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September 11, 2018 1
The show has just begun!
Jinesh Joshi [email protected] 91-22-6632 2238
Sector Report
Multiplex
Multiplex
September 24, 2019 2
Contents
Page No.
Play on rising discretionary spend & emerging content diversity ........................... 4
Most preferred ‘out of home leisure’ activity ....................................................... 4
Rising content diversity to drive occupancy ....................................................... 5
Multiplexes enable wider screen releases & boost box office collections ........... 6
Multiplexes in a sweet spot structurally .................................................................. 7
Low penetration provides huge growth opportunity ............................................ 7
Healthy pipeline of retail space to boost mall ecosystem ................................... 8
Unviable single screen economics to aid growth................................................ 8
Threat from OTT is overplayed .......................................................................... 9
Industry profits & capital efficiency set to rise ...................................................... 11
Industry consolidation over, capital efficiency to rise ........................................ 11
Rising share of ancillary revenues is a key margin lever .................................. 13
GST reduction positive; but local taxes a risk .................................................. 17
PVR leads in most metrics, Inox fast catching up ................................................ 18
Companies
PVR ..................................................................................................................... 22
Inox Leisure ......................................................................................................... 43
Abbrevations ATP: Average ticket price SPH: Spend per head
NBOC: Net box office collection GBOC: Gross box office collection
VPF: Virtual print fee OTT: Over the top
ET: Entertainment tax GST: Goods & services tax
MG: Minimum guarantee LBT: Local body tax
September 24, 2019 3
Multiplex
Sector Report
The show has just begun!
Multiplexes offer best play on rising discretionary spend as India sets aim to
become a USD 5 trillion economy by 2024. We believe movie viewing like
cricket is one of the most ingrained habits in India which will continue to
flourish with rising prosperity and limited alternative entertainment options.
Low screen density (8 screens/million population), increasing content
diversity (no language is more than 14% of releases in 2018) and unviable
single screen economics provides a huge fertile ground for growth in
multiplexes (screen share has risen from ~9% in 2009 to ~31% in 2018) We
believe industry profitability and capital efficiency is set to improve as 1)
M&A activity is more or less over (top 4 players have cornered ~79% of the
multiplex screen count) and 2) share of premium screens and high margin
non-ticketing revenue is on a rise. We have a positive outlook on the sector
and initiate coverage on PVR (ACCUMULATE with a TP of Rs2,099) and Inox
Leisure (BUY with a TP of Rs394). Threat from OTT and contagion of local
body tax are key risks to our thesis.
Play on rising discretionary spend & content diversity: Easy accessibility,
family orientation and cost effective nature makes multiplexes the most preferred
out of home leisure activity. India is a linguistically diverse market. Multiplexes
help capture this diversity by avoiding cannibalization as content can be played
simultaneously. Domestic/overseas theatricals (window constitutes ~75% of the
film exhibition market & is a proxy of GBOC for movies) grew by 8.9% to Rs132bn
in 2018. Wide diversity is expected to drive CAGR of 9.8% over 2018-21E
benefitting multiplexes (medium to consume the content).
Industry in sweet spot, structural demand drivers in place: Despite producing
highest number of movies in a year (~2,000 odd) India’s screen density is one of
the lowest in the world due to lack of penetration in tier 2/3/4 markets providing
huge growth opportunity for multiplexes. Supply of new retail space (7.7mn in
2019E and 5.5mn in 2020E) would boost mall ecosystem and further aid growth.
Industry profitability & capital efficiency set to rise: Led by a slew of
acquisitions (9 acquisitions done by 4 players with EV of Rs35-40bn) the multiplex
industry consolidated over the last few years. However, with M&A exercise largely
over and share of premium screens rising (~9%/~10% of screen mix for Inox/PVR
in 1QFY20) capital efficiency is set to rise. Rising share of non-ticketing revenue
(contribution to rise from 37%/36% in FY14 to 46%/43% in FY21 for PVR/Inox
respectively), a high margin business is another profit lever.
Threat from OTT is overplayed; contagion from local body tax is a risk: We
believe threat from OTT is overplayed due to 1) eight-week exclusive window for
theatricals 2) diversity of content available on both platforms and 3) potential
regulation of OTTs. However, few states like MP, Kerala and TN have imposed
local body tax (LBT) which is over & above the prevailing GST rate. This can set
wrong precedent if other states follow suit, thereby creating a contagion risk.
September 24, 2019
PVR – Acc | CMP: Rs1,810 | TP: Rs2,099
Y/e Mar FY19 FY20E FY21E FY22E
Sales (Rs. m) 30,856 36,888 42,552 49,055
EBITDA (Rs. m) 5,863 12,427 14,599 17,148
Margin (%) 19.0 33.7 34.3 35.0
PAT (Rs. m) 1,836 1,582 2,784 3,862
EPS (Rs.) 39.3 33.8 59.6 82.6
Gr. (%) 46.6 (13.8) 76.0 38.7
DPS (Rs.) 2.0 2.0 2.0 2.0
Yield (%) 0.1 0.1 0.1 0.1
RoE (%) 13.8 22.8 29.4 29.1
RoCE (%) 16.9 12.7 14.9 17.0
EV/Sales (x) 3.1 3.7 3.1 2.6
EV/EBITDA (x) 16.3 10.8 9.1 7.5
PE (x) 46.1 53.5 30.4 21.9
P/BV (x) 6.8 12.5 8.9 6.4
Inox Leisure – BUY | CMP: Rs338 | TP: Rs394
Y/e Mar FY19 FY20E FY21E FY22E
Sales (Rs. m) 16,922 19,443 22,295 25,653
EBITDA (Rs. m) 3,092 6,125 7,188 8,421
Margin (%) 18.3 31.5 32.2 32.8
PAT (Rs. m) 1,393 1,238 1,774 2,288
EPS (Rs.) 13.6 12.1 17.3 22.3
Gr. (%) 3.4 (11.1) 43.3 29.0
DPS (Rs.) - - - -
Yield (%) - - - -
RoE (%) 13.9 22.2 24.1 23.7
RoCE (%) 20.6 12.8 14.4 15.8
EV/Sales (x) 2.1 2.9 2.5 2.1
EV/EBITDA (x) 11.4 9.2 7.7 6.3
PE (x) 24.9 28.0 19.5 15.1
P/BV (x) 3.6 6.2 4.7 3.6
Jinesh Joshi
[email protected] | 91-22-66322238
Multiplex
September 24, 2019 4
Play on rising discretionary spend & emerging content diversity
Most preferred ‘out of home leisure’ activity
Multiplexes are the most cost effective ‘out of home leisure’ alternative when
compared to other entertainment options like plays, events, theme parks, trekking,
dining-out etc. Apart from commanding a lower wallet share, multiplexes are 1)
widely accessible (with high presence in metros, tier 1&2 towns) 2) have family
orientation and 3) offer wide content diversity. Given these factors, we believe
multiplexes are best placed to capture rising discretionary spend in India. Further,
lesser availability and higher cost of competing options and niche nature of
multiplexes makes them a preferred choice for consumers.
Multiplexes are most attractive out of home leisure activity in India
Out of home leisure activities
Typical price point* Accessibility Orientation Content diversity
Frequency of visit Time
required for leisure
Multiplexes Rs150-400 High (Typically found in malls) Family Yes High (As content gets released at fast pace)
~3 hours
Plays/Drama Rs200-1,500 Medium (Drama theatres are
far & few in metros. Availability in tier 3/4 towns is poor)
Family Yes Low (Content pipeline
is not as robust as cinema)
~3 hours
Events Rs300-3,500 Low (Requires large
space/open grounds & are completely artist driven)
Non-Family Yes Low (Content is
completely driven by artist availability)
~3-5 hours
Theme parks (Essel World, Water
Kingdom) Rs500-1,200
Low (There are 120-150 amusement parks in India)
Family No (There is no novelty factor after 1st visit)
Occasional Whole day
Dining out Rs250-1,000
(depends on the type of restaurant)
High Family Yes High ~1-2 hours
Trekking/Camping Rs1,000 onwards Low/Seasonal(Out of city
limits) Non-Family Yes Occasional Whole day
Source: Bookmyshow, Zomato, PL *Typical price point is for one person in a city of Mumbai
Amid rising urban population and increasing share of middle & affluent class we
believe that the share of discretionary consumption is set to rise. This should bode
well for the multiplex industry and aid growth.
Middle & affluent class share to double by 2025
93%80%
54%35%
22%
6%18%
41%
43%
36%
1% 2% 5%
22%
42%
1985 1995 2005 2015 2025
Lower class Lower middle class Middle & affluent class
Source: Company, Mckinsey
Discretionary spend share is rising steadily
61%48%
39%30%
39%52%
61%70%
1995 2005 2015 2025
Necessity spend Discretionary spend
Source: Company, Mckinsey
Multiplex
September 24, 2019 5
Rising content diversity to drive occupancy
Content is the key factor that drives occupancy. Considering the linguistic diversity
of India, content is produced in many different languages for different audience
sets. In some instances, if the content is really engaging it is dubbed and released
in a different language to cater to a different audience set. Content diversity of
India reduces dependency on one particular genre (Bollywood/Hollywood/South
Indian/regional films) and is a big structural lever that would drive occupancies at
multiplexes. Emergence of low budget movies, availability of talent & capital and
better content monetizing options due to emergence of multiplexes is another
factor that has been driving occupancies.
Non-Bollywood films are 55% of NBOC in 2018
48
10
40
11
49
12
39
10
0
10
20
30
40
50
60
Bollywoodfilms
Hollywoodfilms
South Indianfilms
Otherlanguages
(Rs
bn
)
2017 2018
Source: FICCI, E&Y, PL
No language is more than 14% of releases in 2018
4%
5%
5%
6%
6%
7%
9%
11%
13%
13%
14%
3%
2%
2%
0% 5% 10% 15%
Gujarati
Bhojpuri
Other languages
English
Bengali
Marathi
Malayalam
Tamil
Telugu
Hindi
Kannada
Punjabi
Odiya
Dubbed in other languages
Source: FICCI, E&Y, PL
Hindi genre continues to dominate domestic box office collections with top 50
films contributing Rs34bn in 2018. However, the contribution of Hollywood movies
has had a big impact in recent times. Just about a decade back, Hollywood films
contributed 3-4% of the total business in the country which increased to about
10% in 2018. As Hollywood films are now massively dubbed and released in
multiple languages, their popularity & box office collections have also increased
meaningfully.
Domestic NBOC of top 50 Hindi films (Rs bn)
26 27 26 2730
34
2013 2014 2015 2016 2017 2018
Source: FICCI, E&Y
Domestic NBOC of top 10 Hollywood films (Rsbn)
1.6
3.4
4.8
7.5
2015 2016 2017 2018
Source: FICCI, E&Y
Multiplex
September 24, 2019 6
Given the content diversity of India and other monetization options apart from
theatrical releases like broadcast rights, digital/OTT rights and home video the
Indian film segment grew by 12.2% YoY to Rs174.5bn in 2018. Domestic &
overseas theatricals window which constitutes ~75% of the film entertainment
market (relevant for multiplex players) grew by 8.9% in 2018. As per FICCI&EY
report, the film entertainment market is likely to grow at a CAGR of 10.6% over
2018-2021E. However, the window comprising of domestic & overseas theatricals
is likely to grow by 9.8% over the same period.
Domestic & overseas theatricals to grow at a CAGR of 9.8% over 2018-2021E
Particulars (Rs bn, gross of taxes) 2016 2017 2018 2019E 2021E 2018-2021E
CAGR
Domestic theatricals 85.6 96.3 102.1 110.0 130.0 8.4%
Overseas theatricals 8.5 25.0 30.0 35.0 45.0 14.5%
Broadcast rights 16 19.0 21.2 23.0 26.0 7.0%
Digital/OTT rights 6 8.5 13.5 17.0 24.0 21.1%
In-cinema advertising 5.9 6.4 7.5 9.0 11.0 13.6%
Home video 0.4 0.3 0.2 0.2 0.1 -20.6%
Total 122.4 155.5 174.5 194.2 236.1 10.6%
Source: FICCI, E&Y, PL
Multiplexes enable wider screen releases & boost box office collections
Multiplexes offer a perfect solution to capitalize on the abundant content diversity
since they have 4-5 screens. They also avoid cannibalization of revenues in case
2/3 movies release at the same time (since content can be played
simultaneously). Further, as interest level for any movie is higher in week one,
and multiplexes enable wider screen release, they have led to emergence of
higher numbers of movies earning more than Rs1bn/2bn/3bn.
As seen in exhibit 9, big budget movies with high star power (usually get a higher
screen share) have consistently been released in a higher number of screens
over a period of time. While 3 Idiots was released in 1,000 screens in 2009,
Dangal was released in 5,300 screens in 2016. Also, Dabaang was released in
1,598 screens in 2010, but Tiger Zinda hai was released in 4,500 screens in 2017.
Wider screen release has benefitted content creators/producers as their RoI &
pay back has improved, thus creating a surplus.
Multiplexes has enabled wider screen releases
1000
1598
2065
2101
2638
3014
3446
3359
5200
4500
5300
6500
4500
6900
0 2000 4000 6000 8000
3 Id iots (2009)
Dabaang (2010)
Bodyguard (2011)
Ek tha tiger (2012)
Dabaang 2 (2012)
Chennai express…
Dhoom 3 (2013)
Kick (2014)
PK (2014)
Bajrangi Bhai jaan…
Dangal (2016)
Bahubali 2 (2017)
Tiger Zinda hai (2017)
2.0 (2018)
(Total No. of Screens)
Source: Company, PL
Movies earning more than Rs1bn on a rise
1 2
5
9
6 7 5
8 7
10
5
1
2 1
1
1
2
3
1
1
2 2
3
1
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
2019
Rs1 to 2bn Rs2 to 3bn Over Rs3 bn
Source: Company, PL
Multiplex
September 24, 2019 7
Multiplexes in a sweet spot structurally
Low penetration provides huge growth opportunity
Despite producing highest number of movies in a year (~2,000 odd) India’s screen
density of eight screens (both multiplex & single screens put together) per million
population is one of the lowest in the world. Though India produces 2.5x the
number of movies than the US, its screen density is only 6.4% of the US signifying
that India is grossly under-screened. As of 2018, China and the US had ~55,623
and ~40,837 screens respectively dwarfing India’s tally of 9,601 screens. India’s
screen count is low due to lack of penetration in tier 2/3/4 markets presenting
huge untapped potential for the film exhibitors. Rapid urbanization and increased
government support could pave the way for exhibitors to invest in under-served
areas and spur growth.
India produces highest number of films globally
2000
791686
581
300 298 269 255 226 185
India
US
Chin
a
Japan
Fra
nce U
K
S K
ore
a
Spain
Germ
any
Italy
Source: Company, PL
India's screen density is one of the lowest*
125
95
80
60 57
40 3726 25
12 10 8
US
Fra
nce
Spain
UK
Germ
any
S K
ore
a
Chin
a
Japan
Tai
wan
Tha
iland
Bra
zil
India
Source: Company, PL *Screens/million population
India has 2nd highest theatre footfalls (In mn)
21781930
1364
208 197 176 171 169 156 146
Chin
a
India US
Fra
nce
Mexi
co UK
Japan
S K
ore
a
Germ
any
Russ
ia
Source: Company, PL
India's screen count is 17%/24% of China & US
9,4
81
9,5
30
9,6
01
41,1
79
50,7
76
55,6
23
40,6
04
40,2
46
40,8
37
-
10,000
20,000
30,000
40,000
50,000
60,000
2016 2017 2018
(No
. o
f S
cre
ens)
India China US
Source: FICCI, E&Y, PL
Multiplex
September 24, 2019 8
Healthy pipeline of retail space to boost mall ecosystem
Multiplexes are typically found in malls. Usually, mall ecosystem can meet the
requirement of multiplexes with respect to space, parking, ceiling height,
approvals etc. It is fairly challenging to find a location which meets all these
requirements on standalone basis. Multiplexes typically come in as anchor
tenants for mall developers giving them a long term rental income visibility
(agreement is for 10-15 years). Additionally, since multiplexes bring huge footfalls
it also benefits other tenants in the malls. Thus, mall developers stand to benefit
greatly by the presence of multiplexes and are eager to have them on board as
anchor tenants. As per Anarock, the supply of new retail space (net absorption) is
expected to be at 7.7mn in 2019E and 5.5mn in 2020E boosting mall ecosystem
thereby presenting a huge fertile ground for multiplexes to capitalize.
Healthy supply pipeline of retail space to boost malls ecosystem
6.5 6.9
13.8
4.1
5.7
1.3
3.6
-0.3
0.8
3.1
10.2
6.8
4.2
4
10.7
4.5 5.1
1.6
3.3
2.7 3.2 3
.9
7.7
5.5
-2
0
2
4
6
8
10
12
14
16
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E
(In
mn
sq
ft)
New completion Net absorption
Source: Anarock, PL
Unviable single screen economics to aid growth
Total number of screens in India have declined from 10,635 in 2009 to 9,601 in
2018 due to falling count of single screens. The business model of single screens
is becoming increasingly unviable due to 1) high rental costs & capital constraints
2) lower occupancy 3) higher movie exhibition cost 4) lower ATP & F&B SPH and
5) lower advertising income due to limited bargaining power. As a result, the count
of single screens has declined from 9,710 in 2009 to 6,651 in 2018.
On the other hand, the business model of multiplexes is getting increasingly
robust amid 1) rising disposable income & discretionary spends 2) superior
location/parking facilities 3) higher occupancy due to content plurality 4) state of
art equipment with better quality of audio/video and 5) ability to offer exhibition
cum hospitality experience with premium cinema formats.
Multiplex
September 24, 2019 9
Multiplexes screen share up from 9% in 2009 to 31% in 2018
9,710 9,121 8,451 7,400 7,031 6,780 6,651
925 1,225
1,500 2,100 2,450 2,750 2,950
10,635 10,346 9,951
9,500 9,481 9,530 9,601
2009 2011 2013 2015 2016 2017 2018
Single screen Multiplexes Total
Source: FICCI, E&Y, PL
While the multiplexes screen market share has increased from 9% in 2009 to 31%
in 2018 we expect the same to increase further as audiences would continue to
migrate towards multiplexes for a better experience & convenience.
Key parameters that offer multiplexes an edge over single screens
Parameter Typical multiplex property Typical single screen property Edge factor
Number of screens 4 to 5 screens 1 screen Higher number of screens enable content plurality & boosts occupancy
Location Typically a shopping mall Standalone in any area Superior location drives footfalls
Seats per screen ~200-250 ~500-1,000 NM
Occupancy High (Average occupancy is 25-30%)
Low (Average occupancy is 20-25%)
NM
ATP & SPH High Low High ATP & SPH leads to better margins & return ratios
Bargaining power over rental cost High Low Since multiplex players are typically anchor tenants in a mall their bargaining power is much higher than a single screen player
Comfort & convenience
Abundant parking, better seats, A/C, option to book tickets online, high end technology (audio & video)
Lesser comfort & convenience as compared to a typical multiplex
Comfort & convenience is key factor in driving footfalls
Presence of ancillary revenue streams
High Low Higher ancillary revenues like advertising & convenience income is margin lucrative.
Screen count as of 2018 2,950 screens 6,651 screens Huge scope for expansion
Geographical dominance
No specific geographical dominance but East & South have least penetration of multiplexes
70-75% of exhibition sector in South India is dominated by single screens
South & East offer huge growth opportunity
Source: FICCI, E&Y, Livemint, PL
Threat from OTT is overplayed
Over the last few years, lot of OTT players like Amazon, Netflix, HotStar, Sony
LIV, VOOT, ALTBalaji etc have proliferated in India bringing in lot of original
content. There is a general belief that OTT viewing can cannibalize theatrical
content & impact film exhibitors. However, we believe that threat from OTT is
overplayed due to 1) eight-week exclusive window for theatricals 2) diversity of
content available on both platforms and 3) potential regulation of OTTs.
Multiplex
September 24, 2019 10
Eight-week exclusive window: In the past, there have been few instances
where a theatrical release was soon followed by a release on other digital
platform thus reducing monetizing opportunity for film exhibitors. However,
soon after, the industry negotiated for an eight-week exclusive window with
producers, due to which release on alternative platform was barred. We
believe this is a sufficient time for multiplexes to monetize the content.
Content diversity on both platforms: There is wide diversity in content
exhibited over OTT platforms and multiplexes creating a mutually exclusive
audience for both genres. For instance, OTT has higher share of originals.
OTT’s premieres movies too, but of low budget which would anyways bypass
a theatrical release. Further, certain kind of content like 3D movies are best
viewed in a cinematic experience.
Even in matured market like the US, both OTT and cinema have co-existed
for many years. Despite Netflix subscriptions increasing at a CAGR of 11.6%
over 2014-2018, the GBOC in the US have increased at a CAGR of 3.3%
(US is a matured market) over the same period signifying that both exhibition
platforms can co-exist without a significant cannibalization risk form one
another.
US GBOC rise despite 12% CAGR in Netflix subscriptions
Year GBOC (In US$ bn) Netflix subscribers (In mn)
2014 10.4 37.7
2018 11.9 58.5
CAGR 3.3% 11.6%
Source: FICCI, E&Y, PL
Potential regulation/censorship of OTT’s: The government is mulling over
a censorship regime for OTT’s given lot of content available on these
platforms is not fit for family viewing. Currently, OTT platforms do not come
under the ambit of central board of film certification (CBFC) guidelines. If a
regulation which requires certification of digital content comes into place and
online censorship becomes a requirement, we believe business model of
OTTs would come under threat.
Multiplex
September 24, 2019 11
Industry profits & capital efficiency set to rise
Industry consolidation over, capital efficiency to rise
Led by a slew of acquisitions, the multiplex industry has consolidated over the last
few years and is currently dominated by four players namely PVR, Inox Leisure,
Carnival Cinemas and Cinepolis.
PVR is a leader with screen market share of ~28% as of Feb 2019
PVR28.0%
Inox 21.0%Carnival
17.0%
Cinepolis 13.0%
Others 21.0%
749562
348
455562
Source: Company, PL Note: Figures in pie pertain to no of screens as of Feb’ 19
Catchment/location is a key moat for multiplex business. A good property in a
prime location drives footfalls. Threat from competition is low once a player
manages to lease a property in a good location as establishment of another
property in the same area can lead to cannibalization of footfalls. Thus, many
players have indulged into M&A and have grown inorganically. Also, unrelated
diversification (erstwhile owners of DT Cinema’s, Cinemax and Broadway were
DLF, Kanakia and HDIL respectively) resulted in exit by a few incumbent
operators.
Consolidation trend of the multiplex industry
Acquirer Year Target Screens bought Acquisition price (Rs mn) Price/screen paid to buy the circuit (Rs mn)
PVR 2018 SPI Cinemas 76 Paid Rs6,330mn in cash for a 71.7% stake. For balance 28.3% stake, 1.6mn equity shares will be issued.
120
PVR 2016 DT Cinemas 32 4,325 135
PVR 2012 Cinemax 138 5,700 41
Inox 2014 Satyam 38 2,400 63
Inox 2010 Fame 97 Undisclosed NM
Carnival 2014 Broadway 10 1,100 110
Carnival 2014 Big Cinemas 242 7,100 29
Carnival 2015 Glitz Cinemas 27 900 33
Cinepolis 2015 Fun Cinemas 83 4,800 58
Source: Company, Media Reports, PL
Multiplex
September 24, 2019 12
While M&A has enabled the industry to grow at a strong pace, it has suppressed
capital efficiency. However, we believe M&A exercise is largely over as top four
players constitute ~79% of the screen count for multiplex industry. Thus, there is
no formidable player with a sizable screen count which can be an attractive target.
M&A activity from here on, if any, will be limited to smaller regional players and
thus capital efficiency is set to improve from here on.
RoE & RoCE to inch up post consolidation
FY15 FY16 FY17 FY18 FY19 FY20E* FY21E*
PVR
RoE 2.9% 11.2% 9.8% 10.7% 13.8% 18.9% 20.9%
RoCE 7.6% 12.2% 10.3% 14.3% 16.9% 20.3% 22.4%
Inox
RoE 4.5% 15.5% 5.5% 17.1% 13.9% 16.7% 16.9%
RoCE 7.1% 14.4% 7.3% 13.4% 20.6% 21.1% 21.1%
Source: Company, PL *Ind AS 116 adjusted figures to enable comparison
Apart from M&A, return ratios have optically looked sub-par as 1) industry is
capital intensive (average capex per screen is Rs25-30mn) and multiplexes
constantly invest to expand into new geographies and 2) new screens take time to
stabilize in terms of revenues and margins after they begin operations, thus
having a negative impact on capital efficiency in the earlier years.
RoCE breakdown analysis of PVR as of FY19
Particulars (Rs mn) Screens Net capital employed
Total income Adjusted EBIT RoCE
Screen operational > 2 years (mature screens) 576 14,254.5 25,393.8 3,317.2 23.3%
Screen operational < 2 years (new screens) 115 3,753.6 2,804.8 459.0 12.2%
Total Screens 691 18,008.1 28,198.6 3,776.2 21.0%
Capital employed to new screens
2,820.5
Grand total 691 20,828.6 28,198.6 3,776.2 18.1%
SPI Cinema screens 72 9,707.6 2,988.4 505.7 5.2%
Consolidated screens 763 30,536.2 31,187.0 4,281.9 14.0%
Source: Company, PL Note: SPI data is from 18th August 2018 (post consolidation)
As seen in table above, RoCE for new screens/mature screens is 12.2%/23.3%
respectively for FY19. Further, there is capital deployment of Rs2.8bn (CWIP),
which is not generating any return and further depressing capital efficiency.
While consolidated capital efficiency is impacted by proportion of new screens in
the portfolio and acquisitions, the economics of a single matured property with 5
screens is completely different with RoCE of ~20% on a steady state basis.
Multiplex
September 24, 2019 13
Rising share of ancillary revenues is a key margin lever
Revenue composition of film exhibitors is classified across four broad general
categories 1) Ticket sales/NBOC 2) Sale of F&B 3) In-cinema advertising and 4)
Other operating revenues. The latter three sub-heads are typically classified as
ancillary sources of income (non-ticketing) as they complement the core business
of ticket sales. However, these ancillary sources have a higher margin than the
core ticketing business due to leaner cost structure.
Margin hierarchy of a typical film exhibitor
Revenue sub-head Directly attributable cost head Typical gross margin Comments
Ticket sales (NBOC) Movie exhibition cost 54-56% (Movie exhibition cost is in the range of 44-46%)
NM
F&B sales F&B COGS 74-75% (F&B COGS is in the range of 24-25%)
NM
In-cinema advertising
No direct cost associated with it. However, a part of employee cost which is directly associated with generating advertising income & some portion of the rental cost of the property can be apportioned.
90-95% (Our assumption) NM
Other operating revenue consists of:-
1) Convenience fee No direct cost. Some portion of IT cost can be apportioned for own apps.
High NM
2) Virtual print fee (VPF) No attributable direct cost Almost entire VPF flows to the bottom-line
NM
3) Conducting fee/rental income No attributable direct cost High Conducting fee/rental income is generated by leasing out the additional space in mall premises.
4) Management fee No attributable direct cost High It relates to fee that exhibitors get for managing a property on behalf of the owner.
5) Entertainment tax refund No attributable direct cost High
Pertains to pending refunds from pre-GST regime. Post GST, the industry has lobbied for grandfathering & some states have agreed as well. Once the exemption term ends the revenue head will get eliminated.
Source: Company PL
Ticket sales/NBOC margin is expected to remain constant: Movie
exhibition/film hire cost is like a proxy content cost for film exhibitors. They get the
content/movie from the distributor who in turn gets rights from the producer. The
exhibitor and distributor enter into a revenue sharing agreement with variable pay-
outs, over the weeks. These pay-outs are calculated on NBOC.
Multiplex
September 24, 2019 14
Distributor share on NBOC declines with each passing week
50.0%
42.5%
37.5%
30.0%
Week 1 Week 2 Week 3 Week 4
Source: Company, PL
Given that the distributor pay-out is fixed, NBOC margin is expected to mirror past
trends. However, as the share declines with each passing week, there is an
upside to margin in case movie gets extended to week 3 or 4 (typically happens
with sleeper hits).
F&B margin at risk in case of adverse court verdict: As seen in exhibit 23, the
F&B business has high gross margin. Since F&B pricing in multiplexes is
perceived to be higher, a PIL was filed in Mumbai to allow outside food into
multiplexes. Subsequently, PIL’s were filed in various other states like J&K, MP,
Bihar etc. Only in one state of J&K the decision went against multiplex industry
and patrons were allowed to bring outside food. However, this decision was
subsequently stayed by the supreme court (SC). As many cases were pending in
different high courts, the industry decided to consolidate all of them and put it for
hearing in SC. The matter is currently subjudice. Any adverse verdict can have
negative impact as F&B is a high margin business.
As highlighted above, the core business of ticket sales has limited margin upside
while F&B may be a high margin business, but has some downside risk. However,
since allowing outside food can result in security and hygiene concerns the
industry is lobbying hard against it. In addition, industry players have taken steps
like 1) realigning menu 2) increasing the transaction points and 3) improving the
quality of offerings, which should help in margin improvement.
Rising share of advertising is a key margin lever: In-cinema advertising is a
relatively small market with size of Rs7.5bn as of 2018. The market has grown at
a CAGR of 12.7% over 2016-2018 and is expected to grow at CAGR of 13.6%
over 2018-2021E, as per FICCI-EY report.
Captive audience and known population demographics increase the appeal of
multiplex in advertising. Typical inventory is between 15-20 minutes and rates are
dynamic in nature. Increasing share of advertising revenue is a key margin lever
for film exhibitors as the cost structure is lean. As seen in exhibit 23, advertising is
a high gross margin business. The revenue contribution of advertising has
increased from 6.5% in FY14 to 10.4% in FY19 for Inox and from 11.2% in FY14
to 12.0% in FY19 for PVR.
Multiplex
September 24, 2019 15
Revenue share of high margin advertising business is on a rise
Particulars FY14 FY15 FY16 FY17 FY18 FY19
PVR* 11.2% 12.2% 12.0% 12.2% 13.1% 12.0%
Inox 6.5% 9.1% 7.8% 7.9% 10.3% 10.4%
Source: Company, PL * Data is ex-of SPI Cinema’s
Other operating revenues: Other operating revenue for film exhibitors typically
consists of convenience income, VPF income, conducting fee/rental income,
management fee for properties and ET tax refund. While other operating revenues
constitute 4-7% of top-line for both PVR & Inox, contribution to EBITDA is 25-
30%. With negligible costs associated with these revenue streams margins are
healthy.
Convenience income share to EBITDA up by 8-12%: Film exhibitors typically
enter into an agreement with online ticket aggregators like PayTM and
BookMyShow (BMS) to enable patrons to book tickets online. The exhibitors
typically get a share of convenience fee which ticket aggregators charge to
patrons. Both PVR and Inox have tie ups with online ticket aggregators, but there
is a difference in the way these deals are structured.
For instance, in 2QFY19, PVR renewed agreement with PayTM and BMS wherein
it received Rs4.1bn as minimum guarantee (of Rs3.5bn) and security deposit (of
Rs0.6bn). The MG component will be amortized over a 3-year period and there is
an upside sharing if certain benchmarks are breached. In case of Inox, there is no
MG component but the agreement is not exclusive with PayTM and BMS. In other
words, Inox can sign another aggregator, if need be.
: Online ticket bookings for PVR is on a rise
26%
35%
45%49%
54%
0%
10%
20%
30%
40%
50%
60%
FY15 FY16 FY17 FY18 FY19
Source: Company, PL
Online ticket bookings for Inox is on a rise
20%
27%
36%
42%44%
0%
10%
20%
30%
40%
50%
FY15 FY16 FY17 FY18 FY19
Source: Company, PL
Convenience income/EBIDTA up by 8-12% over past 4 years
Convenience income (Rs mn) FY16 FY17 FY18 FY19
PVR* 333 582 597 1060
YoY growth NM 74.7% 2.7% 77.6%
As a % of EBITDA 12.2% 19.8% 15.5% 20.5%
Inox 80 154 349 500
YoY growth NM 93.5% 126.6% 43.4%
As a % of EBITDA 4.2% 10.5% 16.6% 16.2%
Source: Company, PL *Data for PVR is ex-of SPI Cinema’s
Multiplex
September 24, 2019 16
The proportion of online bookings and revenues from convenience income for
both PVR and Inox has been rising since last 4-5 years. Online booking is a trend
which has not only added to the revenue pie of film exhibitors but has also
boosted profitability. The IT and manpower cost is borne by the online ticket
aggregators since they own the platforms. These costs, if any, are limited for film
exhibitors in relation to the apps that they have created.
VPF income is 5%/9% of PVR/Inox’s EBITDA: Virtual print fee (VPF) is a fee
that is charged by film exhibitors to content creators/production houses in lieu of
investment made in digital equipment by them. Post digitization took over there
was a change in the way films were exhibited in cinema. A new transmission
equipment (cost Rs2.5-3mn) was required to deliver the content for which
multiplex owners had to invest.
VPF fee is levied by the exhibitors to recover cost of this investment as production
houses have also benefited out of it. While a digital print costs just Rs800 odd
physical print used to cost anywhere between Rs60,000-70,000 resulting in huge
savings for producers. Apart from this, digitization has enabled wider screen
releases simultaneously (physical print had to be transported from cinema to
cinema while digital content can be transmitted by a satellite) ensuring that
producers get a better RoI.
VPF income is higher for Inox as it owns most of the projectors
VPF income (Rs mn) FY16 FY17 FY18 FY19
PVR 46 87 172 292
As a % of EBITDA 1.6% 2.8% 4.3% 5.0%
Inox 239 241 246 270
As a % of EBITDA 12.6% 16.5% 11.7% 8.7%
Source: Company, PL
As seen, VPF income is 5%/9% of EBITDA for PVR/Inox respectively in FY19.
VPF is like any annuity income with hardly any cost attached to it and virtually the
entire fee flows to EBITDA/PAT boosting profitability of multiplexes.
Recently, there was an issue over payment of VPF fee by a certain production
house citing that the sunset clause has expired and charging a fee beyond that is
unreasonable. However, the competition commission of India (CCI) dismissed the
petition due to lack of evidence improving the long term visibility of VPF income
for multiplexes.
Multiplex
September 24, 2019 17
GST reduction positive; but local taxes a risk
In the pre-GST era there were multitude of taxes & differential rates for both
tickets and F&B. For instance, there was an entertainment tax (ET) component on
ticket prices and every state had a different rate. In some regions like Delhi, ET
was as high as 40% while some regions provided complete/partial exemption for a
few years in order to boost investments. In case of F&B, there was VAT.
The biggest disadvantage of the earlier tax regime was cascading effect of taxes
and inability to set off the same. For instance, most multiplex players paid service
tax on property rentals and manpower & house- keeping contracts. This service
tax became a cost component for them as it could not be offset against the ET tax
that multiplex owner collected on ticket sales.
Introduction of GST not only eliminated the cascading effect of taxes but also
provided flexibility to set-off. Further, recent reduction in GST rate on tickets and
F&B, has reduced the overall tax incidence for the industry. We believe this is a
favorable development as cut in tax rates will improve affordability. Additionally,
since taxes are pass through in nature we do not expect it to have any negative
impact on revenues of multiplex owners.
Reduction in GST rate to benefit patrons
Particulars Earlier GST rate Revised GST rate Comments
Ticket prices above Rs100 28% 18% GST rate was reduced from 01st Jan 2019
Ticket prices below Rs100 18% 12% GST rate was reduced from 01st Jan 2019
F&B 18% (with input tax credit) 5% (without input tax credit) GST rate was reduced from 15 Nov 2017
Source: Company, PL
Recently some states like MP, Kerala and TN imposed a local body tax (LBT)
which is over & above the prevailing GST rate. Imposition of LBT not only
amounts to double taxation and defeats the purpose of GST but also creates an
additional tax burden for the industry. Though LBT is levied in only three states
currently, it can set a wrong precedent if other states follow suit, thereby creating
a contagion risk.
Local body tax structure of various states
State Levy
Bhopal (MP) 15%
Indore (MP) 5%
Kerala 10%
Tamil Nadu (Tamil Films) 8%
Tamil Nadu (Other films) 15%
Source: FICCI, E&Y, PL
Multiplex
September 24, 2019 18
PVR leads in most metrics, Inox fast catching up
Screens: Post acquisition of SPI Cinema’s, PVR had 763 screens as of FY19,
resulting in a lead of ~189 screens over Inox. Apart from growing organically both
PVR and Inox have increased their screen count by acquisitions. Given that M&A
opportunities are limited and consolidation exercise is more or less over, growth is
expected to be organic in nature from here on. While PVR would continue to
maintain the lead, the gap is narrowing with Inox adding 82 screens in FY19
(highest ever new screen openings for the industry in a year).
ATP: PVR’s ATP is higher than Inox by 7.6% in FY19 given the premium nature of
properties and strong presence in metros and tier 1 markets. However, the gap is
narrowing (PVR’s ATP was higher by 10.1%/8.8% in FY17/FY18).
SPH: SPH growth is a function of 1) price hike 2) conversions (number of people
buying F&B as proportion of total footfalls) and 3) quantum of F&B spend by
patrons. PVR’s SPH was higher by 23% than Inox in FY19. However, recently
Inox has realigned its menu and increased transaction points driving conversions
which is reflected in narrowing gap with PVR. (In FY18, PVR’s SPH was higher by
35%)
Occupancy: Content drives occupancy. However, occupancy is also driven by 1)
number of seats per screen and 2) proportion of screens in Southern region (a
high occupancy market). PVR’s occupancy is higher than Inox as it has lower
seats per screen and higher proportion of screens in South. With SPI acquisition
(a southern player with occupancy in the range of ~54%), South forms ~33% of
PVR’s screen mix as compared to ~22% for Inox in FY19.
Ad revenue per screen: While PVR’s ad-revenue per screen is higher than Inox
the gap has narrowed over the last 2 years as Inox has taken various steps like
shoring up the sales team, engaging with various media planners, and focusing
on yields thereby boosting the advertising revenue.
Revenue mix: Declining share of NBOC revenues (low GM margin business) and
increasing share of non-ticketing revenues (high GM margin business) for both
PVR and Inox vindicates our thesis that the margin profile of industry is set to rise.
Rent cost: Rental cost for PVR is higher by 200-300 bps due to higher presence
in metro/tier 1 markets.
Leverage: Inox’s leverage is lower than PVR as recently there was a preferential
allotment of 6.4mn shares which generated Rs1.6bn. The money was utilized to
pay down debt, strengthening the BS.
Pay-out ratio: The pay-out is low for both companies considering the capital
intensive nature of the industry.
Cash conversion cycle: Exhibition is a negative working capital business. Movie
tickets & F&B is purchased in cash. Majority of the receivables emerge from
advertising business. Being a service business, inventory is negligible. Hence we
do not expect a major change in the cash conversion cycle of both the players.
Multiplex
September 24, 2019 19
PVR leads in most metrics but Inox is catching up fast
Particulars PVR* Inox
FY17 FY18 FY19 FY20E FY21E FY17 FY18 FY19 FY20E FY21E
Screens 579 625 691 751 814 468 492 574 646 721
YoY growth 12.2% 7.9% 10.6% 8.7% 8.4% 11.4% 5.1% 16.7% 12.5% 11.6%
Screens added 63 46 66 60 63 48 24 82 72 75
Gross ATP (Rs) 196 210 212 210 223 178 193 197 197 206
YoY growth 4.3% 7.1% 1.0% -0.9% 6.0% 4.7% 8.4% 2.1% -0.2% 5.0%
Gross SPH (Rs) 81 89 91 98 105 62 66 74 80 87
YoY growth 12.5% 9.9% 2.2% 7.3% 7.5% 6.9% 6.5% 12.1% 8.0% 8.5%
Occupancy 32.9% 31.3% 34.9% 35.4% 35.9% 28.0% 26.0% 28.0% 28.3% 28.1%
Average seats / average screen 229 227 221 216 212 256 249 241 234 228
Ad revenue per screen (Rs) 44,19,752 49,30,769 50,48,255 51,75,833 54,34,625 21,92,593 28,86,234 32,92,797 34,17,336 36,39,463
YoY growth 2.8% 11.6% 2.4% 2.5% 5.0% -4.9% 31.6% 14.1% 3.8% 6.5%
SPH/ATP 41% 42% 43% 46% 47% 35% 34% 38% 41% 42%
Footfalls (In mn) 75.2 76.1 89.1 95.3 102.4 53.7 53.3 62.5 67.7 73.3
YoY growth 8.0% 1.2% 17.1% 6.9% 7.5% 0.6% -0.8% 17.3% 8.4% 8.2%
Film hire cost (as a % of NBOC) 43.9% 44.5% 43.8% 44.4% 44.5% 46.2% 45.8% 45.6% 45.4% 45.2%
Rent cost (as a % of sales) 18.9% 18.0% 17.1% 2.8% 2.7% 15.2% 15.1% 14.7% 1.8% 2.0%
F&B GM 76.0% 74.5% 73.3% 74.8% 74.9% 76.0% 75.7% 74.2% 74.8% 75.0%
Revenue mix (As a% of total)
NBOC 56.2% 55.6% 54.9% 54.5% 54.4% 61.3% 59.5% 57.6% 57.2% 56.7%
F&B 27.5% 27.1% 27.6% 28.0% 28.4% 23.3% 22.7% 25.8% 26.2% 26.8%
Advertisement income 12.2% 13.1% 12.0% 12.1% 12.0% 7.9% 10.3% 10.4% 10.7% 11.2%
Other operating income 4.0% 4.3% 5.5% 5.5% 5.2% 7.6% 7.5% 6.2% 5.9% 5.4%
BS & CF ratios
Capex 6,331 3,400 4,362 4,977 4,590 1,528 1,586 2,465 2,743 2,919
D/E^ 0.8 0.6 0.9 0.8 0.7 0.5 0.4 0.1 0.1 0.1
Payout ratio 9.8% 7.5% 5.1% 5.9% 3.4% NA NA NA NA NA
Debtor days 18 24 22 24 25 14 21 19 20 21
Inventory days 3 3 4 4 4 3 3 3 3 3
Payable days 34 39 43 43 43 26 31 34 32 32
Cash conversion cycle (13) (12) (18) (15) (14) (10) (8) (13) (9) (8)
Source: Company, PL Note: Note:-1)* KPIs for PVR is ex-of SPI Cinema’s while BS&CF data is consolidated. 2) ^D/E is Ind-AS
adjusted to enable comparison
Multiplex
September 24, 2019 20
Valuation Summary
Particulars PVR Inox
FY20E FY21E FY22E FY20E FY21E FY22E
EV/Sales 3.7 3.1 2.6 2.9 2.5 2.1
EV/EBITDA 10.8 9.1 7.5 9.2 7.7 6.3
P/E 53.5 30.4 21.9 28.0 19.5 15.1
P/BV 12.5 8.9 6.4 6.2 4.7 3.6
Source: Company, PL
Financial profile of global multiplex companies as of FY18
Particulars (In US$ mn) Revenue EBITDA EBITDA margin PAT PAT margin P/E
AMC (US) 5,461 867 15.9% 174 3.2% 50
Cinemark (US) 3,222 721 22.4% 271 8.4% 17
Wanda (China) 2,059 361 17.6% 195 9.5% 32
Regal Cinemas (US) 4,119 890 21.6% 353 8.6% NM
CGV Korea (Korea) 1,609 216 13.4% -68 NM NM
Cineworld (UK) 4,119 890 21.6% 353 8.6% 15
Cineplex (Canada) 1,246 200 16.1% 63 5.0% 32
Source: Bloomberg
Multiplex
September 24, 2019 21
COMPANIES
September 24, 2019 22
Rating: ACCUMULATE | CMP: Rs1,810 | TP: Rs2,099
Redefining cinematic experience
We initiate coverage on PVRL with ACCUMULATE rating given 1) leadership
position (~28% screen market share; current lead over Inox is ~200 screens)
in film exhibition market 2) aggressive screen addition plans (we expect 70/75
screen additions in FY20/21) 3) strong focus on premium format screens
(~10% of screen mix; aim to take it to ~15% over next few years) and 4) SPI
acquisition (diversifies content risk & provides ideal platform to expand in
South). Saturation in metro/tier-1 markets (~80% of screen mix) due to limited
availability of real estate and drying M&A opportunities (top 4 players account
for ~79% of multiplex screen count) reduces the likelihood of a peer
surpassing PVR via organic or inorganic route further cementing its
leadership position. We expect sales/Ind-AS adjusted EBITDA to grow at a
CAGR of 17.4%/24.3% over FY19-21E driven by strong growth in non-ticketing
revenue and SPI consolidation. We assign EV/EBITDA multiple of 10x (Ind-AS
adjusted multiple of 11.7x) to our FY21E EBITDA of Rs14.6bn (Ind-AS
adjusted estimate of Rs9bn) and arrive at a TP of Rs2,099. Initiate with a
ACCUMULATE. Threat from OTT and contagion of local body tax are key risks
to our call.
Market leader in film exhibition: PVR is the largest player in multiplex industry
with a screen market share of ~28%. Except for East, it is market leader in 3 out of
4 regions. We believe PVR’s market leadership would remain intact as 1) metro/tier-
1 markets (~80% of screen mix) are already saturated 2) M&A opportunities are
limited as industry consolidation is more or less over and 3) aggressive plans to
penetrate deeper into tier 2/3 markets (~20% of screen mix) via PVR Utsav/Talkies
format.
Strong focus on premium formats: As of July 2019, PVR had 78 premium
screens constituting ~10% of the screen portfolio (target is to increase the share to
~15% over the next few years). Increasing share of premium screens will drive
occupancy, ATP & SPH. For instance, ATP for Gold class screens is 2.5x the
regular ATP. For other formats, premium ranges from Rs25 to Rs150. Also, F&B
contribution from premium screens is 50% higher than regular screens.
Aggressive expansion plans in place: Backed by visibility of signed agreements,
we expect PVR to add 70 screens in FY20E and 75 screens in FY21E enabling it
to cross the 900 screens mark, within the next two years.
SPI acquisition to strengthen presence in South: We believe SPI acquisition
would strengthen PVR’s presence in South (occupancy is high but multiplex
penetration is ~14-15%) and drive profits as 1) ticket prices in Chennai were
increased by 40% in FY18, a regulated market and 2) measures taken to boost
SPH (in 1QFY20 SPI’s SPH was Rs102, at par with standalone exhibition business)
Outlook & valuation: We value PVR at an EV/EBITDA of multiple of 10x (Ind-AS
adjusted multiple of 11.7x). This is broadly in-line with the past one year forward
multiple of 11.6x since FY10 and is justified given 1) PVR’s market leadership 2)
preferred brand positioning 3) strong organic screen pipeline and 4) industry leading
metrics. Initiate with a ACCUMULATE and TP of Rs2,099.
PVR (PVRL IN)
September 24, 2019
Company Report
Key Financials - Consolidated
Y/e Mar FY19 FY20E FY21E FY22E
Sales (Rs. m) 30,856 36,888 42,552 49,055
EBITDA (Rs. m) 5,863 12,427 14,599 17,148
Margin (%) 19.0 33.7 34.3 35.0
PAT (Rs. m) 1,836 1,582 2,784 3,862
EPS (Rs.) 39.3 33.8 59.6 82.6
Gr. (%) 46.6 (13.8) 76.0 38.7
DPS (Rs.) 2.0 2.0 2.0 2.0
Yield (%) 0.1 0.1 0.1 0.1
RoE (%) 13.8 22.8 29.4 29.1
RoCE (%) 16.9 12.7 14.9 17.0
EV/Sales (x) 3.1 3.7 3.1 2.6
EV/EBITDA (x) 16.3 10.8 9.1 7.5
PE (x) 46.1 53.5 30.4 21.9
P/BV (x) 6.8 12.5 8.9 6.4
Note: All estimates are IND-AS116 compliant unless otherwise stated
Key Data PVRL.BO | PVRL IN
52-W High / Low Rs.1,850 / Rs.1,099
Sensex / Nifty 39,090 / 11,603
Market Cap Rs.85bn/ $ 1,193m
Shares Outstanding 47m
3M Avg. Daily Value Rs.1617.12m
Shareholding Pattern (%)
Promoter’s 20.24
Foreign 44.92
Domestic Institution 25.58
Public & Others 9.26
Promoter Pledge (Rs bn) -
Stock Performance (%)
1M 6M 12M
Absolute 21.4 12.0 34.7
Relative 13.9 9.4 26.9
Jinesh Joshi
[email protected] | 91-22-66322238
PVR
September 24, 2019 23
Company Overview
Starting out as a JV between Priya Exhibitors Pvt Ltd and Village Roadshow in
1995, PVR has emerged as one of the largest film exhibition companies in India.
PVR has presence in 21 states (67 cities) with 168 properties and 794 screens
translating into ~175,000 seats. It is market leader in terms of number of screens
(28% screen market share as of Feb 2019), footfalls (99.3mn as of FY19) and
operating revenues amongst multiplex players in India. With strategically located
properties (present in 60% of the largest 20 operational malls in India), it is a strong
leader in 7 out of top 8 key cities, in terms of screen count.
Apart from film exhibition, PVR is also into movie distribution and gourmet popcorn
business. PVR Pictures – a distribution business arm (100% owned) distributes
Hollywood & Bollywood movies while Zee Maize Pvt Ltd (70% owned) is into pop-
corn business (4700 BC brand). Apart from being available in PVR Cinemas, the
in-house manufactured pop-corn is also available in retail stores, e-com platforms
and other prominent hotels.
Over the years, PVR has grown strategically by adding screens organically and
making selective acquisitions in the interim. The latest acquisition of SPI Cinema’s
will further strengthen PVR’s position in Southern India.
PVR’s journey since inception
Year Event
1997 Opened first cinema
2003 Raised first PE investment
2004 Launched first gold class cinema
2006 Listed on NSE/BSE
2008 Crossed 100 screens
2011 Launched PVR director's cut
2012 Acquired Cinemax & crossed 200 screens
2016 Acquired DT Cinemas, crossed 500 screens
2017 Completes 20 years & crossed 600 screens
2018 Acquired SPI Cinemas, crossed 700 screens
Source: Company, PL
PVR has a pan-India screen portfolio
Region Properties/
Cinema's Screens Screen mix
Maharashtra 40 165 21%
Karnataka 14 98 12%
Tamil Nadu 13 83 10%
UP 16 79 10%
Telangana 11 62 8%
Gujarat 13 60 8%
Delhi 15 50 6%
Punjab 9 49 6%
Haryana 9 32 4%
Chhattisgarh 4 17 2%
West Bengal 4 16 2%
Chandigarh 3 15 2%
Kerala 3 15 2%
MP 3 11 1%
AP 2 9 1%
Rajasthan 2 7 1%
Jharkhand 2 7 1%
Assam 2 7 1%
Uttarakhand 1 5 1%
Pondicherry 1 5 1%
J&K 1 2 0%
Total 168 794
Source: Company, PL Note: Numbers as on 25th July 2019
PVR
September 24, 2019 24
Story in charts
NBOC share/admit to decline to 54% in FY21 (Rs)
139 143 150 164 169 178 188
59 67 7380 85 91
9829 30
3339 37
3942
77
1113 17
1818
234 247266
295 308326
346
0
50
100
150
200
250
300
350
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
NBOC F&B Ad revenue Other operating revenue
Source: Company, PL
F&B share/screen to rise to 28% in FY21 (Rs mn)
18 21 20 21 23 23 25
810 10 10
12 1213
4
4 4 55 5
5
1
1 1 2
2 22
3136 36 38
42 4345
0
10
20
30
40
50
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
NBOC F&B Ad revenue Other operating revenue
Source: Company, PL
EBITDA/ticket to rise to Rs115 in FY21
3139 39
5158
108115
0
20
40
60
80
100
120
140
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
(Rs
)
Source: Company, PL
Footfalls/screen volatile, driven by content
1,3
2,6
24
1,4
4,8
49
1,3
5,6
48
1,2
7,2
58
1,3
6,7
09
1,3
1,6
52
1,3
0,8
55
1,15,000
1,20,000
1,25,000
1,30,000
1,35,000
1,40,000
1,45,000
1,50,000
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, PL
Average screens/property inching up
4.4
4.5
4.6 4.6
4.7
4.7
4.8
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, PL
Rent cost/screen to fall post Ind-AS 116 (Rs mn)
2.9 3.5 3.7 4.0 4.4 4.6 4.8
6.1 6.7 6.8 6.8 7.2
1.2 1.2
4.3 4.2 4.3 4.3 4.4
4.5 4.6
1.3 1.4 1.6 1.5
1.7
- -
-
5.0
10.0
15.0
20.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Employee cost Rent
CAM & electricity charges Repairs & maintenance*
Source: Company, PL
Note: Standalone data ex of SPI Cinemas * From FY20 repairs & maintenance is clubbed with other expenses
PVR
September 24, 2019 25
Market leader in film exhibition
Locational moat is a big entry barrier
PVR is the most preferred multiplex brand & has carved out a niche for itself by
tactical positioning across formats (mix of premium & economy screens) and towns
(across tier 1/2/3 markets). Though proximity to residence plays a bigger role while
visiting a multiplex for a movie yet, gentry, architecture style, interiors, comfort &
convenience have also become prominent part, with rising disposable incomes.
Location is the biggest moat in multiplex business which acts as a strong entry
barrier. Establishing an early presence in right catchment areas is a key in driving
footfalls. Subsequent competitive risk is low as another establishment in vicinity can
lead to cannibalization of footfalls. Limited availability of real estate in metros and
high rental cost acts as a further deterrent. Starting out in 1997, PVR enjoyed early
mover advantage thereby creating a multi-pronged network across the country at
key locations. In fact, PVR spearheaded the multiplex revolution in India. As of July
2019, PVR has presence in 21 states (67 cities) with 168 properties and 794
screens translating into ~175,000 seats with a screen market share of ~28%.
Except for East, it is a market leader in 3 out of 4 regions.
PVR has diversified geographical presence
Region Screen count Screen mix Rank
South 272 34% 1
West 253 32% 1
North 239 30% 1
East 30 4% 2
Total 794
Source: Company, PL Note: Figures as of July 2019 & including SPI acquisition
We believe PVR’s market leadership would remain intact as 1) tier 1 markets are
already saturated with limited possibilities of opening new multiplexes 2) M&A
opportunities are limited as industry consolidation is more or less over (top 4 players
have already cornered 79% of the multiplex screen count) and 3) PVR has
aggressive organic expansion plans with focus on tier 2 & 3 markets where
penetration is generally low.
PVR has strong presence in metro/tier 1 markets
Market type Screen proportion by tier
Metro 55%
Tier 1 25%
Tier 2 10%
Tier 3 10%
Source: Company, PL
Top 4 players constitute ~79% of screen count
Particulars Screens Ratio
Screen count of top 4 players 2,114 79%
Screen count of remaining players 562 21%
Total multiplex screen count 2,676 100%
Source: Company, PL Note: Figures as of Feb 2019
As tier 1 markets are saturated and there are limited acquisition opportunities, the
only way to surpass PVR is via organic route by opening more screens. However,
amid aggressive screen expansion plans and lead of ~200 screens over the nearest
competitor Inox, we believe PVR’s leadership position will remain intact.
PVR
September 24, 2019 26
Redefining movie experience by technology
PVR has been a pioneer in redefining the movie viewing experience in India by
bringing in the latest technologies and formats. Premium screens are not only
technologically advanced (dolby stereo, digital cinema, 4K screening etc) but also
have palatial interiors and luxury seating which redefines cinema viewing
experience for patrons.
PVR’s premium screen formats includes Gold class, 4DX, Playhouse, IMAX, P[XL],
and Onyx. As of July 2019, PVR had 78 premium screens constituting ~10% of the
total screen portfolio and the plan is to increase the share to ~15% over the next
few years.
PVR's premium screen portfolio overview
Premium screen format Brief overview Total screens*
Gold Class Most premium format. Best in theatre comfort with delectable F&B basket 37
4DX Multi-sensory cinema experience 15
Playhouse Directed towards kids 9
IMAX Immersive movie experience with high end technology 8
P[XL] Extra large luxurious screen format 8
Onyx NA 1
Total 78
Source: Company, PL * Figures as of July 2019
PVR’s premium screen count is on a rise
55 58 59 62 70 76 78
9.0%
9.3% 9.3%
8.5%
9.4%
9.9% 9.8%
7.5%
8.0%
8.5%
9.0%
9.5%
10.0%
0
10
20
30
40
50
60
70
80
90
3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20
Premium screens Premium screens as a % of total screens (RHS)
Source: Company, PL Note: Figures surpass the quarter end date by 15-30 days.
Despite capex on premium screens being 50-100% higher than the company
average of Rs25-30mn per screen, pay back is faster due to higher occupancy,
ATP and SPH. For instance, in case of Gold class screens ATP is 2.5x the regular
ATP while for other formats the premium ranges from Rs25 to Rs150 over
company’s average. Also, the F&B contribution from premium screens is 50% more
than normal screens.
Apart from being focussed on premium/luxury screens which are typically located
in metros and tier 1 markets, PVR also operates economy screens with affordable
pricing under the PVR talkies/Utsav format in tier2/3 markets. Expansion in these
regions via affordable pricing format will enable PVR to leverage the untapped
potential in these under screened markets.
PVR
September 24, 2019 27
Best placed to exploit content diversity & availability
PVR has diversified geographical presence in India except for East which is anyway
an under-penetrated market with low appetite for discretionary spends. PVR’s
screen mix is roughly equal in the other 3 regions. Diversified geographical
presence enables PVR to capture India’s content diversity efficiently. As an
example, share of regional movies is increasing in overall NBOC and since this type
of content is viewed in a particular geography having a multiplex there becomes a
pre-requisite. Further, having access to content is equally important considering
that more 2,000+ movies release in India every year. As seen below, PVR has been
able to screen more than 1500+ movies in FY19 (75% of the releases) given large
number of screens across regions.
Content diversity reduces concentration risk
14% 15% 16% 15% 13%
66% 62% 63% 63%58%
20% 23% 21% 22% 29%
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17 FY18 FY19
English Hindi Regional
Source: Company, PL
Count of movies released in PVR rising steadily
1100+1200+ 1200+
1400+1500+
0
200
400
600
800
1000
1200
1400
1600
FY15 FY16 FY17 FY18 FY19
Source: Company, PL
PVR
September 24, 2019 28
Driving loyalty via deeper engagement programs
Proximity to residence and content drive footfalls in the multiplex business. Both
these are external factors over which multiplexes have no control and thus gaining
customer loyalty is a challenging task. In order to deeply engage with customers
PVR has launched various initiatives like 1) the loyalty program 2) VKAAO (movie
on demand initiative) 3) ticket cancellation options and 4) miscellaneous offers &
schemes. Such initiatives go a long way in increasing consumer visits, by creating
a deeper engagement with them.
PVR Privilege program: This is a customer loyalty program started by PVR.
Members typically earn points on ticket and F&B spends which can be redeemed
later. The program rewards 5 points (equal to Rs5) on every Rs100 spent by the
user and a voucher is generated once Rs50 is reached. There is no upper limit on
points that can be collected and it just requires customer’s mobile number (no cards
needed). PVR has 4.6mn+ members in this program. Such program entices repeat
visits and drives sales.
Ticket cancellation options: On a payment of small cancellation fee (depending
upon when the ticket is cancelled) PVR tries to drive tentative bookings by providing
this option. It is beneficial to both customer (as he gets refund) and PVR (helps in
driving sales).
Offers & schemes: PVR continuously offers various schemes like cash backs,
discounts on F&B, coupons, flat discounts on certain days to keep viewers
engaged.
VKAAO; the movie on demand (MoD) platform is one of its types: VKAAO is a
MoD platform offered by PVR in partnership with BookMyShow. It is engaged in
private screening of movies for its customers through theatres. Once certain
number of bookings are confirmed the movie is screened. VKAAO provides
personalized movie experience to patrons on movies that are cults or did not get
wider screen opening at the outset.
While it is easy to replicate these options we believe PVR’s loyalty program is more
likely to induce customers as it has diversified geographical presence with highest
screens amongst peers (gives more redemption options to viewers once they
accumulate reward points). Also, VKAAO is one of its type MoD platform with PVR.
PVR
September 24, 2019 29
Aggressive organic expansion plans in place
PVR’s screen count has grown at a CAGR of 24.3% over FY12-19 driven by organic
as well as inorganic growth. PVR has made 3 acquisitions viz; Cinemax (138
screens), DT Cinemas (32 screens), and SPI Cinema’s (76 screens) over the last
7 years. Going ahead, we expect PVR to add 70 screens (management guidance
of 80 screens) in FY20E and 75 screens in FY21E enabling it to cross the 900
screens mark, within the next two years. Further, given the fact that more than 100
screens are currently under fit-out and 36 screens have already been opened till
July 2019 we believe PVR is on track to easily add 70+ screens organically in FY20
and FY21.
PVR's screen count to increase at a CAGR of 9.1% over FY19-21E
166 213
421 464 516 550625
691
833908
138
29
72
0
100
200
300
400
500
600
700
800
900
1000
FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Own Screens Acquisitions
Acquired Cnimeax
Acquired DT Cinemas
Acquired SPI Cinemas
Source: Company, PL
Average capex per screen is in the range of Rs25-30mn (varies from Rs20mn to
Rs40mn depending upon the location and type of screen). Renovation capex is
typically 30% of initial capex while renovation is typically done after a period of 6-9
years. We expect capex of Rs4,977mn for FY20E and Rs4,590mn for FY21E as
apart from routine organic capex (function of screens opened during a year), PVR
regularly engages into refurbishing existing matured properties which entails
renovation capex. The pay back of incremental investment on refurbished screen
is high and even better than existing screens as it enables the company to increase
ATP and F&B pricing.
ATP & F&B realization increased post renovation of Oberoi mall property
The Oberoi property in Mumbai was closed for renovation for 4-5 months in FY18.
However, post renovation, ATP was up by almost 15% while F&B realization was
up by almost 20%. In fact, even the Phoenix mills property in Mumbai has seen a
rise in ATP and F&B spends post renovation during FY19.
PVR
September 24, 2019 30
SPI acquisition strengthens presence in South
In August 2018, PVR acquired 72% stake in SPI Cinemas (leading player in South
India with major dominance in Tamil Nadu) for a consideration of Rs6.3bn.
Additional 1.6mn shares are expected be issued for residual 28% stake and the
transaction is expected to be completed by end of 2QFY20 (NCLT approval for
amalgamation has been received).
SPI Cinema is a leading player in South India with 75 screens as of 1QFY20. It
operates several brands like Sathyam, Escape, Palazzo, The Cinema and S2
Cinema which enjoy strong goodwill and customer affinity.
Acquisition of SPI Cinemas makes PVR the number one operator in top three cities
of South India (Chennai, Bangalore and Hyderabad). However, the film exhibition
market of South India is completely different than rest of India as 1) occupancy is
high than national average with a tendency to consume 2-3 different languages 2)
multiplex penetration is low at ~14-15% despite screen penetration being in the
region of ~45-50% which provides significant opportunity for growth and 3)
regulated ticket prices.
Southern India operates in a regulated price regime
State Price cap Comments
Karnataka Rs 200 The cap is exclusive of tax & only on weekdays for regular tickets. Premium/special formats screens are excluded from the cap
Tamil Nadu Rs120-150 The cap is exclusive of tax
Andhra Pradesh & Telangana Rs150-200 The cap is inclusive of tax
Source: Company, PL
We believe SPI acquisition would 1) drive profits (higher occupancy compensates
for regulated pricing, resulting in higher RoCE’s) as multiplex penetration is low. For
instance, in Tamil Nadu, the multiplex penetration is in single digits but it comprises
~20% of all screens in the country 2) reduce the content risk of PVR as reliance on
Bollywood movies will decline and 3) provide an ideal platform for further expansion
in Southern market. SPI Cinema’s reported revenue of Rs2,971mn in FY19
(consolidated from 18th Aug 2018) and EBITDA margin of ~18% over the last 5
years.
SPI’s screen network
States Number of screens
Tamil Nadu 42
Maharashtra 5
Kerala 2
Telangana 12
Karnataka 9
AP 5
Total 75
Source: Company, PL
Share of South rises in FY19 post SPI acquisition
Particulars FY15 FY16 FY17 FY18 FY19
Screens in South 105 125 125 155 258
As a % of total screens 22% 24% 22% 25% 33%
Source: Company, PL Note 1): Consolidated screen count
including acquisitions 2) Figures surpass the year end date by 15-
30 days.
PVR
September 24, 2019 31
Financial projections
We expect consolidated sales to grow at a CAGR of 17.4% over FY19-21E driven
by 1) 70/75 screen additions in FY20E/FY21E resulting in strong growth in ticketing
revenue (NBOC), F&B sales, in-cinema advertising and 2) consolidation of SPI
cinemas.
NBOC revenues to grow at a CAGR of 13% over FY19-21E
Highest ATP in the industry; growth to claw back from FY21E: PVR has highest
ATP in the industry due to 1) location advantage 2) quality interiors and 3) better
technology. Over the last five years, PVR’s gross ATP has grown at a CAGR of
4.8%. Typically, ATP growth is indexed to inflation. However, in FY19, ATP was flat
due to reduction in GST rate in Jan 2019. While we expect gross ATP to be flat in
FY20E as benefits of reduced rates would be passed on to the patrons, growth is
expected to claw back from FY21E.
Gross ATP to grow at a CAGR of 2.5% over FY19-21E
178
188
196
210
212
210
223
139
143
150
164
169
178
188
21.8%23.9% 23.6%
21.9%20.1%
15.5% 15.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
0
50
100
150
200
250
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Gross ATP (Rs) Net ATP (Rs) Tax incidence on GBOC (RHS)
Source: Company, PL Note: Standalone data ex-of SPI
Occupancy to increase to 35.9% in FY21E: Given the low base in FY18 (strike in
South India & ban of Padmavaat in certain states), footfalls increased by 17.1%
YoY to 89.1mn in FY19. Led by strong line-up of movies in FY20, we expect footfalls
to grow at a CAGR of 7.2% over FY19-21E. We expect occupancy to settle down
at 35.4%/35.9% in FY20E/21E.
Footfalls/occupancy to increase to 102mn/35.9% in FY21E
59 70 75 76 89 95 102
31.2%
34.3%
32.9%
31.3%
34.9%35.4%
35.9%
28.0%
29.0%
30.0%
31.0%
32.0%
33.0%
34.0%
35.0%
36.0%
37.0%
-
20
40
60
80
100
120
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Footfalls (In mn) Occupancy (RHS)
Source: Company, PL Note: Standalone data ex-of SPI
PVR
September 24, 2019 32
On the back of rising ATP and increasing footfalls amid rising screen additions we
expect standalone NBOC revenues (ex-of SPI) to increase at a CAGR of 13% over
FY19-21E.
F&B revenues to increase at a CAGR of 15.3% over FY19-
21E driven by SPH growth
Apart from offering a wide set of menu for food & drinks, PVR has taken numerous
initiatives to drive F&B consumption such as happy hours, deals day, discounted
pricing in morning shows and loyalty points amongst others. Nonetheless, as PVR’s
pricing is perceived to be higher SPH growth was flattish in FY19 (steps were being
taken to address the price value equation).
Apart from price hike, increasing the conversion rate (number of people buying F&B
products) and inducing patrons to increase their quantum of spends (buying a
basket of pop-corn as compared to a smaller one) also drives SPH growth. Given
steps taken to focus on other alternatives apart from price, we expect SPH to grow
at a CAGR of 7.4% over FY19-21E. While PVR’s SPH is highest in the multiplex
industry, we still believe that there is marginal room for expansion as global peers
operate at SPH/ATP ratio (indicates F&B spend per head as a proportion of ticket
price) of more than 45%. We expect the SPH/ATP ratio to increase from 43% in
FY19 to 47% in FY21E.
Gross SPH to grow at a CAGR of 7.4% over FY19-21E
64
72
81
89
91
98
105
59
67
73
80
85
91
98
8%
7%
10%10%
7% 7% 6%
0%
2%
4%
6%
8%
10%
12%
-
20
40
60
80
100
120
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Gross SPH (Rs) Net SPH (Rs) Tax incidence on F&B (RHS)
Source: Company, PL Note: Standalone data ex-of SPI
PVR's SPH/ATP ratio is low as compared to global peers
25%
32%
43%45%
50% 50%
60% 61%
0%
10%
20%
30%
40%
50%
60%
70%
CJ CGV Majorcineplex
PVR Cineworld Kinepolis AMC Cinemark Cineplex
Source: Company, PL Note: PVR’s data is ex-of SPI
PVR
September 24, 2019 33
Overall, we expect F&B revenues to increase at a CAGR of 15.3% over FY19-21E.
Gross margins have declined from a peak of 76% in FY17 due to 1) disallowance
of input tax credit that came into force in Nov 2017 2) conscious decision taken by
the company to address the price/value equation. Given improved logistics and
inventory management, we expect F&B gross margin to expand 160bps to 74.9%
in FY21E.
Steps taken by PVR to address price/value equation
In 2QFY19, F&B pricing was lowered by 30-40% in Maharashtra. It also ran
two strategic promotions namely deals day & Happy Hours all over India.
In 3QFY19 call, PVR categorically stated to not take any price hike in F&B
In nutshell, during FY19, PVR revamped its product mix & pricing and focused on
the strike rate (proportion of people buying F&B products) rather than increasing
the price to drive SPH
F&B revenues to grow at a CAGR of 15.3% over FY19-21E
3,4
82
4,6
67
5,5
05
6,0
77
7,5
70
8,6
89
10,0
66
36.0%38%
41% 42% 43%46% 47%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
45.0%
50.0%
-
2,000
4,000
6,000
8,000
10,000
12,000
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
F&B revenues (Rs mn) SPH/ATP ratio (RHS)
Source: Company, PL Note: Standalone data ex-of SPI
F&B gross margin to expand 160bps to reach 74.9% in FY21E
71.2%
75.1%
76.0%
74.5%
73.3%
74.8% 74.9%
68.0%
69.0%
70.0%
71.0%
72.0%
73.0%
74.0%
75.0%
76.0%
77.0%
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, PL Note: Standalone data ex-of SPI
PVR
September 24, 2019 34
Highest in-cinema advertising revenue amongst peers; a
key profitability driver
In-cinema advertising, as a medium, has been growing at a strong pace since it
offers captive audience with effective RoI measurement as consumer profile is
known. In-cinema advertising typically sells on perception and thus bigger the
star/movie, higher the advertising revenue (rates are typically higher by 75-100% if
the star-cast/movie is good). There are also some deals/clients that have footfall
linked payment plans as eyeballs are key in advertising business. (In such plans
the revenue is linked to footfalls)
PVR has the highest in-cinema advertising revenue amongst peers (Rs3.3bn as of
FY19). The rates are higher than peers as it has a wide screen portfolio (provides
better reach) and location advantage (~80% of the screens are in metro & tier 1
cities where propensity to spend is high). Mumbai, Delhi and Bangalore are key
markets and share of national advertisers is ~80%.
PVR has decided to limit the advertising volumes to 18 minutes in iconic cinema’s
and 22 minutes in non-iconic cinemas. Growth will be driven by hike in yields and
traction in off-screen advertisement (contributes ~10% to the ad revenues).
We expect advertising revenues to grow at a CAGR of 13.7% over FY19-21E driven
by increase in ad revenue per screen (3.8% CAGR over FY19-21E; yield hike and
off screen ad composition will be key here) and addition of new screens (9.1%
CAGR over FY19-21E). This is expected to be the biggest profitability driver as
advertising is a high gross margin business and there are no direct costs
attributable to it.
Ad sales to grow at CAGR of 13.7% over FY19-21
2,0
65
2,4
50
2,9
49
3,2
90
3,7
45
4,2
53
22.4%
18.6%20.3%
11.6%13.8% 13.6%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
FY16 FY17 FY18 FY19 FY20E FY21E
Advertising revenues (Rs mn) YoY gr. (RHS)
Source: Company, PL Note: Standalone data ex-of SPI
Ad revenue/screen to reach Rs5.4mn in FY21E
4.3 4.4 4.9 5.0 5.2
5.4 13.7%
2.8%
11.6%
2.4% 2.5%
5.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
-
1.0
2.0
3.0
4.0
5.0
6.0
FY16 FY17 FY18 FY19 FY20E FY21E
Ad revenue per screen (Rs mn) YoY gr. (RHS)
Source: Company, PL Note: Standalone data ex-of SPI
PVR
September 24, 2019 35
SPI Cinema acquisition provides growth kicker
We expect SPI Cinema’s to report sales of Rs5,273mn/Rs6,471mn for
FY20E/FY21E backed by increasing number of screens, and rising ATP and SPH
(SPI’s SPH was at par with standalone SPH of PVR at Rs102 in 1QFY20). SPI
acquisition has provided an additional growth kicker to PVR.
KPI snapshot of SPI Cinema’s
Particulars FY19* FY20E FY21E
Screens 72 82 94
Footfalls (In mn) 10.2 18.2 21.5
YoY growth NM 18.1%
Occupancy 54% 52% 53%
ATP (Rs) 164 164 173
YoY growth NM 5.5%
SPH (Rs) 89 95 102
YoY growth NM 7.0%
Source: Company, PL *Consolidated from 18th Aug 2018
Revenue mix trend of SPI Cinema's
Particulars (Rs mn) FY19* FY20E FY21E
NBOC 1,268 2,324 2,893
YoY growth NM 24.5%
As a % of sales 42.7% 44.1% 44.7%
F&B sales 897 1,696 2,145
YoY growth NM 26.5%
As a % of sales 30.2% 32.2% 33.2%
Advertisement income 245 374 422
YoY growth NM 13.0%
As a % of sales 8.2% 7.1% 6.5%
Convenience fees 243 406 467
YoY growth NM 15.0%
As a % of sales 8.2% 7.7% 7.2%
Other revenues 318 473 544
YoY growth NM 15.0%
As a % of sales 10.7% 9.0% 8.4%
Total revenues 2,971 5,273 6,471
YoY growth NM 22.7%
Source: Company, PL *Consolidated from 18th Aug 2018
PVR
September 24, 2019 36
EBITDA margin to expand aided by rising share of non-ticketing revenue & SPI acquisition
We expect EBITDA margin to expand to 33.7% in FY20E (Ind-AS adjusted margin
of 20.1%) and 34.3% (Ind-AS adjusted margin of 21.3%) in FY21E backed by 1)
rising share of non-ticketing revenue and 2) SPI acquisition.
Share of non-ticketing revenue to rise to 45.6% in FY21E: The share of non-
ticketing revenue comprising of F&B sales, advertising and other operating income
is expected to rise from 45.1% in FY19 to 45.6% in FY21E and drive profits as it is
a high margin business as compared to traditional ticket sales.
SPI consolidation to aid margins: The SPI circuit has an exhibition margin closer
to 25%. The blended margins appear lower because SPI is also into distribution of
Tamil movies. The distribution business operates at lower operating margin of 8-
9% and is a working capital intensive business. As the SPI circuit scales,
management expects EBITDA to be at Rs1bn (non-Ind AS adjusted) in FY20E. As
seen below, SPI’s margin profile has seen an improvement post-acquisition as: -
Ticket prices in Chennai were increased by 40% in FY18 (constitutes 41% of
the screen count; highest market share)
Measures taken to boost SPH (in 1QFY20 SPI’s SPH was at par with the
standalone exhibition business of PVR) and
Potential synergies in the areas of F&B and advertising.
EBITDA margin profile of SPI Cinema’s
Pre-acquisition margin profile Post-acquisition margin profile
FY15 FY16 FY17 FY18 2QFY19 3QFY19 4QFY19 FY19* 1QFY20^
18.8% 17.7% 13.2% 19.5% 20.8% 22.5% 18.7% 20.8% 32.9%
Source: Company, Note: 1) *Consolidated from 18th Aug 2018 2)^Ind-AS adjusted EBITDA margin was 24.4%
Transition to Ind-AS 116: Since 1st April 2019, new AS 116 has come into effect
which requires operating leases to be capitalized on the BS. The present value of
future rentals is capitalized as right to use asset and corresponding lease liability is
created. Transition to Ind-AS 116 is expected to:-
Positively impact EBITDA as lease rentals (pre-EBITDA expense) will be
apportioned between depreciation and finance charge (post-EBITDA
expense).
Negatively impact PAT as rise in depreciation & finance cost is higher than
reduction in rental expenses since future rent escalations are front loaded (total
rent expenses including escalations are amortized over the lease term).
Enlarge BS size with asset capitalization of Rs32.5bn and corresponding
liability creation of Rs39.6bn (balance figure is adjusted in reserves) as of June
2019.
Impact of Ind AS 116 on financials
Balance Sheet Inc/Dec Amount P&L Inc/Dec Amount*
Assets (Right to use asset) Increase Rs32.5bn Rent expenses Decrease Rs1.2bn
Liabilities (Lease liability) Increase Rs39.6bn EBITDA Increase Rs1.2bn
Equity (Difference adjusted in reserves) Decrease Rs5.2bn (net of tax) Depreciation Increase Rs0.7bn
Interest Increase Rs0.9bn
PBT Decrease Rs0.4bn
PAT Decrease Rs0.3bn
Source: Company, PL *P&L figures pertain to 1QFY20
PVR
September 24, 2019 37
Rent expenses to fall post transition to Ind AS 116
Particulars (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Rent expenses 2,736.7 3,207.9 3,782.4 4,053.5 4,694.7 856.0 939.0
Rent expenses per property 27.1 30.2 31.4 31.2 33.6 5.6 5.8
Rent expenses per screen 6.1 6.7 6.8 6.8 7.2 1.2 1.2
Rent expense as % of sales 19.8% 18.6% 18.9% 18.0% 17.1% 2.8% 2.7%
Source: Company, PL Note: Standalone data ex-of SPI
KPIs of PVR (Standalone ex-of SPI cinema's)
Key Parameters FY17 FY18 FY19 FY20E* FY21E*
Property 126 134 148 158 167
Screens 579 625 691 751 814
Screens added 63 46 66 60 63
Seats 1,32,026 1,39,509 1,51,151 1,60,480 1,70,780
Capacity (In mn) 232 247 263 285 302
Footfalls (In mn) 75 76 89 95 102
Occupancy 33% 31% 35% 35% 36%
Gross ATP (Rs) 196 210 212 210 223
YoY growth 4.3% 7.1% 1.0% -0.9% 6.0%
Gross F&B SPH (Rs) 81 89 91 98 105
YoY growth 12.5% 9.9% 2.2% 7.3% 7.5%
Revenue mix (Rs mn)
NBOC 11,256 12,481 15,088 16,908 19,278
YoY growth 13.1% 10.9% 20.9% 12.1% 14.0%
As a % of sales 56.2% 55.6% 54.9% 54.5% 54.4%
Net F&B 5,505 6,077 7,570 8,689 10,066
YoY growth 18.0% 10.4% 24.6% 14.8% 15.9%
As a % of sales 27.5% 27.1% 27.6% 28.0% 28.4%
Advertisement revenue 2,450 2,949 3,290 3,745 4,253
YoY growth 18.6% 20.3% 11.6% 13.8% 13.6%
As a % of sales 12.2% 13.1% 12.0% 12.1% 12.0%
Convenience income 582 597 1,060 1,162 1,205
YoY growth 74.7% 2.7% 77.6% 9.6% 3.7%
As a % of sales 2.9% 2.7% 3.9% 3.7% 3.4%
Other revenue from operations 227 358 458 537 621
YoY growth 21.8% 58.1% 27.9% 17.2% 15.7%
As a % of sales 1.1% 1.6% 1.7% 1.7% 1.8%
Total 20,020 22,461 27,467 31,041 35,423
Cost breakdown (Rs mn)
Movie exhibition cost 4,938 5,558 6,603 7,507 8,579
As a % of NBOC 43.9% 44.5% 43.8% 44.4% 44.5%
Consumption of F&B 1,322 1,547 2,018 2,194 2,527
As a % of F&B sales 24.0% 25.5% 26.7% 25.2% 25.1%
CAM & Electricity charges 2,408 2,563 2,869 3,226 3,600
Per property (Rs mn) 20.0 19.7 20.5 21.1 22.2
EBITDA (Rs mn) 2,943 3,856 5,161 10,298 11,809
EBITDA margin 14.7% 17.2% 18.8% 33.2% 33.3%
PAT (Rs mn) 929 1,214 1,728 1,091 1,918
PAT margin 4.6% 5.4% 6.3% 3.5% 5.4%
Source: Company, PL *Ind-AS 116 compliant projections
PVR
September 24, 2019 38
Valuations
Premium valuations justified; steady compounder
As seen below, the stock has been a steady compounding story since 2012 and
has delivered a CAGR of 32% over the last ten years buoyed by acquisition drive
that PVR undertook to catapult itself to number one position in the multiplex
industry. With M&A opportunities drying out, organic growth will be the key lever
from here on.
Stock has delivered a CAGR of 32% over the last 10 years
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Aug-0
9
Jan-1
0
Jul-10
Jan-1
1
Jul-11
Dec-1
1
Jun-1
2
Dec-1
2
Jun-1
3
Dec-1
3
May-1
4
Nov-1
4
May-1
5
Nov-1
5
May-1
6
Oct-16
Apr-
17
Oct-17
Apr-
18
Sep-1
8
Mar-
19
Sep-1
9
2012Acquired Cinemax
2016Acquired DT
Cinemas
2018SPI Cinemas
Source: PL, Ace Equity
We believe EV/EBITDA is the right valuation metric for multiplexes including PVR
given 1) leveraged balance sheets (funds needed for expansion; D/E of 0.9x as of
FY19) which results in higher finance cost and 2) capital intensive nature of the
industry which results in higher depreciation & amortization.
However, amid transition to Ind-AS 116 forward EBITDA is overstated (1QFY20
EBITDA was higher by Rs1.2bn). Thus, a comparison with past valuation history
becomes redundant. On the other hand, contrary to expectations, PAT is
understated (depreciation & finance cost impact is higher than rental expenses) as
future rent escalations are front loaded (total rent expenses including escalations
are amortized over the lease term). For instance, due to transition to Ind-AS 116,
PVR’s PBT was lower by Rs410mn in 1QFY20. Thus, even earnings based
valuation metric like P/E become irrelevant.
However, in order to facilitate comparison with past history we adjust our EBITDA
estimates and arrive at forward band charts. As seen below, over the last ten years,
PVR has traded at average one year forward EV/EBITDA multiple of 11.6x.
PVR
September 24, 2019 39
One-year forward EV/EBITDA band
9.0x
12.0x
15.0x
18.0x
21.0x
0
20,000
40,000
60,000
80,000
1,00,000
1,20,000
1,40,000
1,60,000
1,80,000
Ma
r-1
0
Sep
-10
Ma
r-1
1
Sep
-11
Ma
r-1
2
Sep
-12
Ma
r-1
3
Sep
-13
Ma
r-1
4
Sep
-14
Ma
r-1
5
Sep
-15
Ma
r-1
6
Sep
-16
Ma
r-1
7
Sep
-17
Ma
r-1
8
Sep
-18
Ma
r-1
9
Sep
-19
Source: Company, PL
One year forward EV/EBTIDA
10.1
19.7
11.6
12.0
5.4
0.0
5.0
10.0
15.0
20.0
25.0
Ma
r-1
0
Sep
-10
Ma
r-1
1
Sep
-11
Ma
r-1
2
Sep
-12
Ma
r-1
3
Sep
-13
Ma
r-1
4
Sep
-14
Ma
r-1
5
Sep
-15
Ma
r-1
6
Sep
-16
Ma
r-1
7
Sep
-17
Ma
r-1
8
Sep
-18
Ma
r-1
9
Sep
-19
EV/EBITDA (x) Peak(x) Avg(x) Median(x) Min(x)
Source: Company, PL
We assign a EV/EBITDA of multiple of 10x to our FY21E EBITDA of Rs14.6bn (Ind-
AS 116 compliant estimate). This translates into Ind-AS adjusted EV/EBITDA
multiple of 11.7x on Ind-AS adjusted FY21E EBITDA of Rs9bn which is in-line with
10-year average one year forward multiple of 11.6x and is justified given 1) PVR’s
market leadership 2) preferred brand positioning 3) strong organic screen pipeline
and 4) industry’s leading metrics. At our target multiple of 10x, we arrive at a TP of
Rs2,099 per share. Initiate with a ACCUMULATE.
EV/EBITDA valuation table
Particulars (Rs mn) FY21*
EV/EBITDA 10
EBITDA 14,599
EV 1,45,986
Less: Debt* 51,806
Add: Cash 3,938
Equity Value 98,118
No of shares 47
Per share value (Rs) 2,099
Source: Company, PL *Ind AS 116 compliant projections
PVR
September 24, 2019 40
Key tables & charts
Distribution sales to grow with entry in local films
13,703
17,310
20,506
22,574
30,284
36,247
41,894
1,253
1,591
1,624
1,307
1,108
1,200
1,260
- 10,000 20,000 30,000 40,000 50,000
FY15
FY16
FY17
FY18
FY19
FY20E
FY21E
(Rs mn)
Movie exhibition Movie production/distribution & gaming
Source: Company, PL
Ind-AS (Adj) EBITDA margin to be at 21% in FY21
2,0
08
2,9
24
3,1
36
4,0
18
5,8
63
7,4
05
9,0
55
13.6%15.8% 14.8%
17.2%19.0% 20.1% 21.3%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
-
2,000
4,000
6,000
8,000
10,000
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
FY
21E
Ind-AS Adj. EBITDA (Rs mn)
Ind-AS Adj. EBITDA margin (RHS)
Source: Company, PL
Ind-AS (Adj) PAT margin to rise to 8% in FY21E
128
986
958
1,2
47
1,8
36
2,5
75
3,4
07 0.9%
5.3%4.5%
5.3%6.0%
7.0%8.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
- 500
1,000 1,500 2,000 2,500 3,000 3,500 4,000
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
FY
21E
Ind-AS Adj. PAT (Rs mn)
Ind-AS Adj. PAT margin (RHS)
Source: Company, PL
Zee Maize’s sales CAGR was 71% over FY15-19
20 20
50
100
170
0
20
40
60
80
100
120
140
160
180
FY15 FY16 FY17 FY18 FY19
(Rs
mn
)
Source: Company, PL
PVR's ATP & SPH is lower than global peers
3.0
5.0
6.5 7
.5 8.1 8.6 9
.4
1.3 1.6
3.9
1.9
4.9
4.3 4.7
0.0
2.0
4.0
6.0
8.0
10.0
(US
$)
ATP SPH
Source: Company, PL
PVR has diverse ad partners across sectors
Pepsi Vijay Sales RADO
Oppo Welspun Myntra
OnePlus BYJUs Havells
Manyavar PAYTM LOREAL
TVS ICICI Pru Life JustDial
Louis Phillipe Jockey Peter England
Source: Company, PL Note: List is non exhaustive
PVR
September 24, 2019 41
Financials
Income Statement (Rs m)
Y/e Mar FY19 FY20E FY21E FY22E
Net Revenues 30,856 36,888 42,552 49,055
YoY gr. (%) 32.2 19.6 15.4 15.3
Cost of Goods Sold 9,407 11,016 12,611 14,523
Gross Profit 21,449 25,872 29,941 34,532
Margin (%) 69.5 70.1 70.4 70.4
Employee Cost 3,373 4,106 4,662 5,379
Other Expenses 12,213 9,338 10,680 12,005
EBITDA 5,863 12,427 14,599 17,148
YoY gr. (%) 45.9 112.0 17.5 17.5
Margin (%) 19.0 33.7 34.3 35.0
Depreciation and Amortization 1,913 5,075 5,447 5,985
EBIT 3,951 7,353 9,152 11,164
Margin (%) 12.8 19.9 21.5 22.8
Net Interest 1,280 5,402 5,659 6,279
Other Income 331 278 300 350
Profit Before Tax 3,002 2,229 3,793 5,235
Margin (%) 9.7 6.0 8.9 10.7
Total Tax 1,097 591 952 1,314
Effective tax rate (%) 36.5 26.5 25.1 25.1
Profit after tax 1,905 1,638 2,841 3,920
Minority interest 57 45 45 45
Share Profit from Associate (12) (11) (12) (13)
Adjusted PAT 1,836 1,582 2,784 3,862
YoY gr. (%) 46.6 (13.8) 76.0 38.7
Margin (%) 6.0 4.3 6.5 7.9
Extra Ord. Income / (Exp) - - - -
Reported PAT 1,836 1,582 2,784 3,862
YoY gr. (%) 47.3 (13.8) 76.0 38.7
Margin (%) 6.0 4.3 6.5 7.9
Other Comprehensive Income (130) (31) - -
Total Comprehensive Income 1,706 1,551 2,784 3,862
Equity Shares O/s (m) 47 47 47 47
EPS (Rs) 39.3 33.8 59.6 82.6
Source: Company Data, PL Research
Balance Sheet Abstract (Rs m)
Y/e Mar FY19 FY20E FY21E FY22E
Non-Current Assets
Gross Block 22,646 60,173 64,764 69,311
Tangibles 20,056 57,583 62,174 66,721
Intangibles 2,590 2,590 2,590 2,590
Acc: Dep / Amortization 5,754 10,829 16,276 22,260
Tangibles 5,157 10,231 15,678 21,663
Intangibles 598 598 598 598
Net fixed assets 16,892 49,344 48,488 47,051
Tangibles 14,900 47,352 46,496 45,059
Intangibles 1,992 1,992 1,992 1,992
Capital Work In Progress 2,208 2,208 2,358 2,508
Goodwill 11,116 11,116 11,116 11,116
Non-Current Investments 2,613 3,335 4,088 4,994
Net Deferred tax assets (848) (266) (19) 78
Other Non-Current Assets 2,220 2,675 3,443 4,317
Current Assets
Investments 11 11 11 11
Inventories 303 404 466 538
Trade receivables 1,839 2,426 2,914 3,494
Cash & Bank Balance 341 1,129 3,997 8,489
Other Current Assets 1,107 1,476 1,915 2,453
Total Assets 39,090 74,854 79,781 86,221
Equity
Equity Share Capital 467 467 467 467
Other Equity 11,928 6,325 9,016 12,785
Total Networth 12,395 6,793 9,483 13,252
Non-Current Liabilities
Long Term borrowings 10,188 50,295 50,754 51,209
Provisions 183 221 255 294
Other non current liabilities 1,850 1,881 2,085 2,207
Current Liabilities
ST Debt / Current of LT Debt 852 952 1,052 1,152
Trade payables 3,677 4,346 5,013 6,048
Other current liabilities 6,004 6,935 7,830 8,732
Total Equity & Liabilities 39,090 74,854 79,781 86,221
Source: Company Data, PL Research
PVR
September 24, 2019 42
Cash Flow (Rs m)
Y/e Mar FY19 FY20E FY21E FY22E Year
PBT 2,990 2,218 3,781 5,222
Add. Depreciation 1,913 5,075 5,447 5,985
Add. Interest 1,198 5,402 5,659 6,279
Less Financial Other Income 331 278 300 350
Add. Other 45 (1,001) (917) (960)
Op. profit before WC changes 6,146 11,693 13,970 16,525
Net Changes-WC 2,984 (19) 116 384
Direct tax (834) (591) (952) (1,314)
Net cash from Op. activities 8,296 11,083 13,134 15,595
Capital expenditures (4,349) (37,527) (4,590) (4,547)
Interest / Dividend Income 27 - - -
Others (5,833) (942) (1,031) (1,209)
Net Cash from Invt. activities (10,154) (38,469) (5,622) (5,756)
Issue of share cap. / premium - - - -
Debt changes 2,570 40,208 559 555
Dividend paid (113) (93) (93) (93)
Interest paid (1,033) (5,402) (5,659) (6,279)
Others - (6,539) 549 470
Net cash from Fin. activities 1,424 28,174 (4,645) (5,348)
Net change in cash (434) 788 2,868 4,491
Free Cash Flow 3,935 (26,444) 8,544 11,048
Source: Company Data, PL Research
Quarterly Financials (Rs m)
Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20
Net Revenue 7,086 8,431 8,376 8,804
YoY gr. (%) 27.6 51.3 43.2 26.4
Raw Material Expenses 2,193 2,508 2,534 2,707
Gross Profit 4,892 5,923 5,842 6,097
Margin (%) 69.0 70.3 69.7 69.2
EBITDA 1,240 1,643 1,608 2,786
YoY gr. (%) 35.4 61.9 70.3 103.0
Margin (%) 17.5 19.5 19.2 31.6
Depreciation / Depletion 448 514 549 1,259
EBIT 792 1,129 1,059 1,527
Margin (%) 11.2 13.4 12.6 17.3
Net Interest 298 379 395 1,314
Other Income 61 143 85 68
Profit before Tax 554 891 742 280
Margin (%) 7.8 10.6 8.9 3.2
Total Tax 212 337 265 103
Effective tax rate (%) 38.2 37.9 35.7 36.8
Profit after Tax 342 554 477 177
Minority interest 12 36 11 15
Share Profit from Associates - - - -
Adjusted PAT 330 518 467 162
YoY gr. (%) 31.2 79.3 78.2 (69.0)
Margin (%) 4.7 6.1 5.6 1.8
Extra Ord. Income / (Exp) - - - -
Reported PAT 330 518 467 162
YoY gr. (%) 31.2 79.3 78.2 (69.0)
Margin (%) 4.7 6.1 5.6 1.8
Other Comprehensive Income (43) (72) 27 (31)
Total Comprehensive Income 287 446 494 131
Avg. Shares O/s (m) 47 47 47 47
EPS (Rs) 7.1 11.1 10.0 3.5
Source: Company Data, PL Research
Key Financial Metrics
Y/e Mar FY19 FY20E FY21E FY22E
Per Share(Rs)
EPS 39.3 33.8 59.6 82.6
CEPS 80.2 142.4 176.1 210.7
BVPS 265.2 145.3 202.9 283.5
FCF 84.2 (565.8) 182.8 236.4
DPS 2.0 2.0 2.0 2.0
Return Ratio(%)
RoCE 16.9 12.7 14.9 17.0
ROIC 15.0 16.6 18.3 19.9
RoE 13.8 22.8 29.4 29.1
Balance Sheet
Net Debt : Equity (x) 0.9 7.4 5.0 3.3
Net Working Capital (Days) (18) (15) (14) (15)
Valuation(x)
PER 46.1 53.5 30.4 21.9
P/B 6.8 12.5 8.9 6.4
P/CEPS 22.6 12.7 10.3 8.6
EV/EBITDA 16.3 10.8 9.1 7.5
EV/Sales 3.1 3.7 3.1 2.6
Dividend Yield (%) 0.1 0.1 0.1 0.1
Source: Company Data, PL Research
September 24, 2019 43
Rating: BUY | CMP: Rs338 | TP: Rs394
Playing a catch up game
We initiate coverage on INOL with a BUY rating given 1) strong number 2
position in film exhibition market (~21% screen market share) 2) renewed
focus on premium format screens (~9% of screen mix; aim to take it to ~10-
12%) and 3) aggressive screen addition plans (we expect 72/75 screens to be
added in FY20/21 after doubling the strength of the project team and creation
of a separate liaising team). We believe strategy to focus on metro/tier-1
markets (~63% of screen mix) will yield rich dividends and improve ATP &
SPH narrowing the gap with market leader PVR. Saturated nature of these
markets & high rental cost will make it difficult for competition to replicate
INOL’s premiumisation approach. Increasing share of ad revenue (share to
rise from 10.4% of sales in FY19 to 11.2% in FY21) and focus on premium
format screens are key margin levers. We expect sales/Ind-AS adjusted
EBITDA to grow at a CAGR of 14.8%/18.6% over FY19-21E driven by strong
growth in non-ticketing revenue. We assign EV/EBITDA of multiple of 8.5x
(Ind-AS adjusted multiple of 9x) to our FY21E EBITDA of Rs7.1bn (Ind-AS
adjusted estimate of Rs4.3bn) and arrive at a TP of Rs394. Initiate with a BUY.
Threat from OTT and contagion of local body tax are key risks to our call.
Emerging as a strong metro/tier 1 player: Out of the 82 screens (net of closure)
opened in FY19, ~29% were opened in metro areas. In FY20E, ~38% of the new
screens are expected to be opened in metro’s. Increasing focus on metro/tier-1
markets where propensity to spend is high is likely to drive ATP & SPH and narrow
the gap with market leader PVR.
Strong focus on super premium formats: As of August 2019, Inox had 52
premium screens constituting ~9% of the total screen portfolio and the target is to
increase the share to ~10-12% over the next few years. Increasing share of
premium screens will drive occupancy, ATP&SPH (For premium screens
ATP&SPH is 3.5x of regular screens).
Screen count to rise after strengthening the project team: Doubling the strength
of project team (from 25 to 50 people) and creating a separate liaising team (10
people) has led to improved turn-around time in execution & getting approvals
enabling Inox to add 82 new screens (highest ever new screen openings for the
industry in a year) in FY19. Given the changes made in project management team
and improved screen addition pipeline (visibility of 129 properties & 877 screens
beyond FY20E in place backed by signed agreements), we expect Inox to add 72
screens (21 screens already opened in 1QFY20) in FY20E and 75 screens in
FY21E.
Outlook & valuation: We value Inox at an EV/EBITDA of multiple of 8.5x (Ind-AS
adjusted multiple of 9x) to our FY21E EBITDA of Rs7.1bn (Ind-AS adjusted
estimate of Rs4.3bn) This is broadly in-line with one year forward multiple of 9.8x
since FY11 and is justified given 1) significant improvement in KPIs over the last
12-15 months 2) strong organic screen pipeline trajectory and 3) debt free BS (only
national chain which is net debt free). Initiate with a BUY and TP of Rs394.
Inox Leisure (INOL IN)
September 24, 2019
Company Report
Key Financials - Consolidated
Y/e Mar FY19 FY20E FY21E FY22E
Sales (Rs. m) 16,922 19,443 22,295 25,653
EBITDA (Rs. m) 3,092 6,125 7,188 8,421
Margin (%) 18.3 31.5 32.2 32.8
PAT (Rs. m) 1,393 1,238 1,774 2,288
EPS (Rs.) 13.6 12.1 17.3 22.3
Gr. (%) 3.4 (11.1) 43.3 29.0
DPS (Rs.) - - - -
Yield (%) - - - -
RoE (%) 13.9 22.2 24.1 23.7
RoCE (%) 20.6 12.8 14.4 15.8
EV/Sales (x) 2.1 2.9 2.5 2.1
EV/EBITDA (x) 11.4 9.2 7.7 6.3
PE (x) 24.9 28.0 19.5 15.1
P/BV (x) 3.6 6.2 4.7 3.6
Note: All estimates are IND-AS116 compliant unless otherwise stated
Key Data INOL.BO | INOL IN
52-W High / Low Rs.383 / Rs.188
Sensex / Nifty 39,090 / 11,603
Market Cap Rs.35bn/ $ 490m
Shares Outstanding 103m
3M Avg. Daily Value Rs.133.91m
Shareholding Pattern (%)
Promoter’s 52.12
Foreign 12.19
Domestic Institution 19.72
Public & Others 15.97
Promoter Pledge (Rs bn) -
Stock Performance (%)
1M 6M 12M
Absolute 32.1 14.8 42.5
Relative 24.0 12.1 34.4
Jinesh Joshi
[email protected] | 91-22-66322238
Inox Leisure
September 24, 2019 44
Company overview
Incorporated in 1999, Inox Leisure Ltd (Inox) is the second largest film exhibition
company in India. It is a part of Inox Group which is diversified across industrial
gases, engineering plastics, refrigerants, chemicals and renewable energy. As of
August 2019, Inox has presence in 67 cities with 143 properties and 595 screens
translating into ~139,000 seats. Inox has a screen market share of ~21% as of Feb
2019 with a strong presence in the West (~42% of the screen network).
Over the years, Inox has grown strategically by adding screens organically and
making selective acquisitions. It kicked off the consolidation phase in multiplex
industry by acquiring Calcutta Cine Pvt Ltd (CCPL) in 2007. This was followed by
the acquisition of Fame India Limited, another multiplex player having nationwide
presence in May 2010. In August 2014, Inox acquired a third multiplex chain
Satyam Cineplex Ltd, thereby strengthening its presence as a significant player in
the Indian film exhibition space.
Key timeline of events for Inox
Year Event
1999 Date of incorporation
2006 Came out with an IPO
2007 Kicked off the consolidation drive by acquiring Calcutta Cine Pvt Ltd
2010 Acquired Fame India Ltd
2014 Acquired Satyam Cineplex Ltd
2018 Preferential allotment was done to promoters (stake increased to 52%) of 6.4mn shares. Funds raised (Rs1.6bn) used to reduce debt. Becomes the first national chain to be net debt free.
2019 Highest ever screen openings (82 in all) in the industry in a single year (FY19)
Source: Company, PL
Inox has a pan-India screen portfolio
Region Properties/Cinema's Screens Geographical mix of screens
Maharashtra 28 130 22%
Gujarat 20 81 14%
West Bengal 15 59 10%
Karnataka 12 49 8%
Rajasthan 13 47 8%
Andhra Pradesh 8 33 6%
UP 8 31 5%
Tamil Nadu 5 31 5%
MP 5 22 4%
Haryana 6 19 3%
Telangana 3 19 3%
Delhi 5 16 3%
Goa 4 14 2%
Odisha 4 14 2%
Punjab 2 10 2%
Chhattisgarh 2 8 1%
Kerala 1 6 1%
Jharkhand 1 4 1%
Assam 1 2 0%
Total 143 595
Source: Company, PL Note: 1) Data as of August 2019, 2) Includes 8 properties (29 screens and 7,370 seats) on
management fee basis
Inox Leisure
September 24, 2019 45
Story in charts
Ad revenue share/ticket to rise to 11% in FY21 (Rs)
134 133 139 151 156 164 172
46 50 5357
7075
81
20 17 1826
2831
34
17 17 1719
1717
16
218 217 227
253271
287304
0
50
100
150
200
250
300
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
NBOC Net F&B Ad revenue Other operating revenue
Source: Company, PL
F&B share/screen to rise to 27% in FY21 (Rs mn)
15.9 18.1 17.1 16.7 18.2 18.2 18.5
5.56.7 6.5 6.4
8.2 8.3 8.72.4
2.32.2 2.9
3.3 3.4 3.6
2.1
2.32.1 2.1
2.0 1.9 1.8
26
2928 28
32 32 33
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
NBOC Net F&B Ad revenue Other operating revenue
Source: Company, PL
EBITDA/ticket to rise to Rs98 in FY21E
30 35
27
39
49
90 98
-
20
40
60
80
100
120
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
(Rs
)
Source: Company, PL
Footfall/screen volatile, driven by content
1,1
8,5
29
1,3
5,2
75
1,2
2,4
62
1,1
0,7
53
1,1
6,9
32
1,1
0,9
43
1,0
7,2
20
-
20,000
40,000
60,000
80,000
1,00,000
1,20,000
1,40,000
1,60,000
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, PL
Average screens/property inching up
3.9 3.93.9
4.04.1
4.2
4.4
3.6
3.7
3.8
3.9
4.0
4.1
4.2
4.3
4.4
4.5
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, PL
Rent cost/screen to fall post Ind AS 116 (Rs mn)
1.9 2.0 2.0 2.2 2.2 2.3
4.1 4.2 4.2 4.7
0.6 0.7
4.3 4.0 3.9 4.0
4.0 4.0
-
2.0
4.0
6.0
8.0
10.0
12.0
FY16 FY17 FY18 FY19 FY20E FY21E
Employee cost Rent CAM, Power & Fuel & R&M
Source: Company, PL
Inox Leisure
September 24, 2019 46
Focus on metro/tier 1 markets & premium formats
Emerging as strong metro/tier 1 player
As of August 2019, Inox has presence in 67 cities with 143 properties and 595
screens translating into ~139,000 seats. It is the second largest player in multiplex
industry with a screen market share of ~21%. While Inox has a pan-India screen
portfolio, it has strong presence in West (forms 42% of the screen mix). Over the
years, Inox has created an unmatched presence in tier 2/3 markets which are under
penetrated to a large extent. Inox has benefitted from this move largely given 1)
rising share of middle & affluent class in these markets and 2) rising content
diversity (tendency to consume regional content is high in tier 2/3 markets).
However, in FY19, focus to expand in metro/tier 1 markets was clearly visible. Out
of the 82 screens (net of closure) opened in FY19, ~29% were opened in metro
areas (including renovation of existing properties the share rises to ~39%). Further,
in FY20E, ~38% of the screens are expected to be opened in metros. We believe
renewed focus on metro markets (Inox was traditionally deemed to be a tier 2/3
market player) where propensity to spend is high is likely to improve ATP & SPH
and narrow the gap with market leader PVR.
West constitutes 42% of Inox’s screen mix
Region Screen count Screen mix
East 87 15%
West 247 42%
North 123 21%
South 138 23%
Total 595
Source: Company, PL Note: Data as of August 2019
Metro/tier 1 markets constitute 63% of Inox's screen mix as of FY19
Market type No of screens Screen mix No of properties Property mix No of seats Seats mix
Metro 218 38% 47 34% 49,583 37%
Tier 1 143 25% 34 24% 34,776 26%
Tier 2 119 21% 31 22% 29,122 21%
Tier 3 72 13% 20 14% 16,821 12%
Tier 4 22 4% 7 5% 5,284 4%
Total 574 139 1,35,586
Source: Company, PL
We believe Inox’s standing as a strong number two player will remain intact given:
1) early mover advantage in tier 2/3 markets which are under penetrated, 2)
renewed focus on expanding in metro/tier 1 markets (difficult for competition to
replicate given saturated nature of these markets as availability of properties is low),
3) drying M&A opportunities as consolidation exercise is more or less over (top 4
players have already cornered 79% of the multiplex screen count) and 4)
aggressive organic expansion plans.
Inox Leisure
September 24, 2019 47
Strong focus on premium format screens
Inox has carved out a niche for itself by focusing more on premium screens with
latest technology in metro/tier 1 markets, over the last two years. Premium screens
are not only technologically advanced (dolby stereo, digital cinema, 4K screening
etc) but also have plush interiors and luxury seating which redefines cinema viewing
experience for patrons.
Inox’s premium screen formats includes Insignia, IMAX, Onyx, MX (4D), BIGPIX,
CLUB, Kiddles and ScreenX. As of August 2019, Inox had 52 premium screens
constituting ~9% of the total screen portfolio (PVR’s premium screen count is
~10%). Management intends to increase this share to ~10-12% over the next few
years. ATP & SPH for premium screens is ~3.5x of regular screens and hence rising
share is expected to be a key factor driving profitability.
Inox’s premium screen portfolio overview
Premium screen format Brief overview Total screens
Insignia-Premium 7 star movie viewing experience 31
Insignia Similar to above 8
IMAX Giant screen clubbed with digital format. High end technology 5
Onyx LED screen technology with improved contrast ratio & visual quality 1
MX(4D) In-cinema 4D effects like moving seats 1
ScreenX 270 degree viewing experience on 3 walls (provides panoramic view) 1
Kiddles Kids format 2
BIGPIX Large screen experience 1
CLUB Affordable luxury 2
Total 52
Source: Company, PL Note: Data as of August 2019
Target is to increase premium screen share to ~10-12%
Particulars FY18 FY19 1QFY20* Target
Premium screen count 28 ~45-50 52 The aim is to increase the share to ~10-12% of the total screen count over the next few years Premium screens as a % of total screens 5.7% ~8-9% 8.7%
Source: Company, PL * Figures surpass quarter end date by 15-30 days
Inox Leisure
September 24, 2019 48
Improved execution increases screen additions
Buoyed by organic as well as inorganic growth, Inox’s screen count has grown at a
CAGR of 19.1% over FY10-19. Inorganic growth was led by 2 acquisitions viz;
Fame (97 screens) in FY11 and Satyam Cineplex (38 screens) in FY15 over the
last 10 years. On the organic front, Inox’s performance was subdued with screen
additions of 48/24 in FY17/FY18 respectively. However, FY19 saw a big turnaround
with 82 screen openings (highest ever openings in the industry in a year) led by:-
Doubling the strength of project team from 25 to 50 people which streamlined
the ordering process relating to design, amenities & aesthetics
Creating a separate liaising team (10 people) which led to improved turn-
around time in execution & getting approvals.
Furthermore, we expect Inox to add 72 screens (management guidance of 80
screens) in FY20E and 75 screens in FY21E aiding it to take the total screen count
to 700 within the next two years.
Inox's screen count to increase at a CAGR of 12.1% over FY19-21E
11
9
142
257
279
310
334
420
468
492
574
646
721
97
38
0
100
200
300
400
500
600
700
800
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Own Screens Acquisitions
Acquired Fame
Acquired Satyam Cineplex
Source: Company, PL
Inox Leisure
September 24, 2019 49
Robust screen addition pipeline backed by signed agreements
Location Properties Screens Seats
Lucknow 1 4 803
Vadodara 1 5 976
Bangalore 1 4 756
Hyderabad 1 8 1,691
Openings till 1QFY20 4 21 4,226
Gurugram 2 8 970
Kolkatta 1 2 342
Bengaluru 1 5 629
Gorakhpur 1 4 761
Lucknow 2 9 1,817
Jalandhar 1 3 822
Indore (existing) - 6 403
Pune 1 5 1,160
Delhi 2 6 498
Tumkur 1 5 1,061
Vijayawada 1 3 1,022
Salem 1 3 803
Total openings/additions expected in FY20 18 80 14,514
Grand total as of FY20E 157 654 1,50,085
Additions post FY20E 129 877 1,61,427
Leading to 286 1,531 3,11,512
Source: Company, PL
Average capex per screen is in the range of Rs25-30mn (varies depending upon
the location and type of screen). Renovation capex is typically 30% of initial capex
and refurbishment is done after a period of 6-9 years. We expect capex of
Rs2,743mn/Rs2,919mn for FY20E/FY21E. Routine capex, which is a function of
screens opened during a year is expected to be at Rs2,160mn/Rs2,250mn while
refurbishment/renovation capex is expected to be at Rs583mn/Rs669mn
respectively for FY20E/21E.
Inox Leisure
September 24, 2019 50
Financial projections
We expect consolidated sales to grow at a CAGR of 14.8% over FY19-21E driven
by strong growth in exhibition business, F&B sales and in-cinema advertising.
NBOC sales to grow at a CAGR of 13.8% over FY19-21E
ATP growth to claw back from FY21E: Inox’s gross ATP has grown at a CAGR
of 4.8% over the last five years. Except for FY19, where-in gross ATP was flat as
benefits of reduced GST were passed on to the patrons, Inox’s gross ATP has risen
at a steady pace in the past due to increasing number of premium screens and
improved focus on technology. For instance, Inox has continuously invested in
upcoming technologies and has come up with high end screens like Laserplex,
MX4D, ScreenX, and IMAX which have higher ATP. While we expect gross ATP to
be flat in FY20E as benefits of reduced rates would be passed on to the patrons,
growth is expected to claw back from FY21E.
Gross ATP to grow at a CAGR of 2.4% over FY19-21E
164
170
178
193
197
197
206
134
133
139
151
156
164
172
18.2%
21.5% 21.8% 22.0%20.8%
16.5% 16.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0
50
100
150
200
250
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Gross ATP (Rs) Net ATP (Rs) Tax incidence on GBOC (RHS)
Source: Company, PL
Occupancy to increase to 28.1% in FY21E: In FY17, footfalls were flat due to
poor content quality. However, in FY18, footfall growth was impacted due to 1)
strike in South India 2) ban of the movie ‘Padmavaat’ in certain states (the movie
was not played in 111 screens of Inox). Total footfalls lost in FY18 due to these
exceptional events was 2.4mn. Given the low base of FY18 and strong content,
footfalls increased 17.3% YoY to 62.5mn in FY19. Given the strong line-up of
movies, we expect footfalls to grow at a CAGR of 8.3% over FY19-21E.
Accordingly, we expect occupancy to be at 28.3%/28.1% in FY20E/21E.
Inox Leisure
September 24, 2019 51
Footfalls to increase to 73.3mn in FY21E
41.1
53.4
53.7
53.3
62.5
67.7
73.3
25%
29%
28%
26%
28%28% 28%
23%
24%
25%
26%
27%
28%
29%
30%
0
10
20
30
40
50
60
70
80
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Footfalls (In mn) Occupancy (RHS)
Source: Company, PL
On the back of rising ATP and increasing footfalls amid rising screen additions we
expect NBOC revenues to increase at a CAGR of 13.8% over FY19-21E.
Refreshed menu & increasing point of sales to drive F&B
Inox’s F&B revenues have grown at a CAGR of 21.8% over FY14-19 driven by
numerous initiatives to drive consumption such as: -
Customizing menu & offering wide variety of snack combos to customers
Presenting interactive menu options
Launching butler on call service, automatic kiosks and food app
Increasing point of sales and offering better convenience (resulted in
increasing quantum of F&B spends).
All these measures coupled with calibrated price hikes have increased the SPH to
Rs74 (12.1% YoY growth) and SPH/ATP ratio to 38% in FY19 (5-year average ex-
of FY19 was 34%). We expect SPH to grow at a CAGR of 8.3% over FY19-21E
while the SPH/ATP ratio is expected to increase from 38% in FY19 to 42% in
FY21E.
Gross SPH to grow at a CAGR of 8.3% over FY19-21E
55
58
62
66
74
80
87
46
50
53
57
70
75
81
15.5%14.2% 14.7%
13.0%
5.7% 6.0% 6.1%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
0
10
20
30
40
50
60
70
80
90
100
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Gross SPH (Rs) Net SPH (Rs) Tax incidence on F&B (RHS)
Source: Company, PL
Inox Leisure
September 24, 2019 52
Refreshed menu with wide F&B offerings
Source: Company, PL
We thus expect F&B revenues to increase at a CAGR of 17.0% over FY19-21E.
Gross margins have declined from an average of ~75-76% in last 3 years to 74.2%
in FY19 due to disallowance of input tax credit that came into force in Nov 2017.
However, amid improved variety of premium F&B offerings, we expect F&B gross
margin to expand 80bps to 75.0% in FY21E.
F&B sales to grow at CAGR of 17% over FY19-21E
1,9
10
2,6
56
2,8
41
3,0
60
4,3
60
5,0
91
5,9
69
34% 34% 35% 34%38%
41% 42%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
F&B revenues (Rs mn) SPH/ATP ratio (RHS)
Source: Company, PL
F&B gross margin to rise to 75.0% in FY21E
74.1%
75.1%
76.0%
75.7%
74.2%
74.8%75.0%
73.0%
73.5%
74.0%
74.5%
75.0%
75.5%
76.0%
76.5%
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Source: Company, PL
Marketing strategy revamp to sustain ad momentum
Inox’s ad revenue per screen significantly lagged PVR (~35% lower in FY19) in the
past. However, the gap has narrowed, as Inox has taken corrective measures like:-
Strengthening the in-house advertising team
Working with few agencies and directly with advertisers for better discount
Shedding off low paying advertisers and focusing on yield
Signing strategic alliances with ad aggregators
Focusing on shorter duration deals
Engaging with media planners
Amid renewed focus on yield, one price hike was taken in FY16 and two major hikes
in FY17 (~14-15% hike in 1QFY17 and ~20% hike in 2QFY17) thus resetting the
base. As a result, advertisement revenue increased by 44.4% in FY18 and 26.7%
in FY19 (growth was driven by both rise in yields and volumes).
We expect advertising revenues to grow at a CAGR of 18.9% over FY19-21E driven
by increase in ad revenue per screen (5.1% CAGR over FY19-21E; yield hike and
volumes will be key here) and addition of new screens (12.1% CAGR over FY19-
21E).
Inox Leisure
September 24, 2019 53
Ad sales to grow at CAGR of 19% over FY19-21E
91
0
2,0
86
1,3
89
1,7
60
2,0
86
2,4
88
11.7%
18.5%
44.4%
26.7%
18.5% 19.2%
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
-
500
1,000
1,500
2,000
2,500
3,000
FY16 FY17 FY18 FY19 FY20E FY21E
Advertising revenues (Rs mn) YoY gr. (RHS)
Source: Company, PL
Ad revenues/screen growing steadily
2.3 2.2
2.9
3.3 3.43.6
-1.9%-4.9%
31.6%
14.1%
3.8%6.5%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
FY16 FY17 FY18 FY19 FY20E FY21E
Ad revenue per screen (Rs mn) YoY gr. (RHS)
Source: Company, PL
EBITDA margin to expand aided by rising share of non-ticketing revenue
We expect EBITDA margin to expand to 31.5% in FY20E (Ind-AS adjusted margin
of 18.5%) and 32.2% (Ind-AS adjusted margin of 19.5%) in FY21E backed by rising
share of non-ticketing revenue.
Share of non-ticketing revenue to rise to 43.3% in FY21E: The share of non-
ticketing revenue comprising of F&B sales, advertising and other operating income
is expected to rise from 42.4% in FY19 to 43.3% in FY21E which will aid in margin
expansion (high margin business).
Transition to Ind-AS 116: Since 1st April 2019, new AS 116 has come into effect
which requires operating leases to be capitalized on the BS. The present value of
future rentals is capitalized as right to use asset and corresponding lease liability is
created. Transition to Ind-AS 116 is expected to:-
1) Positively impact EBITDA as lease rentals (pre-EBITDA expense) will be
apportioned between depreciation and finance charge (post-EBITDA expense) 2)
Negatively impact PAT as rise in depreciation & finance cost is higher than
reduction in rental expenses since future rent escalations are front loaded (total rent
expenses including escalations are amortized over the lease term). 3) Enlarge BS
size with asset capitalization of Rs16.6bn and corresponding liability creation of
Rs21.9bn (balance figure is adjusted in reserves & DTA)
Impact of Ind AS 116 on financials
Balance Sheet Inc/Dec Amount P&L Inc/Dec Amount*
Assets (Right to use asset) Increase Rs16.6bn Rent expenses Decrease Rs613.5mn
Liabilities (Lease lialibility) Increase Rs21.9bn EBITDA Increase Rs613.5mn
Equity (Difference adjusted in reserves) Decrease Rs5.3bn Depreciation Increase Rs349.1mn
Interest Increase Rs482.7mn
PBT Decrease Rs218.3mn
PAT Decrease Rs142.0mn
Source: Company, PL *P&L figures as of 1QFY20
Inox Leisure
September 24, 2019 54
Rent expenses to fall post transition to Ind AS 116
Particulars (Rs mn) FY16 FY17 FY18 FY19 FY20E FY21E
Rent expenses 1,629 1,858 2,038 2,493 360 444
Rent expenses per property 16.1 16.7 16.9 18.9 2.5 2.8
Rent expenses per screen 4.1 4.2 4.2 4.7 0.6 0.7
Rent expense as % of sales 14.0% 15.2% 15.1% 14.7% 1.8% 2.0%
Source: Company, PL
As seen in the above table, Inox’s average annual rent expense per property/screen
over the last 4 years is Rs17.2mn/Rs4.3mn respectively. Post capitalization of
leases the rental expense will cease to exist (only short term rentals will be
expensed) and reported EBITDA will increase.
KPIs of Inox
Key Parameters FY17 FY18 FY19 FY20E FY21E
Property 119 123 139 151 162
Screens 468 492 574 646 721
Screens added 48 24 82 72 75
Seats 1,18,947 1,21,573 1,35,586 1,49,097 1,62,897
Capacity (In mn) 205 219 236 260 285
Footfalls (In mn) 54 53 63 68 73
Occupancy 28.0% 26.0% 28.0% 28.3% 28.1%
Gross ATP (Rs) 178 193 197 197 206
YoY growth 4.7% 8.4% 2.1% -0.2% 5.0%
Gross F&B SPH (Rs) 62 66 74 80 87
YoY growth 6.9% 6.5% 12.1% 8.0% 8.5%
Revenue mix (Rs mn)
NBOC 7,481 8,022 9,750 11,126 12,633
YoY growth 5.0% 7.2% 21.5% 14.1% 13.5%
As a % of sales 61.3% 59.5% 57.6% 57.2% 56.7%
Net F&B 2,841 3,060 4,360 5,091 5,969
YoY growth 7.0% 7.7% 42.5% 16.8% 17.2%
As a % of sales 23.3% 22.7% 25.8% 26.2% 26.8%
Advertisement revenue 962 1,389 1,760 2,086 2,488
YoY growth 5.7% 44.4% 26.7% 18.5% 19.2%
As a % of sales 7.9% 10.3% 10.4% 10.7% 11.2%
Other revenue from operations 923 1,010 1,050 1,139 1,205
YoY growth 1.3% 9.4% 4.0% 8.5% 5.8%
As a % of sales 7.6% 7.5% 6.2% 5.9% 5.4%
Total 12,207 13,481 16,920 19,443 22,295
Cost breakdown (Rs mn)
Movie exhibition cost 3,453 3,673 4,442 5,049 5,710
As a % of NBOC 46.2% 45.8% 45.6% 45.4% 45.2%
Consumption of F&B 681 744 1,125 1,296 1,492
As a % of F&B sales 24.0% 24.3% 25.8% 25.2% 25.0%
CAM, Power & Fuel and RM 1,745 1,882 2,119 2,448 2,734
Per property (Rs mn) 15.7 15.6 16.1 16.9 17.5
EBITDA (Rs mn) 1,461 2,104 3,092 6,125 7,188
EBITDA margin 12.0% 15.6% 18.3% 31.5% 32.2%
PAT (Rs mn) 306 1,146 1,335 1,238 1,774
PAT margin 2.5% 8.5% 7.9% 6.4% 8.0%
Source: Company, PL
Inox Leisure
September 24, 2019 55
Valuations
Valuation gap with market leader to narrow
As seen below, the valuation gap of Inox has narrowed with PVR due to
improvement in key performance indicators like ATP and SPH over the last few
years.
Inox’s valuation gap is narrowing with PVR
10.1
7.3
0.0
5.0
10.0
15.0
20.0
25.0
Mar-
11
Sep-1
1
Mar-
12
Sep-1
2
Mar-
13
Sep-1
3
Mar-
14
Sep-1
4
Mar-
15
Sep-1
5
Mar-
16
Sep-1
6
Mar-
17
Sep-1
7
Mar-
18
Sep-1
8
Mar-
19
Sep-1
9
EV
/EB
TID
A (x
)
Inox Leisure PVR
Valuation gap narrowing
Source: Company, PL
We value Inox on EV/EBITDA valuation metric. However, due to transition to Ind-
AS 116 forward EBITDA is overstated (1QFY20 EBITDA was higher by Rs614mn).
Thus, a comparison with past valuation history becomes redundant. On the other
hand, contrary to expectations, PAT is understated (depreciation & finance cost
impact is higher than rental expenses) as future rent escalations are front loaded
(total rent expenses including escalations are amortized over the lease term). For
instance, due to transition to Ind-AS 116, Inox’s PBT was lower by Rs218mn in
1QFY20. Thus, even earnings based valuation metric like P/E become irrelevant.
However, in order to facilitate comparison with past history we adjust our EBITDA
estimates and arrive at forward band charts. As seen below, since FY11, Inox has
traded at average one year forward EV/EBITDA multiple of 9.8x.
One year forward EV/EBITDA
5.0x
8.0x
11.0x
14.0x
17.0x
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
Ma
r-1
1
Sep
-11
Ma
r-1
2
Sep
-12
Ma
r-1
3
Sep
-13
Ma
r-1
4
Sep
-14
Ma
r-1
5
Sep
-15
Ma
r-1
6
Sep
-16
Ma
r-1
7
Sep
-17
Ma
r-1
8
Sep
-18
Ma
r-1
9
Sep
-19
Source: Company, PL
Inox Leisure
September 24, 2019 56
One year forward EV/EBITDA band chart
17.3
9.8
5.1
7.3
0.0
5.0
10.0
15.0
20.0
Ma
r-1
1
Sep
-11
Ma
r-1
2
Sep
-12
Ma
r-1
3
Sep
-13
Ma
r-1
4
Sep
-14
Ma
r-1
5
Sep
-15
Ma
r-1
6
Sep
-16
Ma
r-1
7
Sep
-17
Ma
r-1
8
Sep
-18
Ma
r-1
9
Sep
-19
EV/EBITDA (x) Peak(x) Avg(x) Median(x) Min(x)
Source: Company, PL
We assign a EV/EBITDA of multiple of 8.5x to our FY21E EBITDA of Rs7.1bn. This
translates into Ind-AS adjusted EV/EBITDA multiple of 9x on Ind-AS adjusted
FY21E EBITDA of Rs4.3bn which is in-line with average one year forward multiple
of 9.8x since FY11 and is justified given 1) significant improvement in KPIs over the
last 12-15 months 2) strong organic screen pipeline trajectory and 3) debt free BS
(only national chain which is net debt free)
EV/EBITDA valuation table
Particulars FY21*
EV/EBITDA 8.5
EBITDA 7,188
EV 61,097
Less: Debt 23,519
Add: Cash 2,950
Equity Value 40,527
No of shares 103
Per share value (Rs) 394
Source: Company, PL *Ind AS 116 compliant projections
At our target multiple of 8.5x, we arrive at a TP of Rs394 per share. Initiate with a
BUY.
Inox Leisure
September 24, 2019 57
Key tables & charts
Ind-AS (Adj) EBITDA margin to be at 20% in FY21
1,2
28
1,8
91 1,4
61
2,1
04
3,0
92
3,5
98
4,3
51
13.7% 16.3% 12.0% 15.6%18.3% 18.5% 19.5%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
-
1,000
2,000
3,000
4,000
5,000
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
FY
21E
Ind-AS Adj. EBITDA (Rs mn)
Ind-AS Adj. EBITDA margin (RHS)
Source: Company, PL
Ind-AS (Adj) PAT margin to rise to 9.6% in FY21E
200
810
306
1,1
46
1,3
35
1,8
18
2,1
41
2.2%
7.0%
2.5%
8.5% 7.9%9.3% 9.6%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
-
500
1,000
1,500
2,000
2,500
FY
15
FY
16
FY
17
FY
18
FY
19
FY
20E
FY
21E
Ind-AS Adj. PAT (Rs mn)
Ind-AS Adj. PAT margin (RHS)
Source: Company, PL
Average cost per operating screen is ~Rs16mn
2.0 2.0 2.1 2.2 2.4
4.1 4.4 4.6 4.7 5.1
4.1 4.6 4.3 4.3 4.3
4.3 4.8 5.3 4.8 5.1
14.6 15.7 16.2 15.9
16.8
-
3.0
6.0
9.0
12.0
15.0
18.0
FY15 FY16 FY17 FY18 FY19
(Rs
mn
)
Employee benefits Lease rental & hire charges
CAM, power & fuel and R&M Other overheads
Source: Company, PL
West formed 42% of screen mix in FY19
18% 16% 15% 15% 15%
36% 40% 44% 45% 42%
22% 20% 20% 21% 21%
24% 23% 21% 20% 22%
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17 FY18 FY19
East West North South
Source: Company, PL
North formed 21% of seats mix in FY19
18% 17% 16% 15% 16%
39% 42% 44% 44% 42%
21% 20% 20% 21% 21%
22% 21% 20% 19% 21%
0%
20%
40%
60%
80%
100%
FY15 FY16 FY17 FY18 FY19
East West North South
Source: Company, PL
Inox has diverse set of ad partners
SBI Havells Star
Kotak LG Sony
LIC Samsung AirBNB
ITC Honda PayTM
HUL Hero Iphone
P&G Toyota OnePlus
Reliance Kajaria Raymond
Source: Company, PL Note: The list is not exhaustive
Inox Leisure
September 24, 2019 58
Financials
Income Statement (Rs m)
Y/e Mar FY19 FY20E FY21E FY22E
Net Revenues 16,922 19,443 22,295 25,653
YoY gr. (%) 25.5 14.9 14.7 15.1
Cost of Goods Sold 5,567 6,344 7,202 8,232
Gross Profit 11,355 13,099 15,093 17,421
Margin (%) 67.1 67.4 67.7 67.9
Employee Cost 1,152 1,335 1,538 1,770
Other Expenses 7,112 5,639 6,366 7,230
EBITDA 3,092 6,125 7,188 8,421
YoY gr. (%) 46.9 98.1 17.4 17.2
Margin (%) 18.3 31.5 32.2 32.8
Depreciation and Amortization 955 2,459 2,742 3,104
EBIT 2,137 3,666 4,446 5,317
Margin (%) 12.6 18.9 19.9 20.7
Net Interest 237 2,089 2,229 2,437
Other Income 149 132 156 180
Profit Before Tax 1,991 1,709 2,372 3,059
Margin (%) 11.8 8.8 10.6 11.9
Total Tax 656 471 598 771
Effective tax rate (%) 33.0 27.6 25.2 25.2
Profit after tax 1,335 1,238 1,774 2,288
Minority interest - - - -
Share Profit from Associate - - - -
Adjusted PAT 1,393 1,238 1,774 2,288
YoY gr. (%) 10.3 (11.1) 43.3 29.0
Margin (%) 8.2 6.4 8.0 8.9
Extra Ord. Income / (Exp) (58) - - -
Reported PAT 1,335 1,238 1,774 2,288
YoY gr. (%) 16.5 (7.3) 43.3 29.0
Margin (%) 7.9 6.4 8.0 8.9
Other Comprehensive Income 1 (11) - -
Total Comprehensive Income 1,336 1,227 1,774 2,288
Equity Shares O/s (m) 103 103 103 103
EPS (Rs) 13.6 12.1 17.3 22.3
Source: Company Data, PL Research
Balance Sheet Abstract (Rs m)
Y/e Mar FY19 FY20E FY21E FY22E
Non-Current Assets
Gross Block 12,158 31,537 34,460 37,575
Tangibles 11,947 31,320 34,239 37,349
Intangibles 211 216 221 226
Acc: Dep / Amortization 3,109 5,568 8,310 11,414
Tangibles 3,009 5,467 8,210 11,314
Intangibles 101 101 101 101
Net fixed assets 9,049 25,969 26,150 26,161
Tangibles 8,939 25,853 26,030 26,035
Intangibles 111 116 121 126
Capital Work In Progress 637 637 637 637
Goodwill 175 175 175 175
Non-Current Investments 1,758 2,009 2,302 2,623
Net Deferred tax assets 529 461 640 826
Other Non-Current Assets 1,127 1,263 1,491 1,757
Current Assets
Investments 6 6 6 6
Inventories 122 160 183 211
Trade receivables 882 1,065 1,283 1,546
Cash & Bank Balance 137 1,352 2,968 5,316
Other Current Assets 312 350 389 404
Total Assets 14,788 33,508 36,296 39,741
Equity
Equity Share Capital 1,026 1,026 1,026 1,026
Other Equity 8,612 4,560 6,334 8,623
Total Networth 9,638 5,586 7,360 9,649
Non-Current Liabilities
Long Term borrowings 550 22,881 23,319 23,786
Provisions 127 136 156 180
Other non current liabilities 690 797 892 1,000
Current Liabilities
ST Debt / Current of LT Debt 200 200 200 200
Trade payables 1,596 1,705 1,955 2,249
Other current liabilities 1,897 2,109 2,315 2,574
Total Equity & Liabilities 14,788 33,508 36,296 39,741
Source: Company Data, PL Research
Inox Leisure
September 24, 2019 59
Cash Flow (Rs m)
Y/e Mar FY19 FY20E FY21E FY22E Year
PBT 1,335 1,709 2,372 3,059
Add. Depreciation 955 2,459 2,742 3,104
Add. Interest 237 2,089 2,229 2,437
Less Financial Other Income 149 132 156 180
Add. Other 551 (1) (351) (357)
Op. profit before WC changes 3,077 6,256 6,993 8,243
Net Changes-WC 88 (144) (63) (40)
Direct tax (369) (471) (598) (771)
Net cash from Op. activities 2,797 5,641 6,332 7,432
Capital expenditures (2,492) (19,378) (2,924) (3,115)
Interest / Dividend Income 32 - - -
Others 104 - - -
Net Cash from Invt. activities (2,356) (19,378) (2,924) (3,115)
Issue of share cap. / premium - - - -
Debt changes (1,819) 17,041 438 466
Dividend paid - - - -
Interest paid (231) (2,089) (2,229) (2,437)
Others 1,594 - - -
Net cash from Fin. activities (456) 14,953 (1,792) (1,971)
Net change in cash (16) 1,216 1,616 2,347
Free Cash Flow 301 (13,737) 3,408 4,318
Source: Company Data, PL Research
Quarterly Financials (Rs m)
Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20
Net Revenue 3,653 4,331 4,788 4,930
YoY gr. (%) 17.4 32.9 48.0 18.8
Raw Material Expenses 1,205 1,405 1,589 1,632
Gross Profit 2,449 2,926 3,200 3,298
Margin (%) 67.0 67.6 66.8 66.9
EBITDA 448 835 974 1,501
YoY gr. (%) 0.8 80.4 121.9 79.8
Margin (%) 12.3 19.3 20.3 30.4
Depreciation / Depletion 234 245 249 608
EBIT 214 590 725 893
Margin (%) 5.9 13.6 15.1 18.1
Net Interest 68 62 38 509
Other Income 38 31 53 31
Profit before Tax 184 559 682 415
Margin (%) 5.0 12.9 14.2 8.4
Total Tax 64 194 201 145
Effective tax rate (%) 34.9 34.8 29.5 35.0
Profit after Tax 120 365 481 270
Minority interest - - - -
Share Profit from Associates - - - -
Adjusted PAT 120 365 539 270
YoY gr. (%) (3.1) 176.8 (20.8) (27.0)
Margin (%) 3.3 8.4 11.3 5.5
Extra Ord. Income / (Exp) - - (58) -
Reported PAT 120 365 481 270
YoY gr. (%) (67.6) 204.6 31.9 (43.8)
Margin (%) 3.3 8.4 10.0 5.5
Other Comprehensive Income 1 (2) 1 (11)
Total Comprehensive Income 121 363 481 259
Avg. Shares O/s (m) 96 103 103 103
EPS (Rs) 1.3 3.9 5.0 2.8
Source: Company Data, PL Research
Key Financial Metrics
Y/e Mar FY19 FY20E FY21E FY22E
Per Share(Rs)
EPS 13.6 12.1 17.3 22.3
CEPS 22.9 36.0 44.0 52.6
BVPS 93.9 54.4 71.7 94.0
FCF 2.9 (133.9) 33.2 42.1
DPS - - - -
Return Ratio(%)
RoCE 20.6 12.8 14.4 15.8
ROIC 20.9 18.3 19.8 21.2
RoE 13.9 22.2 24.1 23.7
Balance Sheet
Net Debt : Equity (x) 0.1 3.9 2.8 1.9
Net Working Capital (Days) (13) (9) (8) (7)
Valuation(x)
PER 24.9 28.0 19.5 15.1
P/B 3.6 6.2 4.7 3.6
P/CEPS 14.8 9.4 7.7 6.4
EV/EBITDA 11.4 9.2 7.7 6.3
EV/Sales 2.1 2.9 2.5 2.1
Dividend Yield (%) - - - -
Source: Company Data, PL Research
Multiplex
September 24, 2019 60
Notes:
Multiplex
September 24, 2019 61
Notes:
Multiplex
September 24, 2019 62
Notes:
Multiplex
September 24, 2019 63
Analyst Coverage Universe
Sr. No. Company Name Rating TP (Rs) Share Price (Rs)
1 Dish TV India NR - 74
2 Entertainment Network (India) Hold 483 384
3 Music Broadcast Hold 58 46
4 Navneet Education BUY 134 103
5 S Chand and Company Hold 62 57
6 V.I.P. Industries BUY 488 386
7 Zee Media Corporation Under Review - 14
PL’s Recommendation Nomenclature
Buy : > 15%
Accumulate : 5% to 15%
Hold : +5% to -5%
Reduce : -5% to -15%
Sell : < -15%
Not Rated (NR) : No specific call on the stock
Under Review (UR) : Rating likely to change shortly
Multiplex
September 24, 2019 64
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