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You are here : IndiaNotes >> Research & Analysis >> Companies >> PVR Ltd. >> Research

Analyze and Compare: PVR Cinemas & Inox Leisure

Namrata Shah | 16 Nov, 2015  | Follow Author | Add to my Favourites 
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Friday evening  is most awaited time after a tiring week. Most of us plan well in advance for the forthcoming weekend.  My friends and I plan for movies every weekend. We like watching movie in multiplex as it is a distinct and unique experience. The big screen, awesome pictures quality and surround sound makes us engrossed in the movie. For some 3D movies, a big screen is the most wonderful way of enjoying it. Nonetheless, Popcorn with flavor adds a distinct essence to movie.


My most movie outing are with friends, some of them are first day first show. The movie that is amazing, inspiring or touching, I have lost the count, number of times a watched that movie.


I have noticed that movie tickets are fast filling in the last few hours before the movie time in the first week. This indicates high demand for product (gives multiplex pricing power). Product that is driven by demand would definitely generate good returns for the Company. 


Further, to attract visitors to multiplex and increase footfalls during weekdays, multiplex also comes up with innovative offers. This increases occupancy even during weekdays. 


So, one fine day, I decided to fund my movie cost by investing in equity share of PVR and Inox.


Analyze and Compare PVR Cinemas and Inox Leisure


Business Overview: Multiplex industry has gone through a consolidation phase over last decade. Now, there are 4 major multiplex operators with Pan India presence - PVR,  Inox, Carnival and Cinepolis. The industry is highly competitive.


Merger and Acquisition activity in multiplex industry over the last decade.


Company

Acquired

Total Screen (Mar 2015)

PVR

Cinemax (2013), DT Cinemas (2015) and Zea Maize - Gourmet popcorn (2015)

464

Inox

CCPL (2006), Fame (2010) and Satyam (2014).

377

Carnival

HDIL Entertainment (2014), Big Cinemas (2014) and Stargaze Cinemas (2015)

346

Cinepolis

Fun Cinemas (2014)

193


Earnings of PVR and Inox has remained strong over last 5 years


Earnings growth strong - 5 year revenue

Source: Annual Report of PVR and Inox for FY11 - FY15


Multiplex generates revenue from 4 categories. Box office collection is the major source of revenue.


- Box office - Income from sale of tickets (Price of ticket * number of ticket sold less entertainment tax) or revenue sharing with parties that operates or manages multiplex screens


- Food & Beverages - Revenue from sale of food & beverages


- Advertisement
- Revenue earned from in-cinema advertisement or product display


- Other revenues
- In case of PVR, includes management fees, convenience fees, Food court rental income, rent from let out of cinema space, Bowling and gaming income, Virtual print fees. In case of Inox, includes conducting fees, management fees and parking charges


Over the period, both multiplex companies have diversified its revenue base by generating additional revenue from ancillary activities like food & beverages, advertisement and others. Thereby, reducing its reliance on box office collection.


Over period of 5 years FY11 - FY15, PVR total revenue has increased by 25% CAGR. Box office collection has increased 26.7% CAGR over same period. Revenue contribution from box office segment is in range of 55 - 60% of total revenue. Revenue contribution from F&B segment has increased from 16% in FY11 to 25% in FY15. Food & Beverages segment has shown CAGR growth of 38% over FY11- FY15.

 

Inox total revenue has shown CAGR growth of 22.5% during FY11-FY15. Box office collection has demonstrated CAGR growth of 19.5% over FY11 - FY15. Though absolute revenue has increase, contribution from box office collection has fallen from 75% of total revenue in FY11 to 66% of total revenue in FY15, highlighting diversification of revenue base. Food and beverages segment has grown 26.0% CAGR during FY11-FY15. Contribution of F&B to total revenue has increased from 16% in FY11 to 19% in FY15. 


Screen & Seats



Source: Investor Presentation of PVR and Inox for FY11 - FY15


Till FY12, PVR and Inox had almost same number seats. Post acquisition of Cinemax, PVR was able to command leadership position by having highest number of screens and seat in industry.


At end of 1Q FY16, PVR has 474 screens with 111,278 seats whereas, Inox has 377 screens with 99,429 seats. Though PVR has highest number of seats and screen, but its seats per screen is less than Inox as PVR cinemas provides more leg rooms for pleasure viewing experience.  PVR has occupancy of 38% as of 1QFY16. Whereas Inox has 33% occupancy during same period.


In addition to number of screen, the location of screen is also important. As of 1Q FY16, PVR has 44% of screen in West, 30% in North, 22% in South and balance 4% in East. PVR has major focus on West and North India.




Source: Investor Presentation


PVR and Inox have same ATP and F&B spends / head as of FY12. With acquisition of Cinemax in FY13, it was able to command higher ATP and generate higher F&B spends / head from FY13 onwards.


PVR has premium offering such as Imax, Gold Class. Its screen are strategically located thereby attract audience with high discretionary income base. Recently, it has rollout Dolby Atmos screen that enhances movie experience. So, PVR is able to command higher average ticket price than Inox.


However, going forward, both the companies are looking to expand in Tier 2 & Tier 3 cities. In these cities ATP would be lower, so there is a likelihood of fall in ATP.  However, it may be benefited by lower rental in tier 2 and tier 3 cities over next few years.


Business Driver


- Increasing screen penetration in Tier 2 and Tier 3 cities. Growth in Tier 1 cities is almost saturated.


- Customer demand for better movie watching experience - penetration of multiplex is bound to increase


- Digitization of theatre and online ticket booking


- Wider audience reach with coordinated movie release


- Multiplex business is driven by content. The movie with good quality content is able to attract large audiences in cinema mall irrespective of other macroeconomic environment


Debt / Equity


As of Mar 31,

FY11

FY12

FY13

FY14

FY15

PVR D/E

0.46

0.58

0.83

1.07

1.49

Inox D/E

0.60

0.63

0.76

0.57

0.32

 

 

 

 

 

 

PVR Interest Coverage

1.97

2.01

1.62

1.52

1.07

Inox Interest Coverage

0.42

(7.86)

2.06

2.58

1.22


Since FY11, PVR has consistently increased its debt. Its total debt / equity ratio has increased from 0.46 times in FY11 to 1.49 times in FY15. Inox has managed its debt very effectively. Its debt / equity ratio has increased from 0.60 in FY11 to 0.76 in FY13, thereafter is has fallen to 0.32 times in FY15.

High debt and lower interest coverage ratio of PVR highlights that the company may face issue to meet its debt obligation of its revenue is impacted in near future.


Inox


Profitability


As discussed above, PVR is able to command higher ATP, F&B spends per head, but its net profit margin is much lower compare to Inox on account of high interest payment. PVR has debt /equity ratio of 1.49 for FY15, whereas for Inox debt / equity is 0.32 for FY15. 


Profitability of multiplex is highly depended on footfalls. Good quality of movie content would attract more visitors and thereby increase footfalls. However, neither PVR nor Inox has any control over quality of movie. At most, they can select movie for screening, but this does not ensure success of movie. 


PVR EBITA has fallen from 21% in FY11 to 14% in FY15. PAT margin has been near 0% for FY15. Inox EBITDA margin has increased sequentially from 10% in FY11 to 14% in FY14, however, it has fallen to 12% again in FY15.


Escalating rental cost has adversely impacted profitability margin for both companies


Whereas, Inox has 37% of screen in West, 22% in North, 24% in South and balance 18% in East. Inox has higher focus on West and South India 


Source: Annual Report

 

Management performance - ROE


Company

FY12

FY13

FY14

FY15

PVR RoE

4.6%

5.5%

9.8%

1.1%

Inox RoE

-66.3%

5.3%

7.3%

1.8%


Business Risk


- The shelf life of movie has shortening. The multiplex business screwed towards first week of movie release and more towards weekends. Multiplex has adopted strategy of differential pricing to attract audience during weekdays.


- TV release window is also shortening


- Piracy has adversely impacted revenue. The pirated version of movie is released within 1 / 2 days. Multiplex are leveraging technology to curb piracy.


- Slow development of malls - since most of multiplex are situated in mall, slow development of mall would impact growth of multiplex.


- High entertainment tax and cap on ATP also acts as deterrent for growth.


Return to Shareholders


As of Mar 31,

FY11

FY12

FY13

FY14

FY15

5 Year CAGR

PVR Stock Price (Rs.)

106

148

303

468

663

44.2%

Inox Stock Price (Rs.)

45

51

65

114

170

30.7%

 

 

 

 

 

 

 

PVR P/E

35

16

20

34

215

 

Inox P/E

55

31

25

24

72

 

 

 

 

 

 

 

 

PVR EPS

3.02

9.50

14.95

13.72

3.09

0.5%

Inox EPS

0.81

1.67

2.57

4.86

2.36

23.8%

 

 

 

 

 

 

 

PVR DPS

5.0

2.0

1.0

2.5

1.0

 

Inox DPS

0.0

0.0

0.0

0.0

0.0

 


- Investment in PVR Cinemas has given its shareholder return of 44.2% over FY11-FY15.


- EPS for PVR has increased from 3.02 per share in FY11 to 13.72 per share in FY14. However, EPS has drastically fallen to 3.09 in FY15. Increase in equity price in FY15 was not supported by growth in EPS, thereby pushing P/E to 215 times in FY15.


- Inox Leisure has generated return of 30.7%. Inox was trading at P/E of 55 times in FY11 and has increased to 72 times in FY15.


- Inox was able to increase its EPS from Re. 0.81 per share in FY11 to Rs. 4.86 per share in FY14. Inspite of fallen in EPS in FY15 to 2.36 per share, stock price has increased to Rs.170 at end of FY15 


- Inox has not declared dividend during FY11-FY15.


Source: PVR Cinemas and Inox Leisure Annual Reports and Investor Presentation for FY11 to FY15. News articles of economic times, Livemint. Crisil Report



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About Namrata Shah

Namrata Shah is a Chartered Accountant and an independent finance blogger. She loves analyzing companies financials, business models, corporate governance and other aspects of the companies. She has rich experience in research, valuation and audit, assurance & advisory function in reputed organisations. She blogs at http://finance-nams.blogspot.in/ .

 

For more information please write in to [email protected]

Disclaimer: The author has taken due care and caution to compile and analyse the data. The opinions expressed above are only the views of the author, and not a recommendation to buy or sell. Neither the author nor IndiaNotes.com accept any liability whatsoever arising from the use of any of the above contents.




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