PVR INOX Ltd. share price target

PVR pioneered the multiplex revolution in India by establishing its first multiplex in 1997. Since then the company has spread its wings across 106 properties in 43 cities having 474 screens as of Aug-15. It acquired Cinemax in 2012 to become the largest multiplex operator in the country. Low density of screens as compared to emerging and developed world and better movie watching experience provided by multiplexes is leading to a preference change among the public towards multiplexes. After a subdued FY15 we expect the company to grow its revenues/PAT by 27%/227% respectively over FY15-FY17 driven by higher footfalls, increased F&B; spend and greater focus on in-cinema ad revenues. We assign BUY rating for...

Market leader in movie exhibition business: The company is expanding itsmarket share in movie exhibition business through organic & inorganic routes. The company has market share of 29% in 2015 with 503 screens post DT cinemas acquisition. The next phase of growth is likely to trigger from Tier-2 & Tier-3 citiesthrough its expansion plans.

At Rs3,500mn for 29 screens (refer above, we believe the deal is structured), the deal is executed at Rs120mn/screen which is 4-5x the industry capex/screen of Rs20-30mn and is an expensive deal. Currently, PVR has a highly leveraged balance sheet (debt to equity ratio of ~1.6x and debt:EBITDA of 3.3x), which makes funding the deal through 100% debt raising difficult. We believe the mix of 70:30, equity: debt funding is ideal in the given situation and does not stress the income statement too much for PVR. The deal will be marginally EPS accretive...

Background: PVR Ltd is one of the leading multiplex chains in India with presence across the country. PVR also is into the film production and distribution business. PVR Pictures is a subsidiary of PVR Ltd, which has a 60% stake in the company. In order to diversify its revenue stream, PVR Ltd, is also venturing into retail entertainment and management of food courts....