PVR: QIP proceeds to be used for deleveraging and expansion

Update on the Indian Equity Market:

The BSE Sensex touched the all-time high of 40,344 Thursday before closing at 40,129. The volatility was fuelled by the monthly Futures and Options (F&O) expiry. The rally was seen in the global equity markets as the US Federal Reserve cut interest rate 25 bps as expected. The Sensex is up 12 out of the last 15 sessions with the total rally of more than 2,500 points. Foreign Institutional Investors (FII) bought equities of Rs100bn in this period. Among the sectoral indices, PSU BANK (3.8%), MEDIA (3.4%) and REALTY (1.2%) topped the chart while METAL (-0.5%), PVT BANK (-0.3%) and FIN SERVICES (-0.2%) were the losers. YESBANK (23.8%), ZEEL (10.8%) and SBIN (7.8%) led the index higher whereas JSWSTEEL (-2.9%), IOC (-2.1%) and TATASTEEL (-2.1%) were the laggards.

PVR: QIP proceeds to be used for deleveraging and expansion

Key takeaways from the interview of Mr Nitin Sood, CFO of PVR Limited (PVR): dated 31^st October 2019 published with CNBC TV18:

·       Mr Sood mentioned that the company successfully completed the Qualified Institutional Placement (QIP) which was followed by the big slate of releases during the Diwali weekend.

·       He said that the primary intention of raising the money was to deleverage and a part of the proceeds to scale up the expansion plans all over the country. PVR has continuously opened 80-100 screens every year and the company intends to continue the expansion of the screens and better multiplex experience all over the country. The QIP fetched ₹ 5,000 mn for the company.

·       About the use of fresh capital, he said that the net debt of PVR is around ₹ 13,000 mn and the idea is that the company plans to reduce the leverage by around ₹ 3,000 mn and use the remaining proceeds for continuing investments in the expansion story. As per the guidance, the target is to open 80-100 new screens in the current year.

·       About the occupancy levels during the recent quarter, he said that 2QFY20 was one of the strongest quarters that the company witnessed. The movie flow has been excellent this year on the back of very strong 2018. All the three big Diwali releases have done decent business with the slate of films lined up for release in November- December. The outlook is strong for the company.

·       He talked about sales in terms of other merchandise. He mentioned that Food & Beverages (F&B) spend showed strong growth in the 2QFY20. The average per-person spending on F&B actually moved up by 10% during the quarter which shows that people are considering this as the most important form of entertainment. They are not cutting back on their spending on eating popcorn and food at the cinemas.

·       Total footfall growth during 2QFY20 was 25% higher from last year. This includes the new screens that the company built but even same-store growth during the quarter was strong at 6-7%. He considers it as a good indicator that people are coming back to cinemas to watch movies.

·       According to him, cinemas are investing heavily in reinventing the choice of offering one get at the theatres and the company is having a lot of focus on that front which is helping them to drive consumption up in the cinemas.

Consensus Estimate (Source: market screener website)

• The closing price of PVR was ₹ 1,780/- as of 31-October-19. It traded at 41x/ 31x/ 25x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 43.2/ 57.3/ 71.2 respectively.
• Consensus target price of ₹ 1,983/- implies a PE multiple of 28x on FY22E EPS of ₹ 71.2/-.