Tuesday, November 3, 2015

Movie Time - PVR Cinemas & Inox Leisure (Part 2)


Analysis of Screen & Seats




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

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

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

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




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

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

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


Business Driver

  • Increasing screen penetration in Tier 2 and Tier 3 cities. Growth in Tier 1 cities is almost saturated.
  • Customer demand for better movie watching experience - penetration of multiplex is bound to increase
  • Digitization of theatre and online ticket booking
  • Wider audience reach with coordinated movie release
  • Multiplex business is driven by content. The movie with good quality content is able to attract large audiences in cinema mall irrespective of other macroeconomic environment


Debt / Equity



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

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


Profitability



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

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

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

Escalating rental cost has adversely impacted profitability margin for both companies

Business Risk
  • The shelf life of movie has shortening. The multiplex business screwed towards first week of movie release and more towards weekends. Multiplex has adopted strategy of differential pricing to attract audience during weekdays.
  • TV release window is also shortening
  •  Piracy has adversely impacted revenue. The pirated version of movie is released within 1 / 2 days. Multiplex are leveraging technology to curb piracy.
  • Slow development of malls - since most of multiplex are situated in mall, slow development of mall would impact growth of multiplex. 
  • High entertainment tax and cap on ATP also acts as deterrent for growth.

Return to Shareholders



·         Investment in PVR Cinemas has given its shareholder return of 44.2% over FY11-FY15.
·         EPS for PVR has increased from 3.02 per share in FY11 to 13.72 per share in FY14. However, EPS has drastically fallen to 3.09 in FY15. Increase in equity price in FY15 was not supported by growth in EPS, thereby pushing P/E to 215 times in FY15.
·         Inox Leisure has generated return of 30.7%. Inox was trading at P/E of 55 times in FY11 and has increased to 72 times in FY15.
·         Inox was able to increase its EPS from Re. 0.81 per share in FY11 to Rs. 4.86 per share in FY14. Inspite of fallen in EPS in FY15 to 2.36 per share, stock price has increased to Rs.170 at end of FY15 
·         Inox has not declared dividend during FY11-FY15. 



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