Screen additions/movie pipeline to drive exhibition business: Management has guided for a robust 2Q/3QFY2011 for the exhibition business, aided by both domestic and Hollywood strong movie pipeline (We Are Family, Dabangg, Anjaana Anjani, Action Replayy, Golmaal 3, Guzaarish, Khelein Hum Jee Jaan Say and Tees Maar Khan), and substantial screen additions (PVR has added 28 screens and ~7,500 seats over the last six months). PVR has guided for an ambitious 57 new screen addition in FY2011 (it has already opened 13 screens in 1QFY2011 and is opening a six-screen multiplex in LDA mall, Lucknow with the release of Dabangg on September 10).Management expects a pipeline of almost 14-15 3D English movies (most of them being sequels) to be released over the next 18-24 months, and contributing ~27-28% to top-line. The exhibition revenues (total consolidated revenues excluding Blu-O and PVR Pictures) is likely to log 34% CAGR over FY2010-12E, aided by the substantial 34% CAGR in net exhibition revenues (higher seat additions coupled with 4-5% improvement in the ATP) and 36% CAGR in advertising revenues.
Phoenix Mill offers considerable value unlocking, not factored in stock price: PVR is looking at sale and lease back of its property at Phoenix Mills. It is positive of closing the deal by end of FY2011. The company expects the deal to rake in ~Rs80-100cr cash, which will help fund its future capex needs. It will also boost the company’s RoCE which market has not factored in the price yet.
Multi-fold growth for PVR Pictures in FY2011E: PVR Pictures released Aisha, which is estimated to have contributed net revenue of ~Rs20cr. According to media reports, PVR Pictures sold the satellite rights for Rs9cr and music rights for Rs1.5cr.PVR Pictures has two more productions lined up in FY2011, viz. Khele Hum Jee Jaan See, a co-production with Ashutosh Gowariker (starring Abhishek Bachchan and Deepika Padukone) slated for December 2010 release, and Mad, Madder, Maddest, a co-production with Rakeysh Om Prakash Mehra slated for January, 2011 release. Moreover, the company has bagged pan-India distribution rights for Vipul Shah’s Action Replayy (starring Akshay Kumar and Aishwarya Bachchan), which will be a Diwali release. For FY2012, PVR has planned a production slate of 4-5 movies. The company has already tied-up for co-production with known names like Anil Kapoor Films, Neeraj Pandey (of A Wednesday fame) and Dibakar Baneerjee (of Khosla Ka Ghosla and LSD fame).
Blu-O a profit making venture from first year: PVR Blu-O, the bowling arm of the company currently has one 24-lane bowling alley in Gurgaon (Ambience Mall). For FY2010, Blu-O registered revenues of Rs14cr and EBIT of Rs3cr. While the company incurs Rs40-50lakh cost per lane, it has indicated a four-year EBITDA payback for the business, with a RoCE of ~20-25%.Blu-O is expected to add a 26-lane bowling alley by 4QFY2011, in Vasant Kunj, Delhi. It is targeting an addition of 100 lanes in FY2012, viz. 20-lane property in Pune (1QFY2012), 28-lane property in Bangalore (1QFY2012) and another 20-lane property in Bangalore (4QFY2012) and expects it to be ~Rs80-90cr business.
Outlook and Valuation: For FY2010-12E, bloomberg consensus estimates expect PVR to register 44% CAGR in consolidated top-line, aided by 34% CAGR in exhibition revenues, 120% CAGR in PVR Pictures and 80% CAGR in Blu-O. Earnings are expected to register strong CAGR of 436% over the period on a low base and margin expansion (on a low base, OPM of 16-17% in FY2011-12E). At the CMP of Rs174, the stock is trading at attractive valuations of 11.5x FY2012E EPS of Rs15.1 and stock is likely to achieve a target Price of Rs226 based on 15x FY2012E EPS.
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