Thursday, October 1, 2015

Movie Time - PVR Cinemas & Inox Leisure (Part 1)

(How I identified stock for my personal investment)

Friday evening is most awaited time after a tiring week.  My friends and I check out for best weekend offer for movie. We like watching movie in multiplex as it is a distinct and unique experience. The big screen, awesome pictures quality and surround sound makes us engrossed in the movie. For some 3D movies, a big screen is the most wonderful way of enjoying it. Nonetheless, Popcorn with flavor adds a distinct essence to movie.

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

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

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

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

Analysis and Comparsion of PVR Cinemas and Inox Leisure
Multiplex industry has gone towards consolidation phase over last decade. Now, there are 4 major multiplex operator with Pan India presence - PVR, Inox, Carnival and Cinepolis. The industry is highly competitive.

List of Merger & Acquisition activities in multiplex industry over last decade. 
  • PVR acquired Cinemax (2013), DT Cinemas (2015) and Zea Maize - Gourmet popcorn (2015). It has 464 functional screen as of Mar 2015
  • Inox acquired CCPL (2006), Fame (2010) and Satyam (2014). It has 377 operating screen as of Mar 2015.
  • Carnival acquired HDIL Entertainment (2014), Big Cinemas (2014) and Stargaze Cinemas (2015). Total 346 functional screens as of Mar 2015
  • Cinepolis acquired Fun Cinemas (2014). It has 193 screens as of Mar 2015
Revenue Growth 
Earnings of PVR and Inox has shown strong upward trajectory over last 5 years.

Multiplex generates revenue from 4 categories. Box office collection is major source of revenue
  • Box office - Income from sale of tickets (Price of ticket * number of ticket sold less entertainment tax) or revenue sharing with parties that operates or manages multiplex screens
  • Food & Beverages - Revenue from sale of food & beverages
  • Advertisement - Revenue earned from in-cinema advertisement or product display
  • In case of PVR, other revenue includes management fees, convenience fees, Food court rental income, rent from let out of cinema space, Bowling and gaming income, Virtual print fees. In case of Inox, other revenue includes conducting fees, management fees and parking charges.
Over the period, both multiplex companies have diversified its revenue base by generating additional revenue from ancillary activities like food & beverages, advertisement and others. Thereby, reducing its reliance on box office collection.

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

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