PVR Cinemas: Business Model & Research Report

Did you miss going to movie theatres during the lockdown? Do you miss those comfy recliners with those tasty cheese popcorns and an ice-cold coke by your side? Woah! Let's not talk about those distracting things now!

But if you enjoy going out and love watching movies in the theatre, then you are in the right place. This is the perfect research report for you! Welcome to the world of PVR cinemas!

PVR Cinemas: An overview

When you look at PVR as a company and their outlets, it sure shot gives a feel of some big brand, and PVR as a name sounds cool!

PVR or previously known as Priya Village Roadshow, started as a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited in a 60:40 ratio. The company began its operations in 1997. But in 2002, Village Roadshow sold its entire shareholding to Priya Exhibitors Private ltd, and the company changed its name to PVR ltd.

Today, PVR is the largest multiplex cinema operator by the number of screens in India. The company has approximately 842 screens in 176 cinemas in 71 cities in India and Sri Lanka, with an aggregate seating capacity of roughly 1.82 lakh seats. Currently, PVR has a 32% market share in the Hollywood segment & 24% in the Hindi segment. PVR's overall market share stands at 20%. It owns 28% of all multiplex screens in India.

You might have got a brief overview of the company till now. Now let us understand the business model of PVR.

Business Model of PVR

The business model of PVR is simple and robust! We don't believe in throwing financial jargon, so as always, to make it simple and easy to understand, we have divided the business of PVR into nine parts. First, let us understand how it creates value!

1. Movie Distribution: The company distributes Hollywood, Bollywood and Regional movies. Having a good distribution helps in maintaining good relations with all the stakeholders of the entertainment industry (producers, Film stars etc.)
2. Food and Beverage sales: The company provides a wide variety of foods and drinks to the customers. The company has been able to maintain their leadership as they have the highest F&B spend per patron in the Indian film exhibition industry.
3. Convenience Fee: The company has been on a digital drive as they have provided the customers with the comfort of booking tickets and F&B online from their home through our website or through ticketing aggregators like Bookmyshow, Paytm and Amazon.
4. Advertising: The company offers various advertising avenues for their clients, which includes online and offline options.
5. Film Exhibition: The company generates a significant amount of its revenue from box office collections from the exhibition of movies of different genres and languages across their properties.
6. Zea Maize: The company also manufactures and distributes gourmet popcorn, which is available in cinemas, malls, airlines, Indian Railways and also can be ordered online through e-commerce platforms.

Revenue Model 

As we can clearly see, PVR earns a major portion of its revenue from the Sale of movie tickets (46%) followed by the Sale of food and beverages at 29%. 

Let us understand each of the segments briefly and clearly.

1. Sale of Movie Tickets

The Sale of movie tickets, or in layman terms, Box office collection, depends on various factors, which are: Number of screens, Average ticket price, the occupancy rate of theatres which is determined by the footfall or the actual ticket sales etc. Due to lockdowns across states, most of the theatres were closed. 

In Q4FY21, the company saw a total footfall of 5.8 Million (-70% YOY) , occupancy rate stood at 8%, which is quite low from pre covid levels of 35%. Average ticket prices stood at INR 183, and the total count of theatres stood at 842.

The Sale also depends on the type of movies released in the period. Quite surprising, right? For example, the South Indian box office continued to perform strongly with movies like Master, Uppena, Jathi Ratnalu, Vakeel Saheb, Sulthan and reached 50-60% of the pre covid vacancy levels!

Moving on to F&B revenue.

2. Sale of Food & Beverages

Food and Beverages spent constitutes around 29% of the revenue. Have you ever wondered why the prices of popcorn are so high in multiplexes? Well, now you know the reason why F&B income percentage is so high. The company already has high margins in these products but is constantly trying to decrease its costs by centralizing logistics management so that margins can be increased further. The company is focusing on increasing the menu size & boasts of the highest per person F&B expenditure. F&B revenue for PVR stood at Rs960 Cr, when compared to its biggest competitor, INOX, which has a F&B revenue of Rs 497 Cr. This shows that PVR has done a commendable job in this segment and beaten the industry average.

3. Advertisment Income

PVR earns revenue from on and off-screen advertising without any additional costs. The revenue from advertisement income was affected by Covid-19 but is expected to increase in the next 2-3 quarters. Advertisement revenue for PVR stood at Rs 379 Cr as compared to Rs 179 Cr for Inox. PVR has made a clear differentiation in the Advertisement segment when compared to its peers. 

4. Others

13% income from Other sources is something to talk about! So, The other Income basically constitutes the income earned by the company from its investments. PVR earned interest on Bank deposits, NSC's schemes, Government grants, Net gain on disposal of property, plant and equipment etc.

The lockdown had a significant impact on the earnings of the company; for the quarter ended March 31, 2021, the total revenue was 191 crores. EBITDA loss was 118 crores, and PAT loss was 272 cr. The management remains confident of the business recovery post-Covid and expects strong demand in future.

What is the Moat?

1. Strong presence 

PVR has a solid presence across all metros and semi-urban regions in India. Even during the pandemic, the company opened 13 new screens in FY 21, taking the total count to 842, which is the highest in India. Moreover, the footfalls of PVR (10.2 Cr) is more than 1.5x times that of its competitor INOX. This shows that PVR has a clear dominance in the industry.

2. Solid Liquidity

The company raised a total of 1600 crores, and as of April 30 2021, the company has Liquidity in excess of 750 crores, which gives it a great advantage. For a context, PVR has a current ratio of 0.8 as compared to 0.3 of Inox. As the business has a huge cash burn rate, PVR, with this extra cash, is prepared for any crisis.

3. F&B business

PVR has constantly shown an improvement in its Food and Beverage industry. The company has shown a consistent increase in income from F&B business which stood at Rs 960 cr for FY 20, which is almost double that of INOX's F&B revenues. With reduced costs and "Zea maize" gaining traction, F&B business is surely a MOAT for PVR.

What is Good?

1. The company has an efficient Cash Conversion Cycle of -25.10 days.
2. Small players will struggle to bounce back, and it is an opportunity for big industry players like PVR.
3. Strong Liquidity when compared to its peers.
4. A 63% reduction in fixed costs from FY 20.

What is Bad?

1. The company has shown poor profit growth in the last 3 years.
2. Low Promoter holding (only 17%)
3. The company has a P/E ratio of 0.

Financials

1. Sales and Profit Growth

The company has shown an average sales growth and a negative profit growth in the past 3 years. The main reason behind this is the pandemic that disrupted their business, but the company is expected to come back stronger as the second wave ends.

2. Balance Sheet 

The borrowing for the company has shown a considerable increase in the past year because of the pandemic. Operating profit has increased consistently over the past except for the pandemic period, which shows how the company is progressing. The interest coverage ratio has been quite less which might be a concern for the investors.

3. ROE AND ROCE 

Return on equity and Return on capital employed for the company has been above average if we look at a broader picture ie. for a 5 year period but in the past 1 year, these two parameters have been quite low for the company.

4. Profit and Loss 

The company's operating profit margin has shown a decent amount of growth over the period of the last 5 years. But net profit growth has declined consistently from 2019. Net sales have shown decent growth over the last 5 years, which might be a good sign.

Conclusion

In these tough times, PVR and other entertainment companies have faced a lot of difficulties, but there is a considerable amount of growth that can be achieved in the near future by these companies. PVR is the industry leader that has good liquidity to support its growth. As the second wave ends, PVR may have good growth prospects ahead of it.

But as always, before deciding on whether to buy shares of a company or not, you must do thorough research about the company and see if it fits with your investment objectives.