PVR Ltd - Good Stock To Buy For 54% Gain

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Srilata Rao
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PVR Ltd - Good Stock To Buy For 54% Gain

Post by Srilata Rao » Tue May 12, 2020 7:39 pm

We initiate coverage on PVR Ltd. (PVR) with a Strong Buy rating. PVR is a chain of multiplexes with its headquarters in Gurugram, India. It was founded by Mr. Ajay Bijli in the year 1995. Over the years, PVR has become the largest multiplex operator in India by taking up organic and inorganic growth routes (acquisition of Cinemax in 2012, DT cinemas in 2016 and SPI cinemas in 2018) and as of January 2020, PVR had presence in 71 cities of India and Sri Lanka (Colombo) with 825 screens across 173 cinemas. The key aspects which draw attention to PVR’s business are:
Industry leader of movie exhibition business in India: PVR is the market leader in terms of screen count in India. As of January 2019, PVR had a market share of 28% in the multiplex segment, based on the number of screens in India.

Further expansion of screen network: PVR plans to further expand its screen network across India. For its expansion plans, PVR intends to organically pursue cinema and screen expansion opportunities, as well as look out for inorganic opportunities. We have assumed 60 and 90 screens addition for FY21E and FY22E respectively.

Cost control measures taken against Covid-19 situation: PVR has taken adequate steps to control fixed costs, which normally amount to Rs 1400 mln per month. Rent and Common Area Maintenance have been reduced to zero for the shutdown period. Employee expenses have been reduced by 35%. Other major fixed expenses have been reduced by 60-65%.

Leadership position across key operating metrics: PVR had the highest revenue per screen (Rs 40.4 million per screen) and EBITDA per screen (Rs 7.7 million per screen) among the top three multiplex operators in India, as of and for the year ended March 31, 2019. PVR’s high revenue per screen is attributed to brand premiumisation and premium locations resulting in higher average ticket price and spend per head for F&B.

We have valued the stock at 25x FY22E EPS to arrive at a Target Price of Rs 1,376, which provides an upside of 54% based on the current market price. We thus recommend a “Strong Buy” rating on the stock.

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