

Lulu Mall, Cochin

Orion Bangalore Gold Class 3

Andheri, Mumbai

Market City, Bangalore

Elante Mall, Chandigarh

PVR 3Cs Lajpat Nagar, Delhi 1

Diamond Mall , Kolkata

Koregaon Park, Pune

Fun city Mall, Panipat

Novelty Mall, Pathankot

Garuda Mall, Mysore

Ripples Mall, Vijaywada

Pacific Mall, Dehradun

Auro Mall, Bhopal

Treasure Bazaar, Bhillai

Total PVR

Chennai

Pune

Milap, Mumbai

Motera, Gujarat

Total Cinemax

Grand Total

Expected Opening Schedule

Opened in April 2013

Opened in May 2013

Opened in June 2013

Opened in July 2013

2QFY14

3QFY14

4QFY14

3QFY14

4QFY14

RoCE and RoE for screens

over 12 months at 20-25%

Source: Company, MOSL

26 August 2013

PVR

No longer a regional player – straddling the North, West and South

Leader in North, South,

West regions post

Cinemax acquisition

PVR initially focused on the North India cluster, particularly Delhi/NCR. Post the

acquisition of Cinemax, the contribution from West and South India has increased.

PVR now has an edge over competitors like Fame, Big Cinemas, etc, whose presence

is restricted largely to West India. The management targets 25% contribution from

the South by FY15, which will drive growth.

South India accounts for 60% of the 9,000-odd screens in India, making it a lucrative

market to tap. Also, a multi-lingual movie audience helps to keep occupancy higher.

Occupancy rates in the West (~30%) are lower than the North (~35%). In the South,

PVR has occupancy of ~50%. We believe higher contribution from the South will help

maintain occupancy at current levels.

Wide range of offerings; presence across price points

Wide range of formats

depending on location

and customer base

PVR typically rents 40-50ksf of space in retail malls, and depending on location and

customer base, converts them into different brand formats such as PVR Directors’ Cut

(Ultra-premium and Exclusive), PVR Gold (Premium), PVR (Regular) and PVR Talkies

(Economy).

PVR forayed into the low-end theater concept, PVR Talkies, to venture into tier-2 and

tier-3 cities. As against an average ticket price (ATP) of INR180-200 in the larger cities,

tickets at PVR Talkies are priced at INR80-100. Despite lower ATP, RoCE is still expected

to be ~25% due to lower capex (INR50,000 per seat as against INR80,000 per seat in

tier-1 cities) and lower overheads.

Its wide range of offerings should help PVR to extract higher value from people

belonging to varied socio-economic backgrounds and in optimizing costs. Such sub-

segmentation has been successfully adopted by consumer discretionary companies

in India, but has not been undertaken on such a scale by any other multiplex operator.

PVR has also partnered with IMAX to set up high-technology screens. It opened its

first IMAX screen in Koramangla, Bangalore in November 2012, followed by a second

IMAX screen in Phoenix Mills, Mumbai in June 2013. It plans to further add three more

IMAX installations in the next 18-24 months.

Ruling the Bollywood and Hollywood box office in India

Before it acquired Cinemax, PVR used to control 14-15% of Bollywood box office

collections, while Cinemax controlled 10-11%. The combined entity now controls a

commendable 23-25% of all India Bollywood box office collections and 30-35% of all

India Hollywood box office collections. With PVR being the only player adding capacity

in the multiplex industry, we believe it will further strengthen its dominance.

26 August 2013

PVR

Acclimatizing offerings to match demographic profile of cities and consumer preferences

Directors Cut

Four luxury movie screens

One of a kind movie experience

Nine Gold class screens

Luxurious comfortable reclining sets

Dedicated food menu and memorable experience

Ceiling to floor and wall to wall - 2 screen

7.1 multi channel state of art surround sound

Full panoramic view that fills peripheral vision

63 premiere screens

Premium seating

For upper middle class

289 mainstream screens

Comfortable regular seating, scheduling options

For normal middle class

16 screens

Tier-2 and Tier-3 markets

Hygenic environment with basic facilities

Source: Company, MOSL

PVR Gold

PVR Imax

PVR Premiere

PVR Cinemas and Cinemax

PVR Talkies

26 August 2013

PVR

Acquisition of Cinemax – a master stroke

In November 2012, PVR announced the buyout of Cinemax India’s promoters’ 69.27%

stake for INR3.95b, valuing Cinemax India at INR203.65 per share. To fund this, PVR

raised INR2.6b through preferential issue of ~10.6m shares at INR245 per share.

PVR’s promoters infused INR250m, L Capital INR823m, and Renuka Ramnath’s

Multiples PE Fund INR1.53b. Post this, L Capital and Multiples PE own ~15.8% stake

each, while the promoters hold ~32% stake in PVR. The purchase of promoter holding

in Cinemax was followed by a 26% open offer, post which PVR owns 93.1% in Cinemax,

the total acquisition cost of which works out to INR5.3b.



Controls 23-25%

Bollywood and 30-35%

Hollywood box-office

Significant synergies; to drive profitability

Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain,

with 387 screens (as against INOX+Fame’s 287 screens and Big Cinemas’ 254 screens).

This has eased competitive pressure for PVR and restricts the entry of any other

large global multiplex operator.

Before it acquired Cinemax, PVR used to control 14% of Bollywood box office

collections, while Cinemax controlled 11%. The combined entity now controls a

commendable 25% of all India Bollywood box office collections and 35% of all India

Hollywood box office collections.

Reduction of F&B cost,

increase in ad revenue

per screen, better movie

scheduling and lower

flim hire charges - key

synergies

Post the amalgamation of Cinemax, PVR will get the benefit of economies of scale,

helping to reduce costs in the F&B segment and to improve margins. Also, with PVR

now being the industry leader, it will be able to garner large ad revenues/screen.

Cinemax’s ad revenues per screen were a third of PVR’s, providing significant

opportunity to scale up. Also, the acquisition is likely to provide synergies in terms

of lower film hire charges, better movie scheduling and lower duplication of costs.



Well diversified screen presence

Before it acquired Cinemax, PVR had 50% of its screens in North India and Cinemax

had 64% of its screens in West India. The combined entity has a well diversified

screen presence, with 28% in the North and 49% in the West. Further, PVR is India’s

only multiplex operator with aggressive expansion plans – it is looking to add 140

screens over the next two years.

Number of screens as at June 2013

North

West

South

East

Total

Number of seats

North

West

South

East

Total

PVR

100

248

24,056

24,079

11,196

1,186

60,517

Cinemax

135

2,115

23,614

4,461

2,682

32,872

PVR+Cinemax

109

187

383

26,171

47,693

15,657

3,868

93,389

Source: Company, MOSL

26 August 2013

PVR

Cinemax screen presence

Region

West

East

West

East

West

South

West

North

East

South

West

East

North

South

West

South

Particulars

Mumbai

Maharashtra (Ex

Mumbai

Assam

Mumbai

Maharashtra (Ex

Gujarat

Maharashtra (Ex

Gujarat

West Bengal

Mumbai

Andra Pradesh

Gujarat

Mumbai

Maharashtra (Ex

Uttar Pradesh

West Bengal

Kerala

Gujarat

Maharashtra (Ex

Chhattisgarh

Delhi

Karnataka

Maharashtra (Ex

Mumbai

Gujarat

Karnataka

Andra Pradesh

Location

Goregaon

Kandivali

Andheri E

Sion

Thane Wonder

Mira Road

Nashik

Versova

Kandivali E

Thane Eternity

Guwahati

Bandra

Vashi

Nashik

Gandhinagar

Ahmedabad - Dev Arc

Nagpur

Rajkot

Kolkata

Kalyan

Hyderabad

Ahmedabad - Red Carpet

Ghatkopar

Nashik

Kanpur

Silliguri

Cochin

Shiv

Baroda

Malegaon

Raipur

Delhi

Bengaluru

Pune

Malad

Surat

Bengaluru

Cyberabad

Type

Multiple Screen

Single Screen

Multiple Screen

Multiplex

Mutiplex

Single Screen

Multiplex

Mutiplex

Mall+Multiplex

Mutiplex

Multiplex

Mutiplex

Multiplex

Mutiplex

Multiplex

Mutiplex

Multiplex

Mutiplex

Screens

Capacity

698

287

362

827

1,136

1,018

1,002

1,477

1,267

1,035

500

195

914

431

862

1,013

1,007

777

1,208

479

1,001

991

1,250

1,016

999

974

634

637

330

1,033

1,055

1,116

795

975

824

716

1,084

947

Source: Company, MOSL

Mumbai)

26 August 2013

PVR

Profitability higher than peers; to improve further

Increasing ATP, SPH and Ad/Screen coupled with scale economies to drive margins



PVR’s average ticket price (ATP) is significantly higher than peers, primarily due to its

prime location strategy, impeccable interiors, design, and consistent viewing experience.

We expect PVR’s ATP (consolidated) to increase from INR163 in FY13 to INR180 in FY15.

With 55m footfalls annually (and expected to reach 73m in FY15), 23-25% Bollywood box

office share and 30-35% Hollywood box office share, we expect PVR to attract greater ad

spends.

Post amalgamation of Cinemax, PVR will get the benefit of economies of scale, helping to

reduce costs in the F&B segment, a 70% gross margin business.

Also, with PVR now being industry leader, it will be able to garner large ad revenues/

screen. Cinemax's ad revenues per screen were 1/3 of PVR, is providing significant

opportunity to scale up.

We expect EBITDA margin to expand from 14.5% in FY13 to 17% in FY15, primarily driven

by higher growth in advertisement and F&B revenues.

ATP set to increase; 3D push an accelerator

PVR’s consolidated average ticket price (ATP) as at the end of FY13 stood at INR163,

significantly higher than other competitors, primarily due to its prime location strategy,

impeccable interiors, design, and consistent viewing experience. The company plans

to convert top seven Cinemax multiplexes into PVR multiplexes, thus reducing the

ATP gap between PVR and Cinemax and pushing up consolidated ATP. Together with

Cinemax, PVR derives 23% of its revenues from Hollywood movies as compared to

just 8% for the industry. This not only enables it to achieve higher ATP, but also content

risk diversification.

PVR derives larger share from Hollywood as compared to industry

Source: Company, MOSL

Higher Hollywood

content, increasing

3D movies, strong

movie pipeline to

keep ATP higher

PVR has the highest 3D installations in India and is the market leader in Hollywood/

3D box office collections (30-35% market share). 3D/Hollywood movies contributed

~16% to India’s overall box office collections in FY13 for PVR. With increasing thrust

on 3D movies, PVR is in a sweet spot to increase its ATP and margins. 3D movie tickets

are typically priced at 15-20% premium. We expect PVR’s ATP (consolidated) to

increase from INR163 in FY13 to INR180 in FY15.

26 August 2013

PVR

Cinemax and PVR ATP (INR)

Consolidated ATP set to increase further (INR)

Source: Company, MOSL

Strong pipeline of 3D movies

Zambezia

The Smurfs 2

Warning

1D3D

Battle of The Year:

Dream Team

Cloudy With A Chance

Of Meatballs 2

47 Ronin

300: Rise of an Empire

Gravity 3D

Source: Company, MOSL

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. Ticket pricing for a movie is determined well in advance and can be changed

on Monday for the following week starting Friday.

Occupancy to remain around 33%

PVR receives 55m footfalls annually, which is expected to reach 73m in FY15. With

Indian movies becoming shorter in the recent years, multiplexes are able to

accommodate more shows per screen. For PVR, the number of shows has increased

to 5.7 per day from 4-4.3 per day 4-5 years ago. The management expects shows per

day to peak at 6. While Bollywood movies have become shorter in length from 3.5

hours to 2.5 hours, Hollywood movies have stretched from 1.5 hours to 2.5 hours.

Also, FY13 saw the release of ~300 movies, that is, 5.5-6 movies per week. The number

of releases in South India (including other multi-lingual movies) was ~500, that is, 9.5-

10 movies per week. This coupled with increase in the number of screens led to an

increase in footfalls.

PVR has also introduced promotional schemes to increase footfalls. It is currently

running its ‘Super Thursday’ scheme, where every Thursday, ticket prices for all shows

are dropped to INR75. Given its focus on South India, complemented by increase in

shows per day and strong movie pipeline, we expect PVR’s occupancy rates to remain

in the range of 32-33% for the next two years.

Occupancy rates to remain at elevated levels

26 August 2013

PVR

PVR occupancy (%)

Cinemax occupancy (%)

Source: Company, MOSL

More INR1b movies to support occupancy rates, ATP

In 2008,

Ghajini

became the first movie to cross INR1b at the box office, setting a new

benchmark for Bollywood. However, its exclusivity seems to be fading, with an

increasing number of films crossing the INR1b threshold. In 2012, nine Bollywood

movies crossed the coveted INR1b mark, as compared with just five in 2011. Moreover,

the box office collection of

Ek Tha Tiger

almost touched INR2b. Continued box office

successes, driven by strong content and expansion of multiplexes, could establish

INR2b as the new benchmark.

Bollywood – INR1b club

Source: KPMG in India Analysis

26 August 2013

PVR

Top-20 Bollywood movies by box office collections (INR b)

Movies

3 Idiots

Ek Tha Tiger

Yeh Jawani Hai Diwani

Dabangg 2

Bodyguard

Dabangg 2

Rowdy Rathore

Barfi

Agneepath

Jab Tak Hai Jaan

Ready

Agneepath

Housefull 2

RAOne

Ghajini

Son of Sardaar

Bol Bachchan

Khiladi 786

Ta l a a s h

OMG (Oh My God!)

Cocktail

Raaz 3

Student of the Year

Kahaani

Ishqzaade

Agent Vinod

Kya Super Kool Hain Hum

Jannat 2

Production House

Net Collection

Vidhu Vinod Chopra

2.04

Yash Raj Films, Fantastic Films, Prime Focus

1.99

Dharma Productions Pvt. Ltd

1.90

Arbaaz Khan Productions, Shree Ashtavinayak Cine Vision

1.55

Reel Life Production

1.90

Arbaaz Khan Productions, Shree Ashtavinayak Cine Vision

1.40

UTV Motion Pictures, SLB Films Pvt. Ltd

1.31

UTV Motion Pictures

1.26

Dharma Productions Pvt. Ltd

1.23

Yash Raj Films

1.22

Sohail Khan Productions

1.20

Dharma Productions Pvt. Ltd

1.15

Eors International, Nadiadwala Grandson Entertainment

1.14

Red Chillies Production

1.14

Aamir Khan Productions

1.14

Viacom 18 Motion Pictures

1.05

Shree Ashtavinayak Cine Vision Pvt. Ltd., Devgan Films

1.02

Eors International, H.R. Musik, Hari Om Entertainment Company

0.90

Aamir Khan Productions, Excel Entertainment

0.82

Grazing Goat Pictures, Viacom 18 Motion Pictures, Playtime Creations

0.80

Eros International, Illuminati Films, Prime Focus, Raj Films, Cocktail Film

0.71

Vishesh Films, Fox STAR Studios

0.70

Dharma Productions Pvt. Ltd, Red Chillies Entertainment

0.70

Boundscript Motion Pictures and Pen Movies

0.59

Yash Raj Films

0.47

Illuminati Films, Prime Focus

0.45

Balaji Motion Pictures

0.44

Fox STAR Studios, Vishesh Films

0.43

Source: Company, MOSL

Higher footfalls to help negotiate on film hire charges

With 55m footfalls annually (and expected to reach 73m in FY15), 25% Bollywood box

office market share and 35% Hollywood box office market share, we expect PVR to

gain significant bargaining power in terms of film hire charges.We believe that the

company has already started negotiations with small producers and expects to start

negotiations with large producers, shortly.

26 August 2013

PVR

Strong movie pipeline for next six months

Release Date

23-Aug-13

30-Aug-13

6-Sep-13

13-Sep-13

20-Sep-13

27-Sep-13

2-Oct-13

11-Oct-13

18-Oct-13

25-Oct-13

3-Nov-13

15-Nov-13

22-Nov-13

29-Nov-13

6-Dec-13

13-Dec-13

Movie Title

MADRAS CAFÉ

AMAN KI AASHA

ELYSIUM

THE MORTAL INSTRUMENT CITY

OF BONES

SATYAGRAHA

KAANCHI

WAR CHHOD NA YAAR

THE INTERNSHIP

2 GUNS

ZANJEER

RIDDICK

SHUDDH DESI ROMANCE

GRAND MASTI

JOHN DAY

ESCAPE PLAN

GROWN UPS 2

PHATA POSTER NIKLA HERO

UNGLI

THIS IS THE END

PRISONERS

RUNNER RUNNER

WARNING (3D)

2 GUNS

BESHARAM

LAKSHMI

RAGINI MMS 2

SINGH SAHAB THE GREAT

QUEEN

ABOUT TIME

CAPTAIN PHILLIPS

BOSS

HORROR STORY

1D3D

KRRISH 3

SANTA BANTA

RAM LEELA

BATTLE OF THE YEAR: DREAM TEAM (3D)

GORI TERE PYAR MEIN

THE COUNSELOR

RAMBO RAJKUMAR

BULLET RAJA

SHAADI KE SIDE EFFECTS

CARRIE

DEDH ISHQIYA

HIGHWAY

Language

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

ENGLISH

HINDI

Cast

AYUSHMANN KHURRANA, RASHI KHANNA, JOHN ABRAHAM

ALI ZAFAR, YAAMI GAUTAM

Matt Damon, Jodie Foster, Sharlto Copley, Alice Braga, Diego

Luna, William Fichtner, Wagner Moura

LILY COLLINS, JAMIE CAMPBELL BOWER, ROBERT SHEEHAN

AMITABH BACHCHAN, KAREENA KAPOOR , AJAY DEVGN ,

MANOJ BAJPAYEE , ARJUN RAMPAL

RISHI KAPOOR, MITHUN CHAKRABORTY

SHARMAN JOSHI, SOHA ALI KHAN, JAVED JAFERI

OWEN WILSON, VINCE VAUGHN, JOHN GOODMAN

DENZEL WASHINGTON, MARK WAHLBERG, PAULA PATTON

RAM CHARAN, PRIYANKA CHOPRA, MAHIE GILL, SANJAY DUTT

VIN DIESEL, KARL URBAN, KATEE SACKHOFF

SUSHANT SINGH RAJPUT, VAANI KAPOOR, RISHI KAPOOR,

PARINEETI CHOPRA

VIVEK OBEROI, RITEISH DESHMUKH, AFTAB SHIVDASANI

NASEERUDDIN SHAH, RANDEEP HOODA, SHARAT SAXENA

SYLVESTER STALLONE, ARNOLD SCHWARZENEGGER

ADAM SANDLER, KEVIN JAMES ,CHRIS ROCK

SHAHID KAPOOR , ILEANA DCRUZ

SANJAY DUTT, IMRAAN HASHMI, KANGNA RANAUT, NEHA DHUPIA

JAMES FRANCO, JONAH HILL, SETH ROGEN, JAY BARUCHEL,

DANNY MCBRIDE

HUGH JACKMAN, JAKE GYLLENHAAL, VIOLA DAVIS

GEMMA ARTERTON, BEN AFFLECK, JUSTIN TIMBERLAKE

SANTOSH BARMOLA, SUZANA RODRIGUS

DENZEL WASHINGTON, MARK WAHLBERG, PAULA PATTON

RANBIR KAPOOR , PALLAVI SHARDA , RISHI KAPOOR ,NEETU SINGH

MONALI THAKUR, SATISH KAUSHIK

SUNNY LEONE

SUNNY DEOL, AMRITA RAO, JOHNY LEVER

KANGNA RANAUT, RAJKUMAR YADAV

DOMHNALL GLEESON, RACHEL MCADAMS, BILL NIGHY

TOM HANKS, CATHERINE KEENER

AKSHAY KUMAR, ADITI RAO HYDARI, SHIV PANDIT

KARAN KUNDRA, RAVISH DESAI,HASAN ZAIDI

NIALL HORA, ZAYN MALIK, LIAM PAYNE, HARRY STYLES,

HRITHIK ROSHAN, PRIYANKA CHOPRA, VIVEK OBEROI

BOMAN IRANI, VIR DAS, NEHA DHUPIA

RANVEER SINGH, DEEPIKA PADUKONE

JOSH HOLLOWAY, LAZ ALONSO, JOSH PECK, CAITY LOTZ AND

CHRIS BROWN AS ROOSTER

IMRAN KHAN, KAREENA KAPOOR

BRAD PITT, JAVIER BARDEM, MICHAEL FASSBENDER

SHAHID KAPOOR, SONAKSHI SINHA

SAIF ALI KHAN, IRRFAN KHAN, JIMMY SHERGILL, SONAKSHI SINHA

FARHAN AKHTAR, VIDYA BALAN, VIR DAS

Chloe Moretz, Julianne Moore

ARSHAD WARSI, NASEERUDDIN SHAH, MADHURI DIXIT

RANDEEP HOODA, ALIA BHATT

26 August 2013

PVR

Strong movie pipeline for next six months

(Contd..)

Release Date Movie Title

20-Dec-13

(3D) CLOUDY WITH A CHANCE OF

MEATBALLS 2

25-Dec-13

47 RONIN (3D)

25-Dec-13

THE SECRET LIFE OF WALTER MITTY

DEC,13

DHOOM 3

10-Jan-14

HASEE TOH PHASEE

14-Feb-14

HEROPANTI

14-Feb-14

GUNDAY

14-Feb-14

ENDLESS LOVE

Language

ENGLISH

HINDI

ENGLISH

Cast

BILL HADER, ANNA FARIS, WILL FORTE

KEANU REEVES, HIROYUKI SANADA , KO SHIBASAKI

BEN STILLER, ADAM SCOTT, KRISTEN WIIG

AAMIR KHAN, ABHISHEK BACHCHAN, KATRINA KAIF, UDAY CHOPRA

SIDHARTH MALHOTRA, PARINEETI CHOPRA, ADAH SHARMA

TIGER SHROFF, KRITI SANON, SANDEEPA DHAR

RANVEER SINGH, ARJUN KAPOOR, PRIYANKA CHOPRA

ALEX PETTYFER, ROBERT PATRICK,

PVR and Cinemax footfalls trend

Patrons in '000s

PVR

Cinemax

Total

FY08

15,800

6,191

21,991

FY09

16,800

8,514

25,314

FY10

16,200

10,810

27,010

FY11

19,600

11,501

31,101

FY12

FY13

24,700

32,500

16,581

22,360

41,281

54,860

Source: Company, MOSL

Expect ~16% growth in footfalls

Note: FY13 numbers consolidated for PVR and Cinemax

Source: Company, MOSL

Mobile/online ticketing a source of high-margin fee income

PVR’s mobile applications for iPhone, iPod Touch, iPad and Android, which allow

users to keep a tab on movies running currently or due for release in PVR multiplexes,

have seen good traction, with over 200,000 downloads within five months of launch.

The number of tickets booked through its portal has been increasing steadily and is

currently at ~45,000 per month. The convenience fees that it levies on tickets booked

through its portal have created a sustained, high margin revenue stream, which is

likely to contribute meaningfully over the foreseeable future.

Economies of scale to help reduce F&B costs, expand margins

Economies of

scale to help PVR bring

down cost of F&B

thereby aiding margins

Post amalgamation of Cinemax, PVR will get the benefit of economies of scale, helping

to reduce costs in the F&B segment and to improve margins. F&B is a 70% gross margin

business, with growth partially related to footfalls. Over the last three years, the

growth in F&B has been higher than the growth in footfalls. PVR has been continuously

working to improve its F&B offerings and their packaging, and has taken liquor licenses

at premium locations, which should increase spends per head (SPH). It has also

introduced innovative pricing during weekdays and weekends to drive up SPH.

26 August 2013

PVR

Cinemax and PVR SPH (INR)

Consolidated SPH set to increase further (INR)

Source: Company, MOSL

F&B offerings

Source: Company, MOSL

Ad revenues/screen to increase considerably

Ad revenue per screen

for Cinemax at 1/3rd of

PVR, providing huge

opportunities

PVR consolidated had advertisement revenues of INR1b in FY13. National advertisers

contribute 70-80% of its total ad revenues. While FMCG, Telecom, Consumer Electronics

and Automobiles are the main advertisers, new sectors like BFSI have also started

advertising through PVR. With 55m footfalls annually, which are expected to reach

73m in FY15, we believe advertisers will be enticed to spend more.

In FY13, ad revenues per screen for Cinemax were 1/3rd the ad revenues/screen for

PVR. Post amalgamation, we expect the differential in ad spends/screen between

PVR and Cinemax to narrow. The management plans to significantly increase

consolidated ad revenues/screen over the next two years; it will have greater

bargaining power, given the expanded size and increasing footfalls.

Cinemax and PVR ad revenues/screen (INR m)

Source: Company, MOSL

26 August 2013

PVR

Consolidated ad spends/screen set to improve, going forward

Sponsorship revenues (INR m)

Year

FY13

FY12

FY11

FY10

PVR

753

618

509

371

Inox

324

178

137

125

114

139

106

Fame

Cinemax

240

201

139

112

Sponsorship as percentage of net ticket sales, FY13 (%)

Source: Company, MOSL

Key advertisers

Source: Company, MOSL

GST – a possible game changer

GST peak rate @16%

v/s average tax of

20% currently

High entertainment tax is a major impediment to the growth of the exhibition industry.

The overall tax implication is as high as 40-50% in states like Maharashtra, Uttar Pradesh,

Bihar and Karnataka. UP and Maharashtra contribute to 50% of PVR and Cinemax circuit.

However, post GST, the peak rate is likely to be ~16%, leading to significant cost reduction.

Also, input tax credit will be available for set off against the output tax liability.(Service

tax paid today on rent, Electricity,Security, Housekeepingetc is not available for set off

against output liability of entertainment tax or VAT). The management expects GST

implementation to result in 250-300bp margin expansion.

26 August 2013

PVR

Evolving into a lifestyle entertainment company

Reducing focus on loss-making production business



Besides film exhibition, PVR is engaged in film distribution. It has reduced its focus on film

production after losses in ‘Khelein Hum Jee Jaan Sey’.

Also, it is increasingly expanding on lifestyle/entertainment businesses like restaurants,

coffee shops, gaming zones and in-mall entertainment.

It has five bowling centers so far, with a total of 110 lanes in four cities. It plans to add

another 100 lanes by FY15 and expects annual revenues of INR1b from this business.

It has opened its first full service restaurant, Mistral in New Delhi and expects to open

another restaurant, Mr Hong in Bangalore in October 2013.

Film distribution – a strategic arm supporting exhibition business

PVR Pictures, PVR’s film distribution arm, has distributed more than 100 international

and Indian films in the last three years. It supports the exhibition business by bringing

independent Hollywood movies to the Indian market. Having successfully distributed

big Hollywood films like

The Aviator, Chicago, Twilight series, Kill Bill 1

and

Kill Bill 2,

nationally, PVR Pictures has become the largest independent distributor of Hollywood

films in India. It has distributed Bollywood movies like

Omkara, Don

and

Honeymoon

Travels

in North 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. It buys 7-8 years’ rights, including satellite and home video rights, and enjoys

35% RoCE.

Closure of production business – a step in the right direction

Closure of production

business to provide

better earnings visibility

PVR had entered the movie production business through PVR Pictures. Though two

of its productions –

Taare Zameen Par

and

Jaane Tu Ya Jaane Na

did well, its

Khelein

Hum Jee Jaan Sey

was a flop at box office. Given the capital intensity and high risks

involved, the management decided to reduce its focus on the production business. It

has taken full control over PVR Pictures by buying out the 40% stake held by JP Morgan

Mauritius Holdings and ICICI Venture’s India Advantage Fund for INR600m. PVR used

PVR Pictures’ cash balance of INR400m to part-finance the deal. PVR Pictures has now

become a wholly-owned subsidiary and is focusing on the distribution business.

PVR BluO – five bowling centers, two Playstation lounges operational

To ramp up its presence across the lifestyle retail entertainment landscape, PVR

entered into a joint venture with Major Cineplex Group, a Thailand-based film

exhibition and retail entertainment company. PVR owns 51% in this JV, PVR BluO

Entertainment, with the balance 49% owned by Major Cineplex Group. PVR BluO

operates five bowling centers, with a total of 110 lanes across four cities. It has also

started Playstation lounges in collaboration with Sony.

PVR BluO differentiates itself from conventional bowling centers by offering

additional facilities such as sports bar, karaoke, food & beverages (including alcoholic

beverages), etc. This concept is successful in Thailand and the company expects to

replicate the success in India. Its first project, a 24-lane bowling center (India’s largest)

at Ambience Mall, Gurgaon commenced operations in March 2009. It has five properties

26 August 2013

PVR

F&B accounts for 60% of

PVR BluO (bowling

revenues)

operating so far, with a total of 110 lanes in four cities. It plans to add another 100

lanes by FY15 and expects annual revenues of INR1b. The capex per lane is INR5m-

8m. The EBITDA payback in this business is four years, with 15-17% EBITDA margins, as

newer centers generally take around six months to stabilize. PVR BluO posted

revenues of INR391m in FY13, of which F&B accounted for 60%.

PVR BluO has also started Playstation lounges in its bowling centres in collaboration

with Sony. The company plans to open more such lounges, going forward.

PVR BluO pictures

Expanding presence across key cities and destination malls

Sl. No

Existing

Projects

Lanes

110

172

Source: Company, MOSL

Ambience Mall, Gurgaon

Ambience Mall, Vasant Kunj

Orion Mall, Bangalore

Market City, Pune

Market City, Bangalore

Total

FY 2013-14

Plaza Center, Pune

L&T Mall, Chandigarh

Bharti Mall, Ludhiana

Total

Grand Total

Source: Company, MOSL

PVR Leisure – at nascent stage; breakeven some time away

L Capital has invested INR501m in PVR Leisure (54% owned by PVR) to expand in other

lifestyle/entertainment businesses like restaurants, coffee shops, gaming zones and

in-mall entertainment. Through this JV, PVR and L Capital intend to open niche cafes

and restaurants in the same malls where PVR has cinemas. This will enable PVR to

convert its cinema footfalls into restaurant footfalls and earn additional income.

PVR Leisure has already opened its first full service restaurant, Mistral (average cover

price of INR1,000) in New Delhi and is in advanced stages of opening another

restaurant, Mr Hong (Chinese cuisine) in Bangalore in October 2013. The business has

just begun and will take time to break even.

26 August 2013

PVR

Mistral opened in New Delhi in April, 2013

Hong (Chinese cuisine) to open in Bangalore in 2HFY14

Source: Company

26 August 2013

PVR

Expect earnings CAGR of 49% over FY13-15

Free cash flow to start in FY15



We expect PAT to grow at a CAGR of 49% over FY13-15, driven by 47% sales CAGR and

270bp margin expansion.

PVR is currently in investment phase and is likely to incur capex of INR3b over the next

two years, as it plans to open 140-150 new screens and 100 new bowling lanes.

However, in FY15, we expect PVR to report free cash flow of INR1.3b, which will increase

going forward, as operating cash flow improves due to merger synergies and lower capex

intensity.

Consolidation, aggressive screen openings to drive growth

We expect revenues to grow at a CAGR of 47% over FY13-15, primarily driven by

consolidation of the Cinemax acquisition and aggressive opening of 75 screens in

FY14 and 50 screens in FY15.

Sales growth trend (INR m)

Source: Company, MOSL

EBITDA margin to expand going forward

We expect EBITDA margin to expand from 14.5% in FY13 to 17% in FY15, primarily

driven by higher growth in advertisement and F&B revenues. Also, Cinemax has higher

margins than PVR due to lower employee cost and other lower overhead costs; thus,

margins for the consolidated entity would be higher.

EBITDA growth trend (INR m)

Source: Company, MOSL

26 August 2013

PVR

Cinemax acquisition, margin expansion to drive up PAT

We expect PAT to grow at a CAGR of 49% over FY13-15, driven by 47% sales CAGR and

margin expansion. PAT growth would be largely driven by margins expansion over

next two years.

PAT growth trend

Source: Company, MOSL

Free cash flow to start in FY15

PVR is currently in investment phase. Post acquisition of Cinemax, consolidated net

debt stands at INR6b. We expect capex of INR3b over the next two years, as PVR plans

to open 140-150 new screens and 100 new bowling lanes. In FY15, we expect PVR to

report free cash flow of INR1.3b, which will increase going forward, as operating cash

flow improves due to merger synergies and lower capex intensity.

26 August 2013

PVR

Initiating coverage with a Buy rating

Target price of INR470 implies 30% upside



We expect PVR’s revenues to grow at a CAGR of 47% and net profit at a CAGR of 49% over

FY13-15, driven by synergies from the Cinemax acquisition and aggressive screen addition.

Post the acquisition of Cinemax, PVR has 23-25% share of the Bollywood box office and

30-35% share of the Hollywood box office in India, giving it immense bargaining power.

Also, PVR is only player adding new screens aggressively; this will further enhance its lead

over competitors.

Post the closure of the loss-making production business, merger synergies and lower

capex we expect RoCE and RoE to improve from 7.6% and 7.8% to 13.3% and 15% in FY15E

respectively.

We value PVR at 8.5x FY15E EV/EBITDA, in line with most global players. We initiate

coverage with a Buy rating and a target price of INR470.

Initiating coverage

with a Buy rating;

target price

of INR470

implies

30% upside

Valuations (INR m)

EBITDA- FY15E

Target Multiple- 8.5x

Target Enterprise Value

Less:- Debt

Add:- Cash

Target Mcap

No of shares

Value per share (INR)

2,938

8.5

25,064

6,216

284

19,131

40.7

470

Admission per screen hightest across the globe

Name

International Peers

PVR + Cinemax

US & Mexico Market

Regal

AMC

Cinenmark

Carmike

Cinepolis

Asia Market

Major - Thailand

CGV. Korea

European Market

Cineworld - UK

Odeon and UCI Cinemas - UK

Admission

('000)

55,000

216,540

200,000

263,700

50,357

116,900

24,000

82,663

46,000

82,300

Screens

Admissions

Per Screen (000)

157

114

351

6,680

4,988

5,240

2,502

3,000

413

723

800

2,179

Source: Company, MOSL

Comparative valuation

Company Name

Cinemark Holdings Inc

Cineworld Group Plc

Cj Cgv Co Ltd

Major Cineplex Group Pcl

Average

26 August 2013

P/E (x)

P/B (x)

EV/EBITDA (x)

CY13E CY14E CY15E CY13E CY14E CY15E CY13E CY14E CY15E

18.4

16.9

16.7

18.1

17.7

15.3

13.2

16.6

15.4

13.4

13.9

12.0

14.5

13.8

3.2

2.8

2.5

3.0

1.4

2.7

2.6

2.1

2.9

1.2

2.3

2.1

1.8

2.8

0.9

8.2

9.3

9.8

9.7

7.3

8.7

8.5

9.0

6.6

8.0

7.9

8.7

9.0

8.4

7.7

Source: Company, MOSL

PVR

Key risks and concerns



Timely execution, given aggressive roll-out plan:

PVR plans to increase its screen

presence to 500 by FY15. It plans to take up space in various upcoming malls and

any delays in the construction of these malls will impact the execution of its roll-

out plan.

Quality of content:

Good quality content is the key driver of footfalls in

multiplexes. While the quality of content is improving, in any particular year, if

the content released is commercially unsuccessful, it could impact revenues of

multiplexes.

Escalating rental costs:

Rental costs have seen an upward trend for most

multiplexes. The escalation in rents is leading to pressure on margins and impacting

profitability.

Continued price controls by state governments:

Several states still control cinema

ticket prices. While free-pricing prevails in West India, in some parts of North

India, approvals are required to price tickets in a particular band. In South India,

especially Andhra Pradesh and Tamil Nadu, there are strict restrictions on pricing.

In Chennai, for instance, ticket prices are capped at INR120 and 10% of a show’s

tickets have to be issued at INR10.

High entertainment tax on cinema tickets:

High entertainment tax is a major

impediment to the growth of the exhibition industry. The overall tax implication

is as high as 40-50% in states like Maharashtra, Uttar Pradesh, Bihar and Karnataka.

Though post GST, the peak rate is likely to be ~16%, leading to significant cost

reduction, the visibility on GST implementation is still limited.

26 August 2013

PVR

Annexure-I

Company background

PVR, a pioneer in multiplex development in India, is the largest cinema exhibition

player in the country today. It came into existence following a joint venture between

Priya Exhibitors and Village Roadshow, an Australian exhibition company, with more

than 1,000 screens under operation. This 60:40 joint venture led to the formation of

Priya Village Roadshow.

PVR launched India’s first multiplex, PVR Anupam in Saket, New Delhi in 1997. Since

then it has had several other credible achievements, including among others the

launch of an 11-screen multiplex in Bengaluru in 2004 and the introduction of Gold

Class Cinema. In November 2002, Village Roadshow sold its entire stake in the joint

venture to Priya Exhibitors, following which its name was changed to PVR.

By introducing the multiplex concept in India, PVR brought a paradigm shift to the

cinema viewing experience: high class seating, and state-of-the-art screens and audio-

visual systems. This enabled PVR to gain presence in New Delhi, National Capital

Regions like Gurgaon and Noida, Bangalore, Hyderabad, Mumbai, Lucknow and Indore,

making it the largest cinema exhibition chain in the country.

Revenue streams

Movie exhibition:

This is PVR’s core business. It operates under various formats like

PVR Gold Class, PVR Director’s Cut, PVR Premiere, PVR Imax and PVR Talkies, which

allows it to straddle various price points and provide a good cinema experience to the

audience. Post acquisition of Cinemax, the movie exhibition business constitutes

61% of total revenues. As at the end of FY13, its consolidated average ticket price

(ATP) was INR163. Together with Cinemax, it enjoys 22-25% share of the Bollywood

box office and 30-35% of the Hollywood box office in India.

Food and beverages (F&B):

This segment constitutes 20% of PVR’s total business. The

company has different value packages, which are continually revised. It also has liquor

licenses in premium locations, which significantly increase customer spends and its

revenues. In FY13, it enjoyed average spends per head (SPH) of INR47 (post

consolidation with Cinemax) and margins of ~70%. The F&B business is likely to grow

at a CAGR of ~30% over FY13-15 to INR4,095m.

Advertisement revenues:

Advertisement revenues constitute 9% of consolidated

revenues. PVR accounted for ~40% of the industry’s in-screen advertisement/

sponsorship revenue in FY13. With cumulative footfalls post acquisition likely to reach

73m in FY15E, we expect consolidated ad spends per screen to increase significantly,

going forward.

Subsidiaries

PVR Pictures:

It is an independent film distribution company, with a pan-India network.

It has distributed more than 100 international and Indian films in the past three years.

It had also ventured into film production but following huge losses in the business,

decided to focus only on distribution. It is 100% owned by PVR.

26 August 2013

PVR

PVR Leisure:

It focuses on F&B and retail entertainment concepts. L Capital has

invested INR1.9b in PVR (15.8% stake); of this, INR1.4b is for movie screen additions,

and the balance INR501m is for investment in PVR Leisure (54% owned by PVR) to

expand in other lifestyle/entertainment businesses like restaurants, coffee shops,

gaming zones and in-mall entertainment. The company has already opened its first

full service restaurant, Mistral (~9,600sf; average cover price of INR1,150) in New

Delhi and is at advanced stages of opening another restaurant, Mr Hong (Chinese

cuisine) in Bangalore.

PVR BluO:

To ramp up its presence across the lifestyle retail entertainment landscape,

PVR entered into a joint venture with Major Cineplex Group, a Thailand-based film

exhibition and retail entertainment company. PVR owns 51% in this JV, PVR BluO

Entertainment, with the balance 49% owned by Major Cineplex Group. PVR BluO

operates five bowling centers, with a total of 110 lanes across four cities. It has also

started Playstation lounges in collaboration with Sony.

PVR - an entertainment company

Film

Exhibition

Food Courts

Bowling,

Karaoke &

Ice Skating

PVR

Cine-Media

Film

Distribution

Food

& Beverages

Source: Company, MOSL

26 August 2013

PVR

Corporate structure

The journey so far

2012

1. Reached

milestone of

200 screens

2. L capital makes

strategic

investment in

PVR & PVR

leisure

3. Acquired

Cinemax to

become India’s

largest

multiplex

operator.

Currently

running 382

screens. Also

operating 110

bowling lanes

4. Multiples & L

capital invest in

PVR to fund

Cinemax

acquisition

2008

Established PVR

blu-O, a JV with

Thailand based

Major Cineplex

Group, to setup

bowling centres

2007

2006

2003

ICICI Ventures

Makes

investment in

PVR

Went Public

Forayed into

Film production

business (the

first movie

“Taare Zameen

Par” accredited

with

commercial

success and 5

Film- fare

awards

2002

1997

Established

India’s first

multiplex in

collaboration

with Village

Roadshow

Village

Roadshow exits;

PVR Ventured

into distribution

business

Source: Company, MOSL

26 August 2013

PVR

Annexure-II

Key industry trends

Indian M&E industry on a growth trajectory

The size of the Indian M&E industry expanded from INR728b in 2011 to INR821b in

2012, registering an overall growth of 12.6%. Given the impetus provided by digitization,

continued growth of regional media, upcoming elections, strength in the film sector

and fast growing new media businesses, the industry is estimated to grow 11.8% in

2013 to INR917b. The government’s recent policy measures should pave the way for

gradual recovery of the Indian economy and the Indian M&E industry should grow at

a healthy CAGR of 15.2% to reach INR1.7t by 2017.

Industry size and projections (INR b)

2008

2009

2010

2011

2012 Gr. in 2013P 2014P 2015P 2016P 2017P CAGR

2012

(2012-

over

17)

2011 (%)

(%)

12.5 419.9 501.4 607.4 725.0 847.6

7.3 241.1 261.4 285.4 311.2 340.2

21.0 122.4 138.3 153.6 171.7 193.3

10.4 14.0 15.4 18.7 22.7 27.4

18.1 11.6 13.1 15.3 18.3 22.5

2.4 19.3 21.1 23.0 25.0 27.3

13.9

17.7

40.9

12.6

40.5 46.8 54.3 63.1 73.4

20.1 23.8 30.9 36.2 42.1

28.3 37.1 48.9 65.1 87.2

917 1,059 1,238 1,438 1,661

Source: KPMG FICCI Report 2013,

18.0

8.7

11.5

16.6

16.2

8.4

15.8

22.4

32.1

15.2

MOSL

241.0 257.0 297.0 329.0 370.1

172.0 175.2 192.9 208.8 224.1

Films

104.4 89.3 83.3 92.9 112.4

Radio

8.4

8.3 10.0 11.5 12.7

Music

7.4

7.8

8.6

9.0 10.6

OOH

16.1 13.7 16.5 17.8 18.2

Animation

and VFX

17.5 20.1 23.7 31.0 35.3

Gaming

7.0

8.0 10.0 13.0 15.3

Digital Advg. 6.0

8.0 10.0 15.4 21.7

Total

580

587

652

728

821

For Calendar Years*

Comeback in Films, with 21% growth in 2012 v/s 11% in 2011

Television continues to be the dominant segment. However, on the back of strong

content and the benefits of digitization, there has been (a) strong growth in New

Media sectors and Animation/VFX, and (b) a comeback in the Films (21% growth in

2012 v/s 11% in 2011) and Music sectors (18% growth in 2012 v/s 4.7% growth in 2011).

2012 was an exciting year for the Indian film industry, with footfalls returning to the

big screen. What was interesting about 2012 was that not only did ‘big budget, big star

cast’ movies top the charts, but ‘small budget movies with unique stories’ also drew

crowds. Films such as

Vicky Donor, Kahaani

and

Oh My God

enjoyed box office success.

Industry performance - Revenues (INR b)

2008

2009

2010

2011

2012

2013P

2014P

2015P

2016P

2017P

Gr. in

CAGR

2012 over (2012-17)

2011(%)

(%)

127.6

142.2

23.8

10.8

11.9

9.0

9.5

1.0

0.9

-15.0

-12.0

22.8

27.3

20.0

16.8

9.6

11.1

15.2

15.5

171.7

193.3

21.0

11.5

KPMG FICCI Report 2013, MOSL

Domestic Theatrical

80.2

Overseas Theatrical

9.8

Home Video

3.8

Cable & Satellite

7.1

Ancillary Revenue Streams 3.5

Total

104.4

68.5

6.8

4.3

6.3

3.5

89.3

62.0

6.6

2.3

8.3

4.1

83.3

68.8

6.9

2.0

10.5

4.7

92.9

85.2

7.5

1.7

12.6

5.4

112.4

92.4

8.3

1.4

14.1

6.2

122.4

104.7

9.0

1.2

16.2

7.2

138.3

115.3

9.8

1.1

19.1

8.3

153.6

26 August 2013

PVR

Domestic theatrical channel to continue dominating film industry revenues

Domestic theatrical revenues account for 76% of the film industry’s overall revenues

and we expect the dominance of this channel to sustain. Though constrained by the

recent slowdown in the commercial real estate market, the exhibition industry

continues to expand capacity, given the huge opportunity. In 2012, the industry added

152 new screens.

The domestic theatrical segment witnessed 23.8% growth in 2012, against the

consensus estimate of just 7%. The exponential growth in domestic theatrical

revenues can be attributed to the growth in number of screens (increasing trend

towards multiplexes), coupled with higher ticket prices and delivery of robust content

appealing to both the multiplex and single screen audiences.

Huge growth opportunity

India has a population of 1.2b, growing at 1.3% per year. Demographics are favorable,

with 35% of the population in working age. Movie going is the number-1 entertainment

option for people in India, the world’s largest film entertainment market (1,000 movie

releases and over 3b movie goers annually). The industry size is estimated at USD2b

in 2012, projected to grow at a CAGR of 11.5% to reach USD3.5b by 2017.

India has a total of 9,100 screens, of which just 1,400 are multiplex screens. The average

ticket price is ~USD1 for single screens and USD2.6 for multiplexes. The multiplex

segment is highly organized and largely dominated by five key players (1,028 screens

as on date). Bollywood (Hindi) movies account for ~45% of the film industry revenues,

followed by Tamil (18%) and Telugu (16%). Hollywood movies contribute ~8% of the

Indian film industry revenues.

Contribution to Indian box office

Market share by revenues (%)

Market share by number of releases

26 August 2013

KPMG FICCI Report 2013, MOSL

PVR

While the industry is likely to see further consolidation, it needs at least 30,000 more

screens. Given the low screen density in India (8 per million) as compared with

Indonesia (141 per million), US (125 per million), China (31 per million) and Brazil (10

per million), the growth opportunity is huge.

Screen density per million population

Source: KPMG FICCI Report 2013, MOSL

Digitization a key growth enabler

Industry estimates indicate that ~77% of the screens in India have been digitized.

Digitization has enhanced the ability to simultaneously release a movie on a large

number of screens. Big-budget movies are now released across as many as 3,500

screens as compared with just 1,000 three years ago. The main driver behind this is

the huge price difference between digital and physical (analog) prints.

Over the last five years, there has been a rapid shift towards digital prints. Analog

prints constituted 85-90% of film release prints till a few years ago. Currently, digital

prints account for over 80% of all Hindi film releases. In addition to significant cost

savings (~INR50,000 per analog print vis-à-vis INR10,000 per digital print), producers

get the advantage to add or reduce screens according to their availability in real time.

The analog print format is likely to fade away by 2016.

Data for top three films at box office

Year

Average number of domestic prints

Share of first week collections (%)

2008

1,020

2009

2010

2011

980

1,330

3,000

Source: KPMG FICCI Report 2013, MOSL

Multiplexes the way forward; focus shifting to smaller cities

In 2012, the industry added 152 new screens, with most of the growth coming from

expansion of multiplexes. While no new screens were added in Delhi and Mumbai,

Gujarat and Bihar saw the highest additions. Gujarat added 21 new multiplex screens

and a single screen. Bihar added 18 new multiplex screens and two new single screens.

The South Indian exhibition industry added 41 screens, 37 of which are multiplex

screens. The multiplex screen additions were restricted to Kerala, Andhra Pradesh

and Karnataka. Tamil Nadu added only one single screen. With near saturation in

several metropolitan and tier-I markets, the focus is now shifting to the next 40 cities,

which are experiencing rapid urbanization and greater economic growth.

26 August 2013

PVR

Single screens facing challenging times

Single screens are facing challenging times. As many as 97 screens shut down in 2012.

The year saw single screen theatres making efforts to reinvent themselves. They are

focusing on upgrading their existing infrastructure to provide enhanced movie watching/

going experience. Several players have invested in (a) improving picture quality, (b)

surround sound systems, (c) air conditioning, (d) creating/improving parking spaces,

and (e) improving the quality of food and beverages. Some players have introduced

online ticketing to enhance consumer convenience and curb black marketing.

Break-up of screen additions, 2012

Multiplex penetration on the rise

Source: Company, MOSL

Region-wise split of screen additions, 2012

Multiplex

Single Screens

95%

Multiplex

Single Screens

90%

10%

Multiplex

Single Screens

90%

10%

Multiplex

Single Screens

83%

17%

Source: KPMG FICCI Report 2013, MOSL

Tier-II and tier-III cities potential growth drivers

Digitization has changed the face of the movie industry in a number of ways, one

being simultaneous release on several screens, including those in tier-II and tier-III

cities. Movie exhibitors now see tier-II and tier-III cities as potential growth drivers.

Though Delhi and Mumbai contribute 55-60% of the revenues of a big budget film,

multiplex expansion in these regions is rapidly drying out. In 2012, there were no new

screen additions in Mumbai and Delhi.

With lower real estate prices in smaller towns and the leeway to launch a no frills

cinema, exhibitors are able to bring down the cost per screen considerably. Keeping

in mind demographics of these cities, ticket prices are lower than in the metros. For

instance, while a regular PVR ticket is priced at INR100-275 in Delhi/NCR, it is priced at

INR80-120 in Bilaspur.

26 August 2013

PVR

Hollywood also claims a share of the pie

2012 proved to be a blockbuster year not only for Bollywood films but also for

Hollywood films in India. The share of Hollywood movies in gross box office collections

increased to 8.5% in 2012, with total collections of INR9.5b. A wider distribution

network due to digitization, growth in multiplexes and robust marketing has aided

the growth of Hollywood content.

For a movie to garner revenues on a large scale, it is important to attain a pan India

reach. The dubbing of Hollywood movies in regional languages such as Hindi, Tamil

and Telugu has achieved that. Currently, English movies derive 35% of their revenues

from dubbed formats.

Revenue split of regional market for Hollywood films, 2012

Source: Company, MOSL

Top overseas films in India (USD m)

Movies

Amazing

Spider Man

The Avengers

Skyfall

Life of Pi

The Dark

Knight Rises

MIB 3

Production House

Indian Box Office

Columbia Pictures, Marvel Studios,

Marvel Enterprises, Laura Ziskin

14.50

Marvel Studios, Paramount Pictures

12.60

Metro-Goldwyn-Mayer (MGM), Danjaq, Eon Productions

10.70

Fox 2000 Pictures, Haishang Films, Rhythm and Hues

10.30

Warner Bros. Pictures, DC Entertainment,

Legendary Pictures, Syncopy

9.20

Amblin Entt., Hemisphere Media Capital,

Imagenation Abu Dhabi FZ, Media Magik Entt.,

Parkes/Macdonald Productions

5.00

Blue Sky Studios

4.20

Twentieth Century Fox Film Corporation,

Paramount Pictures, Lightstorm Entt.

3.60

DreamWorks Animation, Pacific Data Images (PDI)

2.90

Constantin Film International, Davis Films/Imapct Pictures

(RE5), Davis-Films, Impact Pictures

2.10

Source: KPMG FICCI Report 2013, MOSL

Ice Age 4

Titanic 3D

Madagascar 3

Resident Evil:

Retribution

The increase in the number of 3D screens is also a driving factor for the popularization

of English films. In 2012,

The Amazing Spiderman

was released with 1,236 prints in

four languages (English, Hindi, Tamil and Telugu) in 2D, 3D and IMAX formats. Box

office collections are usually in favor of 3D movies. For movies released in 3D and 2D

prints, box office collections are usually shared in the ratio of 6:4.

26 August 2013

PVR

Widening acceptance of 3D exhibition

Indian audiences are getting acquainted with 3D technology but Indian film makers

are yet to master the art of making 3D movies matching the quality levels of Hollywood

movies. High quality content can be achieved only shooting the film completely in

3D. However, this is expensive, forcing filmmakers to convert 2D content to 3D. India

has emerged as an outsourcing base for 3D-related conversion of Hollywood films

and ample talent is being developed in the country for 2D to 3D conversion.

Multiplex chains experimenting with pricing models to maximize revenue…

First week business has increased, driven by wider release. The first week and

weekend contribute 60-80% of a film’s total collection. Even within the first week,

the trend is getting skewed towards the weekend. Considering this, multiplex chains

are experimenting with pricing models to maximize revenue. By adopting a differential

pricing strategy for weekdays and weekends, they are able to maximize footfalls

across the week.

…but several states regulate ticket pricing

In several states, the respective state governments regulate ticket pricing. In Tamil

Nadu, single screen theaters are allowed to charge a maximum of INR50 per ticket

and multiplexes are allowed to charge a maximum of INR120 per ticket depending on

facilities provided by them. In Andhra Pradesh, a proposal to hike cinema ticket rates

from INR10 to INR25 for single screens and from INR60 to INR75 for multiplexes is

currently on hold. The industry expects the state governments to relax regulations

that limit the number of shows and cap ticket pricing, and to allow exhibitors to fix

admission rates according to demand. Flexible pricing will also help to reduce black-

marketing of tickets since theater owners will have the freedom to revise rates

according to audience inflow.

Higher taxation restraining growth of the sector

High entertainment tax acts as a major impediment to the growth of the exhibition

industry. The overall tax implication is as high as 40-50% in states like Maharashtra,

Uttar Pradesh, Bihar and Karnataka. Such regulations have also led to corrupt trade

practices. To save entertainment tax, theater owners under-declare occupancy rates.

Industry estimates indicate that theaters under-report 25-30% of ticket sales.

26 August 2013

PVR

Entertainment tax

State

Maharashtra

Entertainment Tax

(as percentage of ticket price)

45% for tickets uner INR250

49.5% for tickets priced at INR251-350

51.75% for tickets at INR351-500

54% for tickets INR501 and above

50%

40%

30% for tickets up to INR10

35% for tickets between INR10-30

40% for tickets exceeding INR30

30%

25%

20%

15%

15% for tickets less than INR20

20% for tickets more than INR20

Entertainment Tax exempted for the

period April 2012 to March 2013

Tax Free

20%

Note

Marathi Films are tax free

Kannada films are tax free

Bihar

Karnataka

Uttar Pradesh

West Bengal

Haryana

Kerala

Orissa

Gujarat

Delhi

Madhya Pradesh

Andhra Pradesh

Tamil Nadu

Assam

Jharkhand

Punjab

Jammu & Kashmir

Rajasthan

Himachal Pradesh

Madhya Pradesh

2% for films in Bengali,

Santhali and Nepali Language

15% for Telugu films

Tamil Language Films are tax free

Earlier it was 110%

Source: Company, MOSL

26 August 2013

PVR

Financials and Valuation

Income Statement (Consolidated)

Y/E March

Net Sales

Change (%)

Total Expenditure

EBITDA

Margin (%)

Depreciation

EBIT

Int. and Finance Charges

Other Income - Rec.

PBT bef. EO Exp.

EO Expense/(Income)

PBT after EO Exp.

Current Tax

Deferred Tax

Tax Rate (%)

Reported PAT

PAT Adj for EO items

Change (%)

Margin (%)

Less: Mionrity Interest

Net Profit

2010

3,341

-5.1

2,997

344

10.3

274

159

-3

11.3

-90.4

0.2

2011

4,593

37.5

3,706

886

19.3

674

212

162

107

157

146

97.9

-59.6

0.1

2012

5,171

12.6

4,410

761

14.7

365

396

185

120

331

-22

310

-5

18.5

253

270

8,247.3

5.2

254

2013

8,053

55.7

6,884

1,169

14.5

560

609

368

332

-12

320

-218

-38.7

443

461

70.4

5.7

445

2014E

14,274

77.2

11,937

2,337

16.4

824

1,514

794

113

833

208

25.0

625

35.6

4.4

625

(INR Million)

2015E

17,314

21.3

14,376

2,938

17.0

996

1,943

773

142

1,312

328

25.0

984

57.5

5.7

984

Balance Sheet (Consolidated)

Y/E March

Equity Share Capital

Total Reserves

Net Worth

Minority Interest

Deferred Liabilities

Total Loans

Capital Employed

Gross Block

Less: Accum. Deprn.

Intangible assets- Goodwill

Net Fixed Assets

Capital WIP

Total Investments

2010

256

2,834

3,090

602

217

1,799

5,709

4,134

1,148

2,986

777

1,071

2011

271

3,142

3,414

544

314

1,615

5,886

5,489

1,812

3,677

430

2,444

300

790

1,301

670

614

1,774

5,886

stocks

2012

259

2,571

2,830

139

106

2,033

5,109

4,271

1,569

2,728

876

2,516

270

216

1,950

1,017

918

1,498

5,108

2013

396

6,031

6,427

854

6,566

13,854

7,955

2,066

4,072

9,960

1,541

380

3,970

107

425

368

3,070

2,014

1,888

126

1,957

13,854

(INR Million)

2014E

407

6,562

6,969

854

6,666

14,495

9,955

2,890

4,072

11,136

1,570

5,061

183

587

376

3,916

3,289

3,132

157

1,773

14,495

2015E

407

7,404

7,811

854

6,216

14,888

11,455

3,886

4,072

11,641

1,212

5,999

217

664

284

4,833

3,980

3,786

194

2,018

14,887

Curr. Assets, Loans&Adv.

1,414

Inventory

Account Receivables

144

Cash and Bank Balance

208

Loans and Advances

1,026

Curr. Liability & Prov.

590

Account Payables

541

Provisions

Net Current Assets

824

Appl. of Funds

5,709

E: MOSL Estimates; * Adjusted for treasury

26 August 2013

PVR

Financials and Valuation

Ratios

Y/E March

Basic (INR)*

EPS

Cash EPS

BV/Share

DPS

Payout (%)

Valuation (x) *

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

Return Ratios (%)

RoE

RoCE

Working Capital Ratios

Asset Turnover (x)

Inventory (Days)

Debtor (Days)

Leverage Ratio (x)

Current Ratio

Debt/Equity

* Adjusted for treasury stocks

0.5

3.7

0.6

4.0

2.4

0.6

2.5

6.4

0.8

4.2

3.6

0.5

8.1

10.4

1.0

5.5

2.5

0.7

2010

0.5

11.0

120.6

1.0

373.6

2011

3.0

24.9

125.7

1.1

1,028.6

2012

9.8

24.5

109.3

6.0

71.0

2013

11.2

25.8

162.2

1.5

10.4

32.4

14.1

2.2

2.6

17.6

0.4

9.6

7.8

0.6

4.9

2.0

1.0

2014E

15.4

35.6

171.2

3.1

15.1

23.7

10.2

2.1

1.5

8.9

0.9

9.3

12.2

1.0

4.7

1.5

1.0

2015E

24.2

48.6

191.9

4.7

14.4

15.1

7.5

1.9

1.2

6.9

1.3

13.3

15.1

1.2

4.6

1.5

0.8

Cash Flow Statement (Consolidated)

Y/E March

NP / (Loss) Bef. Tax and EO Items

Depreciation

Interest & Finance Charges

Direct Taxes Paid

(Inc)/Dec in WC

CF from Operations

EO Expense

CF from Operating incl EO

(inc)/dec in FA

(Pur)/Sale of Investments

Others

CF from Investments

Issue of Shares

(Inc)/Dec in Debt

Interest Paid

Dividend Paid

Others

CF from Fin. Activity

Inc/Dec of Cash

Add: Beginning Balance

Closing Balance

E: MOSL Estimates

26 August 2013

2010

274

159

-20

-80

340

-27

313

-900

-19

-854

427

337

-171

-27

664

124

208

2011

157

674

138

-9

-254

706

-54

653

-806

1,195

448

-227

-179

-31

-107

-518

582

208

790

2012

310

365

159

-108

-152

573

-82

491

-560

-502

-1,031

-66

427

-207

-150

-38

-34

-574

790

216

2013E

319

560

326

-233

556

1,529

1,530

-2,372

-5,684

-18

-8,074

3,820

3,278

-425

-60

6,695

151

216

367

(INR Million)

2014E

833

824

794

-208

192

2,434

-2,029

380

-1,649

100

-794

-94

-777

368

376

2015E

1,312

996

773

-328

-338

2,414

-1,142

-450

-773

-142

-1,365

-92

376

284

PVR

N O T E S

26 August 2013

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PVR

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