multiplex - investmentguruindiavid.investmentguruindia.com/report/2019/september/multiplex -...

September 11, 2018 1

The show has just begun!

Jinesh Joshi [email protected] 91-22-6632 2238

Sector Report

Multiplex

mailto:[email protected]

Multiplex


Contents

Page No.

Play on rising discretionary spend & emerging content diversity ........................... 4

Most preferred ‘out of home leisure’ activity ....................................................... 4

Rising content diversity to drive occupancy ....................................................... 5

Multiplexes enable wider screen releases & boost box office collections ........... 6

Multiplexes in a sweet spot structurally .................................................................. 7

Low penetration provides huge growth opportunity ............................................ 7

Healthy pipeline of retail space to boost mall ecosystem ................................... 8

Unviable single screen economics to aid growth................................................ 8

Threat from OTT is overplayed .......................................................................... 9

Industry profits & capital efficiency set to rise ...................................................... 11

Industry consolidation over, capital efficiency to rise ........................................ 11

Rising share of ancillary revenues is a key margin lever .................................. 13

GST reduction positive; but local taxes a risk .................................................. 17

PVR leads in most metrics, Inox fast catching up ................................................ 18

Companies

PVR ..................................................................................................................... 22

Inox Leisure ......................................................................................................... 43

Abbrevations ATP: Average ticket price SPH: Spend per head

NBOC: Net box office collection GBOC: Gross box office collection

VPF: Virtual print fee OTT: Over the top

ET: Entertainment tax GST: Goods & services tax

MG: Minimum guarantee LBT: Local body tax


Multiplex

Sector Report

The show has just begun!

Multiplexes offer best play on rising discretionary spend as India sets aim to

become a USD 5 trillion economy by 2024. We believe movie viewing like

cricket is one of the most ingrained habits in India which will continue to

flourish with rising prosperity and limited alternative entertainment options.

Low screen density (8 screens/million population), increasing content

diversity (no language is more than 14% of releases in 2018) and unviable

single screen economics provides a huge fertile ground for growth in

multiplexes (screen share has risen from ~9% in 2009 to ~31% in 2018) We

believe industry profitability and capital efficiency is set to improve as 1)

M&A activity is more or less over (top 4 players have cornered ~79% of the

multiplex screen count) and 2) share of premium screens and high margin

non-ticketing revenue is on a rise. We have a positive outlook on the sector

and initiate coverage on PVR (ACCUMULATE with a TP of Rs2,099) and Inox

Leisure (BUY with a TP of Rs394). Threat from OTT and contagion of local

body tax are key risks to our thesis.

Play on rising discretionary spend & content diversity: Easy accessibility,

family orientation and cost effective nature makes multiplexes the most preferred

out of home leisure activity. India is a linguistically diverse market. Multiplexes

help capture this diversity by avoiding cannibalization as content can be played

simultaneously. Domestic/overseas theatricals (window constitutes ~75% of the

film exhibition market & is a proxy of GBOC for movies) grew by 8.9% to Rs132bn

in 2018. Wide diversity is expected to drive CAGR of 9.8% over 2018-21E

benefitting multiplexes (medium to consume the content).

Industry in sweet spot, structural demand drivers in place: Despite producing

highest number of movies in a year (~2,000 odd) India’s screen density is one of

the lowest in the world due to lack of penetration in tier 2/3/4 markets providing

huge growth opportunity for multiplexes. Supply of new retail space (7.7mn in

2019E and 5.5mn in 2020E) would boost mall ecosystem and further aid growth.

Industry profitability & capital efficiency set to rise: Led by a slew of

acquisitions (9 acquisitions done by 4 players with EV of Rs35-40bn) the multiplex

industry consolidated over the last few years. However, with M&A exercise largely

over and share of premium screens rising (~9%/~10% of screen mix for Inox/PVR

in 1QFY20) capital efficiency is set to rise. Rising share of non-ticketing revenue

(contribution to rise from 37%/36% in FY14 to 46%/43% in FY21 for PVR/Inox

respectively), a high margin business is another profit lever.

Threat from OTT is overplayed; contagion from local body tax is a risk: We

believe threat from OTT is overplayed due to 1) eight-week exclusive window for

theatricals 2) diversity of content available on both platforms and 3) potential

regulation of OTTs. However, few states like MP, Kerala and TN have imposed

local body tax (LBT) which is over & above the prevailing GST rate. This can set

wrong precedent if other states follow suit, thereby creating a contagion risk.

September 24, 2019

PVR – Acc | CMP: Rs1,810 | TP: Rs2,099

Y/e Mar FY19 FY20E FY21E FY22E

Sales (Rs. m) 30,856 36,888 42,552 49,055

EBITDA (Rs. m) 5,863 12,427 14,599 17,148

Margin (%) 19.0 33.7 34.3 35.0

PAT (Rs. m) 1,836 1,582 2,784 3,862

EPS (Rs.) 39.3 33.8 59.6 82.6

Gr. (%) 46.6 (13.8) 76.0 38.7

DPS (Rs.) 2.0 2.0 2.0 2.0

Yield (%) 0.1 0.1 0.1 0.1

RoE (%) 13.8 22.8 29.4 29.1

RoCE (%) 16.9 12.7 14.9 17.0

EV/Sales (x) 3.1 3.7 3.1 2.6

EV/EBITDA (x) 16.3 10.8 9.1 7.5

PE (x) 46.1 53.5 30.4 21.9

P/BV (x) 6.8 12.5 8.9 6.4

Inox Leisure – BUY | CMP: Rs338 | TP: Rs394


Sales (Rs. m) 16,922 19,443 22,295 25,653

EBITDA (Rs. m) 3,092 6,125 7,188 8,421

Margin (%) 18.3 31.5 32.2 32.8

PAT (Rs. m) 1,393 1,238 1,774 2,288

EPS (Rs.) 13.6 12.1 17.3 22.3

Gr. (%) 3.4 (11.1) 43.3 29.0

DPS (Rs.) - - - -

Yield (%) - - - -

RoE (%) 13.9 22.2 24.1 23.7

RoCE (%) 20.6 12.8 14.4 15.8

EV/Sales (x) 2.1 2.9 2.5 2.1

EV/EBITDA (x) 11.4 9.2 7.7 6.3

PE (x) 24.9 28.0 19.5 15.1

P/BV (x) 3.6 6.2 4.7 3.6

Jinesh Joshi

[email protected] | 91-22-66322238

Multiplex


Play on rising discretionary spend & emerging content diversity

Most preferred ‘out of home leisure’ activity

Multiplexes are the most cost effective ‘out of home leisure’ alternative when

compared to other entertainment options like plays, events, theme parks, trekking,

dining-out etc. Apart from commanding a lower wallet share, multiplexes are 1)

widely accessible (with high presence in metros, tier 1&2 towns) 2) have family

orientation and 3) offer wide content diversity. Given these factors, we believe

multiplexes are best placed to capture rising discretionary spend in India. Further,

lesser availability and higher cost of competing options and niche nature of

multiplexes makes them a preferred choice for consumers.

Multiplexes are most attractive out of home leisure activity in India

Out of home leisure activities

Typical price point* Accessibility Orientation Content diversity

Frequency of visit Time

required for leisure

Multiplexes Rs150-400 High (Typically found in malls) Family Yes High (As content gets released at fast pace)

~3 hours

Plays/Drama Rs200-1,500 Medium (Drama theatres are

far & few in metros. Availability in tier 3/4 towns is poor)

Family Yes Low (Content pipeline

is not as robust as cinema)

~3 hours

Events Rs300-3,500 Low (Requires large

space/open grounds & are completely artist driven)

Non-Family Yes Low (Content is

completely driven by artist availability)

~3-5 hours

Theme parks (Essel World, Water

Kingdom) Rs500-1,200

Low (There are 120-150 amusement parks in India)

Family No (There is no novelty factor after 1st visit)

Occasional Whole day

Dining out Rs250-1,000

(depends on the type of restaurant)

High Family Yes High ~1-2 hours

Trekking/Camping Rs1,000 onwards Low/Seasonal(Out of city

limits) Non-Family Yes Occasional Whole day

Source: Bookmyshow, Zomato, PL *Typical price point is for one person in a city of Mumbai

Amid rising urban population and increasing share of middle & affluent class we

believe that the share of discretionary consumption is set to rise. This should bode

well for the multiplex industry and aid growth.

Middle & affluent class share to double by 2025

93%80%

54%35%

22%

6%18%

41%

43%

36%

1% 2% 5%

22%

42%

1985 1995 2005 2015 2025

Lower class Lower middle class Middle & affluent class

Source: Company, Mckinsey

Discretionary spend share is rising steadily

61%48%

39%30%

39%52%

61%70%

1995 2005 2015 2025

Necessity spend Discretionary spend

Source: Company, Mckinsey

Multiplex


Rising content diversity to drive occupancy

Content is the key factor that drives occupancy. Considering the linguistic diversity

of India, content is produced in many different languages for different audience

sets. In some instances, if the content is really engaging it is dubbed and released

in a different language to cater to a different audience set. Content diversity of

India reduces dependency on one particular genre (Bollywood/Hollywood/South

Indian/regional films) and is a big structural lever that would drive occupancies at

multiplexes. Emergence of low budget movies, availability of talent & capital and

better content monetizing options due to emergence of multiplexes is another

factor that has been driving occupancies.

Non-Bollywood films are 55% of NBOC in 2018

48

10

40

11

49

12

39

10

0

10

20

30

40

50

60

Bollywoodfilms

Hollywoodfilms

South Indianfilms

Otherlanguages

(Rs

bn

)

2017 2018

Source: FICCI, E&Y, PL

No language is more than 14% of releases in 2018

4%

5%

5%

6%

6%

7%

9%

11%

13%

13%

14%

3%

2%

2%

0% 5% 10% 15%

Gujarati

Bhojpuri

Other languages

English

Bengali

Marathi

Malayalam

Tamil

Telugu

Hindi

Kannada

Punjabi

Odiya

Dubbed in other languages


Hindi genre continues to dominate domestic box office collections with top 50

films contributing Rs34bn in 2018. However, the contribution of Hollywood movies

has had a big impact in recent times. Just about a decade back, Hollywood films

contributed 3-4% of the total business in the country which increased to about

10% in 2018. As Hollywood films are now massively dubbed and released in

multiple languages, their popularity & box office collections have also increased

meaningfully.

Domestic NBOC of top 50 Hindi films (Rs bn)

26 27 26 2730

34

2013 2014 2015 2016 2017 2018

Source: FICCI, E&Y

Domestic NBOC of top 10 Hollywood films (Rsbn)

1.6

3.4

4.8

7.5

2015 2016 2017 2018

Source: FICCI, E&Y

Multiplex


Given the content diversity of India and other monetization options apart from

theatrical releases like broadcast rights, digital/OTT rights and home video the

Indian film segment grew by 12.2% YoY to Rs174.5bn in 2018. Domestic &

overseas theatricals window which constitutes ~75% of the film entertainment

market (relevant for multiplex players) grew by 8.9% in 2018. As per FICCI&EY

report, the film entertainment market is likely to grow at a CAGR of 10.6% over

2018-2021E. However, the window comprising of domestic & overseas theatricals

is likely to grow by 9.8% over the same period.

Domestic & overseas theatricals to grow at a CAGR of 9.8% over 2018-2021E

Particulars (Rs bn, gross of taxes) 2016 2017 2018 2019E 2021E 2018-2021E

CAGR

Domestic theatricals 85.6 96.3 102.1 110.0 130.0 8.4%

Overseas theatricals 8.5 25.0 30.0 35.0 45.0 14.5%

Broadcast rights 16 19.0 21.2 23.0 26.0 7.0%

Digital/OTT rights 6 8.5 13.5 17.0 24.0 21.1%

In-cinema advertising 5.9 6.4 7.5 9.0 11.0 13.6%

Home video 0.4 0.3 0.2 0.2 0.1 -20.6%

Total 122.4 155.5 174.5 194.2 236.1 10.6%


Multiplexes enable wider screen releases & boost box office collections

Multiplexes offer a perfect solution to capitalize on the abundant content diversity

since they have 4-5 screens. They also avoid cannibalization of revenues in case

2/3 movies release at the same time (since content can be played

simultaneously). Further, as interest level for any movie is higher in week one,

and multiplexes enable wider screen release, they have led to emergence of

higher numbers of movies earning more than Rs1bn/2bn/3bn.

As seen in exhibit 9, big budget movies with high star power (usually get a higher

screen share) have consistently been released in a higher number of screens

over a period of time. While 3 Idiots was released in 1,000 screens in 2009,

Dangal was released in 5,300 screens in 2016. Also, Dabaang was released in

1,598 screens in 2010, but Tiger Zinda hai was released in 4,500 screens in 2017.

Wider screen release has benefitted content creators/producers as their RoI &

pay back has improved, thus creating a surplus.

Multiplexes has enabled wider screen releases

1000

1598

2065

2101

2638

3014

3446

3359

5200

4500

5300

6500

4500

6900

0 2000 4000 6000 8000

3 Id iots (2009)

Dabaang (2010)

Bodyguard (2011)

Ek tha tiger (2012)

Dabaang 2 (2012)

Chennai express…

Dhoom 3 (2013)

Kick (2014)

PK (2014)

Bajrangi Bhai jaan…

Dangal (2016)

Bahubali 2 (2017)

Tiger Zinda hai (2017)

2.0 (2018)

(Total No. of Screens)

Source: Company, PL

Movies earning more than Rs1bn on a rise

1 2

5

9

6 7 5

8 7

10

5

1

2 1

1

1

2

3

1

1

2 2

3

1

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD

2019

Rs1 to 2bn Rs2 to 3bn Over Rs3 bn

Source: Company, PL

Multiplex


Multiplexes in a sweet spot structurally

Low penetration provides huge growth opportunity

Despite producing highest number of movies in a year (~2,000 odd) India’s screen

density of eight screens (both multiplex & single screens put together) per million

population is one of the lowest in the world. Though India produces 2.5x the

number of movies than the US, its screen density is only 6.4% of the US signifying

that India is grossly under-screened. As of 2018, China and the US had ~55,623

and ~40,837 screens respectively dwarfing India’s tally of 9,601 screens. India’s

screen count is low due to lack of penetration in tier 2/3/4 markets presenting

huge untapped potential for the film exhibitors. Rapid urbanization and increased

government support could pave the way for exhibitors to invest in under-served

areas and spur growth.

India produces highest number of films globally

2000

791686

581

300 298 269 255 226 185

India

US

Chin

a

Japan

Fra

nce U

K

S K

ore

a

Spain

Germ

any

Italy

Source: Company, PL

India's screen density is one of the lowest*

125

95

80

60 57

40 3726 25

12 10 8

US

Fra

nce

Spain

UK

Germ

any

S K

ore

a

Chin

a

Japan

Tai

wan

Tha

iland

Bra

zil

India

Source: Company, PL *Screens/million population

India has 2nd highest theatre footfalls (In mn)

21781930

1364

208 197 176 171 169 156 146

Chin

a

India US

Fra

nce

Mexi

co UK

Japan

S K

ore

a

Germ

any

Russ

ia

Source: Company, PL

India's screen count is 17%/24% of China & US

9,4

81

9,5

30

9,6

01

41,1

79

50,7

76

55,6

23

40,6

04

40,2

46

40,8

37

-

10,000

20,000

30,000

40,000

50,000

60,000

2016 2017 2018

(No

. o

f S

cre

ens)

India China US


Multiplex


Healthy pipeline of retail space to boost mall ecosystem

Multiplexes are typically found in malls. Usually, mall ecosystem can meet the

requirement of multiplexes with respect to space, parking, ceiling height,

approvals etc. It is fairly challenging to find a location which meets all these

requirements on standalone basis. Multiplexes typically come in as anchor

tenants for mall developers giving them a long term rental income visibility

(agreement is for 10-15 years). Additionally, since multiplexes bring huge footfalls

it also benefits other tenants in the malls. Thus, mall developers stand to benefit

greatly by the presence of multiplexes and are eager to have them on board as

anchor tenants. As per Anarock, the supply of new retail space (net absorption) is

expected to be at 7.7mn in 2019E and 5.5mn in 2020E boosting mall ecosystem

thereby presenting a huge fertile ground for multiplexes to capitalize.

Healthy supply pipeline of retail space to boost malls ecosystem

6.5 6.9

13.8

4.1

5.7

1.3

3.6

-0.3

0.8

3.1

10.2

6.8

4.2

4

10.7

4.5 5.1

1.6

3.3

2.7 3.2 3

.9

7.7

5.5

-2

0

2

4

6

8

10

12

14

16

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019E 2020E

(In

mn

sq

ft)

New completion Net absorption

Source: Anarock, PL

Unviable single screen economics to aid growth

Total number of screens in India have declined from 10,635 in 2009 to 9,601 in

2018 due to falling count of single screens. The business model of single screens

is becoming increasingly unviable due to 1) high rental costs & capital constraints

2) lower occupancy 3) higher movie exhibition cost 4) lower ATP & F&B SPH and

5) lower advertising income due to limited bargaining power. As a result, the count

of single screens has declined from 9,710 in 2009 to 6,651 in 2018.

On the other hand, the business model of multiplexes is getting increasingly

robust amid 1) rising disposable income & discretionary spends 2) superior

location/parking facilities 3) higher occupancy due to content plurality 4) state of

art equipment with better quality of audio/video and 5) ability to offer exhibition

cum hospitality experience with premium cinema formats.

Multiplex


Multiplexes screen share up from 9% in 2009 to 31% in 2018

9,710 9,121 8,451 7,400 7,031 6,780 6,651

925 1,225

1,500 2,100 2,450 2,750 2,950

10,635 10,346 9,951

9,500 9,481 9,530 9,601

2009 2011 2013 2015 2016 2017 2018

Single screen Multiplexes Total


While the multiplexes screen market share has increased from 9% in 2009 to 31%

in 2018 we expect the same to increase further as audiences would continue to

migrate towards multiplexes for a better experience & convenience.

Key parameters that offer multiplexes an edge over single screens

Parameter Typical multiplex property Typical single screen property Edge factor

Number of screens 4 to 5 screens 1 screen Higher number of screens enable content plurality & boosts occupancy

Location Typically a shopping mall Standalone in any area Superior location drives footfalls

Seats per screen ~200-250 ~500-1,000 NM

Occupancy High (Average occupancy is 25-30%)

Low (Average occupancy is 20-25%)

NM

ATP & SPH High Low High ATP & SPH leads to better margins & return ratios

Bargaining power over rental cost High Low Since multiplex players are typically anchor tenants in a mall their bargaining power is much higher than a single screen player

Comfort & convenience

Abundant parking, better seats, A/C, option to book tickets online, high end technology (audio & video)

Lesser comfort & convenience as compared to a typical multiplex

Comfort & convenience is key factor in driving footfalls

Presence of ancillary revenue streams

High Low Higher ancillary revenues like advertising & convenience income is margin lucrative.

Screen count as of 2018 2,950 screens 6,651 screens Huge scope for expansion

Geographical dominance

No specific geographical dominance but East & South have least penetration of multiplexes

70-75% of exhibition sector in South India is dominated by single screens

South & East offer huge growth opportunity

Source: FICCI, E&Y, Livemint, PL

Threat from OTT is overplayed

Over the last few years, lot of OTT players like Amazon, Netflix, HotStar, Sony

LIV, VOOT, ALTBalaji etc have proliferated in India bringing in lot of original

content. There is a general belief that OTT viewing can cannibalize theatrical

content & impact film exhibitors. However, we believe that threat from OTT is

overplayed due to 1) eight-week exclusive window for theatricals 2) diversity of

content available on both platforms and 3) potential regulation of OTTs.

Multiplex


Eight-week exclusive window: In the past, there have been few instances

where a theatrical release was soon followed by a release on other digital

platform thus reducing monetizing opportunity for film exhibitors. However,

soon after, the industry negotiated for an eight-week exclusive window with

producers, due to which release on alternative platform was barred. We

believe this is a sufficient time for multiplexes to monetize the content.

Content diversity on both platforms: There is wide diversity in content

exhibited over OTT platforms and multiplexes creating a mutually exclusive

audience for both genres. For instance, OTT has higher share of originals.

OTT’s premieres movies too, but of low budget which would anyways bypass

a theatrical release. Further, certain kind of content like 3D movies are best

viewed in a cinematic experience.

Even in matured market like the US, both OTT and cinema have co-existed

for many years. Despite Netflix subscriptions increasing at a CAGR of 11.6%

over 2014-2018, the GBOC in the US have increased at a CAGR of 3.3%

(US is a matured market) over the same period signifying that both exhibition

platforms can co-exist without a significant cannibalization risk form one

another.

US GBOC rise despite 12% CAGR in Netflix subscriptions

Year GBOC (In US$ bn) Netflix subscribers (In mn)

2014 10.4 37.7

2018 11.9 58.5

CAGR 3.3% 11.6%


Potential regulation/censorship of OTT’s: The government is mulling over

a censorship regime for OTT’s given lot of content available on these

platforms is not fit for family viewing. Currently, OTT platforms do not come

under the ambit of central board of film certification (CBFC) guidelines. If a

regulation which requires certification of digital content comes into place and

online censorship becomes a requirement, we believe business model of

OTTs would come under threat.

Multiplex


Industry profits & capital efficiency set to rise

Industry consolidation over, capital efficiency to rise

Led by a slew of acquisitions, the multiplex industry has consolidated over the last

few years and is currently dominated by four players namely PVR, Inox Leisure,

Carnival Cinemas and Cinepolis.

PVR is a leader with screen market share of ~28% as of Feb 2019

PVR28.0%

Inox 21.0%Carnival

17.0%

Cinepolis 13.0%

Others 21.0%

749562

348

455562

Source: Company, PL Note: Figures in pie pertain to no of screens as of Feb’ 19

Catchment/location is a key moat for multiplex business. A good property in a

prime location drives footfalls. Threat from competition is low once a player

manages to lease a property in a good location as establishment of another

property in the same area can lead to cannibalization of footfalls. Thus, many

players have indulged into M&A and have grown inorganically. Also, unrelated

diversification (erstwhile owners of DT Cinema’s, Cinemax and Broadway were

DLF, Kanakia and HDIL respectively) resulted in exit by a few incumbent

operators.

Consolidation trend of the multiplex industry

Acquirer Year Target Screens bought Acquisition price (Rs mn) Price/screen paid to buy the circuit (Rs mn)

PVR 2018 SPI Cinemas 76 Paid Rs6,330mn in cash for a 71.7% stake. For balance 28.3% stake, 1.6mn equity shares will be issued.

120

PVR 2016 DT Cinemas 32 4,325 135

PVR 2012 Cinemax 138 5,700 41

Inox 2014 Satyam 38 2,400 63

Inox 2010 Fame 97 Undisclosed NM

Carnival 2014 Broadway 10 1,100 110

Carnival 2014 Big Cinemas 242 7,100 29

Carnival 2015 Glitz Cinemas 27 900 33

Cinepolis 2015 Fun Cinemas 83 4,800 58

Source: Company, Media Reports, PL

Multiplex


While M&A has enabled the industry to grow at a strong pace, it has suppressed

capital efficiency. However, we believe M&A exercise is largely over as top four

players constitute ~79% of the screen count for multiplex industry. Thus, there is

no formidable player with a sizable screen count which can be an attractive target.

M&A activity from here on, if any, will be limited to smaller regional players and

thus capital efficiency is set to improve from here on.

RoE & RoCE to inch up post consolidation

FY15 FY16 FY17 FY18 FY19 FY20E* FY21E*

PVR

RoE 2.9% 11.2% 9.8% 10.7% 13.8% 18.9% 20.9%

RoCE 7.6% 12.2% 10.3% 14.3% 16.9% 20.3% 22.4%

Inox

RoE 4.5% 15.5% 5.5% 17.1% 13.9% 16.7% 16.9%

RoCE 7.1% 14.4% 7.3% 13.4% 20.6% 21.1% 21.1%

Source: Company, PL *Ind AS 116 adjusted figures to enable comparison

Apart from M&A, return ratios have optically looked sub-par as 1) industry is

capital intensive (average capex per screen is Rs25-30mn) and multiplexes

constantly invest to expand into new geographies and 2) new screens take time to

stabilize in terms of revenues and margins after they begin operations, thus

having a negative impact on capital efficiency in the earlier years.

RoCE breakdown analysis of PVR as of FY19

Particulars (Rs mn) Screens Net capital employed

Total income Adjusted EBIT RoCE

Screen operational > 2 years (mature screens) 576 14,254.5 25,393.8 3,317.2 23.3%

Screen operational < 2 years (new screens) 115 3,753.6 2,804.8 459.0 12.2%

Total Screens 691 18,008.1 28,198.6 3,776.2 21.0%

Capital employed to new screens

2,820.5

Grand total 691 20,828.6 28,198.6 3,776.2 18.1%

SPI Cinema screens 72 9,707.6 2,988.4 505.7 5.2%

Consolidated screens 763 30,536.2 31,187.0 4,281.9 14.0%

Source: Company, PL Note: SPI data is from 18th August 2018 (post consolidation)

As seen in table above, RoCE for new screens/mature screens is 12.2%/23.3%

respectively for FY19. Further, there is capital deployment of Rs2.8bn (CWIP),

which is not generating any return and further depressing capital efficiency.

While consolidated capital efficiency is impacted by proportion of new screens in

the portfolio and acquisitions, the economics of a single matured property with 5

screens is completely different with RoCE of ~20% on a steady state basis.

Multiplex


Rising share of ancillary revenues is a key margin lever

Revenue composition of film exhibitors is classified across four broad general

categories 1) Ticket sales/NBOC 2) Sale of F&B 3) In-cinema advertising and 4)

Other operating revenues. The latter three sub-heads are typically classified as

ancillary sources of income (non-ticketing) as they complement the core business

of ticket sales. However, these ancillary sources have a higher margin than the

core ticketing business due to leaner cost structure.

Margin hierarchy of a typical film exhibitor

Revenue sub-head Directly attributable cost head Typical gross margin Comments

Ticket sales (NBOC) Movie exhibition cost 54-56% (Movie exhibition cost is in the range of 44-46%)

NM

F&B sales F&B COGS 74-75% (F&B COGS is in the range of 24-25%)

NM

In-cinema advertising

No direct cost associated with it. However, a part of employee cost which is directly associated with generating advertising income & some portion of the rental cost of the property can be apportioned.

90-95% (Our assumption) NM

Other operating revenue consists of:-

1) Convenience fee No direct cost. Some portion of IT cost can be apportioned for own apps.

High NM

2) Virtual print fee (VPF) No attributable direct cost Almost entire VPF flows to the bottom-line

NM

3) Conducting fee/rental income No attributable direct cost High Conducting fee/rental income is generated by leasing out the additional space in mall premises.

4) Management fee No attributable direct cost High It relates to fee that exhibitors get for managing a property on behalf of the owner.

5) Entertainment tax refund No attributable direct cost High

Pertains to pending refunds from pre-GST regime. Post GST, the industry has lobbied for grandfathering & some states have agreed as well. Once the exemption term ends the revenue head will get eliminated.

Source: Company PL

Ticket sales/NBOC margin is expected to remain constant: Movie

exhibition/film hire cost is like a proxy content cost for film exhibitors. They get the

content/movie from the distributor who in turn gets rights from the producer. The

exhibitor and distributor enter into a revenue sharing agreement with variable pay-

outs, over the weeks. These pay-outs are calculated on NBOC.

Multiplex


Distributor share on NBOC declines with each passing week

50.0%

42.5%

37.5%

30.0%

Week 1 Week 2 Week 3 Week 4

Source: Company, PL

Given that the distributor pay-out is fixed, NBOC margin is expected to mirror past

trends. However, as the share declines with each passing week, there is an

upside to margin in case movie gets extended to week 3 or 4 (typically happens

with sleeper hits).

F&B margin at risk in case of adverse court verdict: As seen in exhibit 23, the

F&B business has high gross margin. Since F&B pricing in multiplexes is

perceived to be higher, a PIL was filed in Mumbai to allow outside food into

multiplexes. Subsequently, PIL’s were filed in various other states like J&K, MP,

Bihar etc. Only in one state of J&K the decision went against multiplex industry

and patrons were allowed to bring outside food. However, this decision was

subsequently stayed by the supreme court (SC). As many cases were pending in

different high courts, the industry decided to consolidate all of them and put it for

hearing in SC. The matter is currently subjudice. Any adverse verdict can have

negative impact as F&B is a high margin business.

As highlighted above, the core business of ticket sales has limited margin upside

while F&B may be a high margin business, but has some downside risk. However,

since allowing outside food can result in security and hygiene concerns the

industry is lobbying hard against it. In addition, industry players have taken steps

like 1) realigning menu 2) increasing the transaction points and 3) improving the

quality of offerings, which should help in margin improvement.

Rising share of advertising is a key margin lever: In-cinema advertising is a

relatively small market with size of Rs7.5bn as of 2018. The market has grown at

a CAGR of 12.7% over 2016-2018 and is expected to grow at CAGR of 13.6%

over 2018-2021E, as per FICCI-EY report.

Captive audience and known population demographics increase the appeal of

multiplex in advertising. Typical inventory is between 15-20 minutes and rates are

dynamic in nature. Increasing share of advertising revenue is a key margin lever

for film exhibitors as the cost structure is lean. As seen in exhibit 23, advertising is

a high gross margin business. The revenue contribution of advertising has

increased from 6.5% in FY14 to 10.4% in FY19 for Inox and from 11.2% in FY14

to 12.0% in FY19 for PVR.

Multiplex


Revenue share of high margin advertising business is on a rise

Particulars FY14 FY15 FY16 FY17 FY18 FY19

PVR* 11.2% 12.2% 12.0% 12.2% 13.1% 12.0%

Inox 6.5% 9.1% 7.8% 7.9% 10.3% 10.4%

Source: Company, PL * Data is ex-of SPI Cinema’s

Other operating revenues: Other operating revenue for film exhibitors typically

consists of convenience income, VPF income, conducting fee/rental income,

management fee for properties and ET tax refund. While other operating revenues

constitute 4-7% of top-line for both PVR & Inox, contribution to EBITDA is 25-

30%. With negligible costs associated with these revenue streams margins are

healthy.

Convenience income share to EBITDA up by 8-12%: Film exhibitors typically

enter into an agreement with online ticket aggregators like PayTM and

BookMyShow (BMS) to enable patrons to book tickets online. The exhibitors

typically get a share of convenience fee which ticket aggregators charge to

patrons. Both PVR and Inox have tie ups with online ticket aggregators, but there

is a difference in the way these deals are structured.

For instance, in 2QFY19, PVR renewed agreement with PayTM and BMS wherein

it received Rs4.1bn as minimum guarantee (of Rs3.5bn) and security deposit (of

Rs0.6bn). The MG component will be amortized over a 3-year period and there is

an upside sharing if certain benchmarks are breached. In case of Inox, there is no

MG component but the agreement is not exclusive with PayTM and BMS. In other

words, Inox can sign another aggregator, if need be.

: Online ticket bookings for PVR is on a rise

26%

35%

45%49%

54%

0%

10%

20%

30%

40%

50%

60%

FY15 FY16 FY17 FY18 FY19

Source: Company, PL

Online ticket bookings for Inox is on a rise

20%

27%

36%

42%44%

0%

10%

20%

30%

40%

50%


Source: Company, PL

Convenience income/EBIDTA up by 8-12% over past 4 years

Convenience income (Rs mn) FY16 FY17 FY18 FY19

PVR* 333 582 597 1060

YoY growth NM 74.7% 2.7% 77.6%

As a % of EBITDA 12.2% 19.8% 15.5% 20.5%

Inox 80 154 349 500

YoY growth NM 93.5% 126.6% 43.4%

As a % of EBITDA 4.2% 10.5% 16.6% 16.2%

Source: Company, PL *Data for PVR is ex-of SPI Cinema’s

Multiplex


The proportion of online bookings and revenues from convenience income for

both PVR and Inox has been rising since last 4-5 years. Online booking is a trend

which has not only added to the revenue pie of film exhibitors but has also

boosted profitability. The IT and manpower cost is borne by the online ticket

aggregators since they own the platforms. These costs, if any, are limited for film

exhibitors in relation to the apps that they have created.

VPF income is 5%/9% of PVR/Inox’s EBITDA: Virtual print fee (VPF) is a fee

that is charged by film exhibitors to content creators/production houses in lieu of

investment made in digital equipment by them. Post digitization took over there

was a change in the way films were exhibited in cinema. A new transmission

equipment (cost Rs2.5-3mn) was required to deliver the content for which

multiplex owners had to invest.

VPF fee is levied by the exhibitors to recover cost of this investment as production

houses have also benefited out of it. While a digital print costs just Rs800 odd

physical print used to cost anywhere between Rs60,000-70,000 resulting in huge

savings for producers. Apart from this, digitization has enabled wider screen

releases simultaneously (physical print had to be transported from cinema to

cinema while digital content can be transmitted by a satellite) ensuring that

producers get a better RoI.

VPF income is higher for Inox as it owns most of the projectors

VPF income (Rs mn) FY16 FY17 FY18 FY19

PVR 46 87 172 292

As a % of EBITDA 1.6% 2.8% 4.3% 5.0%

Inox 239 241 246 270

As a % of EBITDA 12.6% 16.5% 11.7% 8.7%

Source: Company, PL

As seen, VPF income is 5%/9% of EBITDA for PVR/Inox respectively in FY19.

VPF is like any annuity income with hardly any cost attached to it and virtually the

entire fee flows to EBITDA/PAT boosting profitability of multiplexes.

Recently, there was an issue over payment of VPF fee by a certain production

house citing that the sunset clause has expired and charging a fee beyond that is

unreasonable. However, the competition commission of India (CCI) dismissed the

petition due to lack of evidence improving the long term visibility of VPF income

for multiplexes.

Multiplex


GST reduction positive; but local taxes a risk

In the pre-GST era there were multitude of taxes & differential rates for both

tickets and F&B. For instance, there was an entertainment tax (ET) component on

ticket prices and every state had a different rate. In some regions like Delhi, ET

was as high as 40% while some regions provided complete/partial exemption for a

few years in order to boost investments. In case of F&B, there was VAT.

The biggest disadvantage of the earlier tax regime was cascading effect of taxes

and inability to set off the same. For instance, most multiplex players paid service

tax on property rentals and manpower & house- keeping contracts. This service

tax became a cost component for them as it could not be offset against the ET tax

that multiplex owner collected on ticket sales.

Introduction of GST not only eliminated the cascading effect of taxes but also

provided flexibility to set-off. Further, recent reduction in GST rate on tickets and

F&B, has reduced the overall tax incidence for the industry. We believe this is a

favorable development as cut in tax rates will improve affordability. Additionally,

since taxes are pass through in nature we do not expect it to have any negative

impact on revenues of multiplex owners.

Reduction in GST rate to benefit patrons

Particulars Earlier GST rate Revised GST rate Comments

Ticket prices above Rs100 28% 18% GST rate was reduced from 01st Jan 2019

Ticket prices below Rs100 18% 12% GST rate was reduced from 01st Jan 2019

F&B 18% (with input tax credit) 5% (without input tax credit) GST rate was reduced from 15 Nov 2017

Source: Company, PL

Recently some states like MP, Kerala and TN imposed a local body tax (LBT)

which is over & above the prevailing GST rate. Imposition of LBT not only

amounts to double taxation and defeats the purpose of GST but also creates an

additional tax burden for the industry. Though LBT is levied in only three states

currently, it can set a wrong precedent if other states follow suit, thereby creating

a contagion risk.

Local body tax structure of various states

State Levy

Bhopal (MP) 15%

Indore (MP) 5%

Kerala 10%

Tamil Nadu (Tamil Films) 8%

Tamil Nadu (Other films) 15%


Multiplex


PVR leads in most metrics, Inox fast catching up

Screens: Post acquisition of SPI Cinema’s, PVR had 763 screens as of FY19,

resulting in a lead of ~189 screens over Inox. Apart from growing organically both

PVR and Inox have increased their screen count by acquisitions. Given that M&A

opportunities are limited and consolidation exercise is more or less over, growth is

expected to be organic in nature from here on. While PVR would continue to

maintain the lead, the gap is narrowing with Inox adding 82 screens in FY19

(highest ever new screen openings for the industry in a year).

ATP: PVR’s ATP is higher than Inox by 7.6% in FY19 given the premium nature of

properties and strong presence in metros and tier 1 markets. However, the gap is

narrowing (PVR’s ATP was higher by 10.1%/8.8% in FY17/FY18).

SPH: SPH growth is a function of 1) price hike 2) conversions (number of people

buying F&B as proportion of total footfalls) and 3) quantum of F&B spend by

patrons. PVR’s SPH was higher by 23% than Inox in FY19. However, recently

Inox has realigned its menu and increased transaction points driving conversions

which is reflected in narrowing gap with PVR. (In FY18, PVR’s SPH was higher by

35%)

Occupancy: Content drives occupancy. However, occupancy is also driven by 1)

number of seats per screen and 2) proportion of screens in Southern region (a

high occupancy market). PVR’s occupancy is higher than Inox as it has lower

seats per screen and higher proportion of screens in South. With SPI acquisition

(a southern player with occupancy in the range of ~54%), South forms ~33% of

PVR’s screen mix as compared to ~22% for Inox in FY19.

Ad revenue per screen: While PVR’s ad-revenue per screen is higher than Inox

the gap has narrowed over the last 2 years as Inox has taken various steps like

shoring up the sales team, engaging with various media planners, and focusing

on yields thereby boosting the advertising revenue.

Revenue mix: Declining share of NBOC revenues (low GM margin business) and

increasing share of non-ticketing revenues (high GM margin business) for both

PVR and Inox vindicates our thesis that the margin profile of industry is set to rise.

Rent cost: Rental cost for PVR is higher by 200-300 bps due to higher presence

in metro/tier 1 markets.

Leverage: Inox’s leverage is lower than PVR as recently there was a preferential

allotment of 6.4mn shares which generated Rs1.6bn. The money was utilized to

pay down debt, strengthening the BS.

Pay-out ratio: The pay-out is low for both companies considering the capital

intensive nature of the industry.

Cash conversion cycle: Exhibition is a negative working capital business. Movie

tickets & F&B is purchased in cash. Majority of the receivables emerge from

advertising business. Being a service business, inventory is negligible. Hence we

do not expect a major change in the cash conversion cycle of both the players.

Multiplex


PVR leads in most metrics but Inox is catching up fast

Particulars PVR* Inox

FY17 FY18 FY19 FY20E FY21E FY17 FY18 FY19 FY20E FY21E

Screens 579 625 691 751 814 468 492 574 646 721

YoY growth 12.2% 7.9% 10.6% 8.7% 8.4% 11.4% 5.1% 16.7% 12.5% 11.6%

Screens added 63 46 66 60 63 48 24 82 72 75

Gross ATP (Rs) 196 210 212 210 223 178 193 197 197 206

YoY growth 4.3% 7.1% 1.0% -0.9% 6.0% 4.7% 8.4% 2.1% -0.2% 5.0%

Gross SPH (Rs) 81 89 91 98 105 62 66 74 80 87

YoY growth 12.5% 9.9% 2.2% 7.3% 7.5% 6.9% 6.5% 12.1% 8.0% 8.5%

Occupancy 32.9% 31.3% 34.9% 35.4% 35.9% 28.0% 26.0% 28.0% 28.3% 28.1%

Average seats / average screen 229 227 221 216 212 256 249 241 234 228

Ad revenue per screen (Rs) 44,19,752 49,30,769 50,48,255 51,75,833 54,34,625 21,92,593 28,86,234 32,92,797 34,17,336 36,39,463

YoY growth 2.8% 11.6% 2.4% 2.5% 5.0% -4.9% 31.6% 14.1% 3.8% 6.5%

SPH/ATP 41% 42% 43% 46% 47% 35% 34% 38% 41% 42%

Footfalls (In mn) 75.2 76.1 89.1 95.3 102.4 53.7 53.3 62.5 67.7 73.3

YoY growth 8.0% 1.2% 17.1% 6.9% 7.5% 0.6% -0.8% 17.3% 8.4% 8.2%

Film hire cost (as a % of NBOC) 43.9% 44.5% 43.8% 44.4% 44.5% 46.2% 45.8% 45.6% 45.4% 45.2%

Rent cost (as a % of sales) 18.9% 18.0% 17.1% 2.8% 2.7% 15.2% 15.1% 14.7% 1.8% 2.0%

F&B GM 76.0% 74.5% 73.3% 74.8% 74.9% 76.0% 75.7% 74.2% 74.8% 75.0%

Revenue mix (As a% of total)

NBOC 56.2% 55.6% 54.9% 54.5% 54.4% 61.3% 59.5% 57.6% 57.2% 56.7%

F&B 27.5% 27.1% 27.6% 28.0% 28.4% 23.3% 22.7% 25.8% 26.2% 26.8%

Advertisement income 12.2% 13.1% 12.0% 12.1% 12.0% 7.9% 10.3% 10.4% 10.7% 11.2%

Other operating income 4.0% 4.3% 5.5% 5.5% 5.2% 7.6% 7.5% 6.2% 5.9% 5.4%

BS & CF ratios

Capex 6,331 3,400 4,362 4,977 4,590 1,528 1,586 2,465 2,743 2,919

D/E^ 0.8 0.6 0.9 0.8 0.7 0.5 0.4 0.1 0.1 0.1

Payout ratio 9.8% 7.5% 5.1% 5.9% 3.4% NA NA NA NA NA

Debtor days 18 24 22 24 25 14 21 19 20 21

Inventory days 3 3 4 4 4 3 3 3 3 3

Payable days 34 39 43 43 43 26 31 34 32 32

Cash conversion cycle (13) (12) (18) (15) (14) (10) (8) (13) (9) (8)

Source: Company, PL Note: Note:-1)* KPIs for PVR is ex-of SPI Cinema’s while BS&CF data is consolidated. 2) ^D/E is Ind-AS

adjusted to enable comparison

Multiplex


Valuation Summary

Particulars PVR Inox

FY20E FY21E FY22E FY20E FY21E FY22E

EV/Sales 3.7 3.1 2.6 2.9 2.5 2.1

EV/EBITDA 10.8 9.1 7.5 9.2 7.7 6.3

P/E 53.5 30.4 21.9 28.0 19.5 15.1

P/BV 12.5 8.9 6.4 6.2 4.7 3.6

Source: Company, PL

Financial profile of global multiplex companies as of FY18

Particulars (In US$ mn) Revenue EBITDA EBITDA margin PAT PAT margin P/E

AMC (US) 5,461 867 15.9% 174 3.2% 50

Cinemark (US) 3,222 721 22.4% 271 8.4% 17

Wanda (China) 2,059 361 17.6% 195 9.5% 32

Regal Cinemas (US) 4,119 890 21.6% 353 8.6% NM

CGV Korea (Korea) 1,609 216 13.4% -68 NM NM

Cineworld (UK) 4,119 890 21.6% 353 8.6% 15

Cineplex (Canada) 1,246 200 16.1% 63 5.0% 32

Source: Bloomberg

Multiplex


COMPANIES


Rating: ACCUMULATE | CMP: Rs1,810 | TP: Rs2,099

Redefining cinematic experience

We initiate coverage on PVRL with ACCUMULATE rating given 1) leadership

position (~28% screen market share; current lead over Inox is ~200 screens)

in film exhibition market 2) aggressive screen addition plans (we expect 70/75

screen additions in FY20/21) 3) strong focus on premium format screens

(~10% of screen mix; aim to take it to ~15% over next few years) and 4) SPI

acquisition (diversifies content risk & provides ideal platform to expand in

South). Saturation in metro/tier-1 markets (~80% of screen mix) due to limited

availability of real estate and drying M&A opportunities (top 4 players account

for ~79% of multiplex screen count) reduces the likelihood of a peer

surpassing PVR via organic or inorganic route further cementing its

leadership position. We expect sales/Ind-AS adjusted EBITDA to grow at a

CAGR of 17.4%/24.3% over FY19-21E driven by strong growth in non-ticketing

revenue and SPI consolidation. We assign EV/EBITDA multiple of 10x (Ind-AS

adjusted multiple of 11.7x) to our FY21E EBITDA of Rs14.6bn (Ind-AS

adjusted estimate of Rs9bn) and arrive at a TP of Rs2,099. Initiate with a

ACCUMULATE. Threat from OTT and contagion of local body tax are key risks

to our call.

Market leader in film exhibition: PVR is the largest player in multiplex industry

with a screen market share of ~28%. Except for East, it is market leader in 3 out of

4 regions. We believe PVR’s market leadership would remain intact as 1) metro/tier-

1 markets (~80% of screen mix) are already saturated 2) M&A opportunities are

limited as industry consolidation is more or less over and 3) aggressive plans to

penetrate deeper into tier 2/3 markets (~20% of screen mix) via PVR Utsav/Talkies

format.

Strong focus on premium formats: As of July 2019, PVR had 78 premium

screens constituting ~10% of the screen portfolio (target is to increase the share to

~15% over the next few years). Increasing share of premium screens will drive

occupancy, ATP & SPH. For instance, ATP for Gold class screens is 2.5x the

regular ATP. For other formats, premium ranges from Rs25 to Rs150. Also, F&B

contribution from premium screens is 50% higher than regular screens.

Aggressive expansion plans in place: Backed by visibility of signed agreements,

we expect PVR to add 70 screens in FY20E and 75 screens in FY21E enabling it

to cross the 900 screens mark, within the next two years.

SPI acquisition to strengthen presence in South: We believe SPI acquisition

would strengthen PVR’s presence in South (occupancy is high but multiplex

penetration is ~14-15%) and drive profits as 1) ticket prices in Chennai were

increased by 40% in FY18, a regulated market and 2) measures taken to boost

SPH (in 1QFY20 SPI’s SPH was Rs102, at par with standalone exhibition business)

Outlook & valuation: We value PVR at an EV/EBITDA of multiple of 10x (Ind-AS

adjusted multiple of 11.7x). This is broadly in-line with the past one year forward

multiple of 11.6x since FY10 and is justified given 1) PVR’s market leadership 2)

preferred brand positioning 3) strong organic screen pipeline and 4) industry leading

metrics. Initiate with a ACCUMULATE and TP of Rs2,099.

PVR (PVRL IN)

September 24, 2019

Company Report

Key Financials - Consolidated


Sales (Rs. m) 30,856 36,888 42,552 49,055

EBITDA (Rs. m) 5,863 12,427 14,599 17,148

Margin (%) 19.0 33.7 34.3 35.0

PAT (Rs. m) 1,836 1,582 2,784 3,862

EPS (Rs.) 39.3 33.8 59.6 82.6

Gr. (%) 46.6 (13.8) 76.0 38.7

DPS (Rs.) 2.0 2.0 2.0 2.0

Yield (%) 0.1 0.1 0.1 0.1

RoE (%) 13.8 22.8 29.4 29.1

RoCE (%) 16.9 12.7 14.9 17.0

EV/Sales (x) 3.1 3.7 3.1 2.6

EV/EBITDA (x) 16.3 10.8 9.1 7.5

PE (x) 46.1 53.5 30.4 21.9

P/BV (x) 6.8 12.5 8.9 6.4

Note: All estimates are IND-AS116 compliant unless otherwise stated

Key Data PVRL.BO | PVRL IN

52-W High / Low Rs.1,850 / Rs.1,099

Sensex / Nifty 39,090 / 11,603

Market Cap Rs.85bn/ $ 1,193m

Shares Outstanding 47m

3M Avg. Daily Value Rs.1617.12m

Shareholding Pattern (%)

Promoter’s 20.24

Foreign 44.92

Domestic Institution 25.58

Public & Others 9.26

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute 21.4 12.0 34.7

Relative 13.9 9.4 26.9

Jinesh Joshi


PVR


Company Overview

Starting out as a JV between Priya Exhibitors Pvt Ltd and Village Roadshow in

1995, PVR has emerged as one of the largest film exhibition companies in India.

PVR has presence in 21 states (67 cities) with 168 properties and 794 screens

translating into ~175,000 seats. It is market leader in terms of number of screens

(28% screen market share as of Feb 2019), footfalls (99.3mn as of FY19) and

operating revenues amongst multiplex players in India. With strategically located

properties (present in 60% of the largest 20 operational malls in India), it is a strong

leader in 7 out of top 8 key cities, in terms of screen count.

Apart from film exhibition, PVR is also into movie distribution and gourmet popcorn

business. PVR Pictures – a distribution business arm (100% owned) distributes

Hollywood & Bollywood movies while Zee Maize Pvt Ltd (70% owned) is into pop-

corn business (4700 BC brand). Apart from being available in PVR Cinemas, the

in-house manufactured pop-corn is also available in retail stores, e-com platforms

and other prominent hotels.

Over the years, PVR has grown strategically by adding screens organically and

making selective acquisitions in the interim. The latest acquisition of SPI Cinema’s

will further strengthen PVR’s position in Southern India.

PVR’s journey since inception

Year Event

1997 Opened first cinema

2003 Raised first PE investment

2004 Launched first gold class cinema

2006 Listed on NSE/BSE

2008 Crossed 100 screens

2011 Launched PVR director's cut

2012 Acquired Cinemax & crossed 200 screens

2016 Acquired DT Cinemas, crossed 500 screens

2017 Completes 20 years & crossed 600 screens

2018 Acquired SPI Cinemas, crossed 700 screens

Source: Company, PL

PVR has a pan-India screen portfolio

Region Properties/

Cinema's Screens Screen mix

Maharashtra 40 165 21%

Karnataka 14 98 12%

Tamil Nadu 13 83 10%

UP 16 79 10%

Telangana 11 62 8%

Gujarat 13 60 8%

Delhi 15 50 6%

Punjab 9 49 6%

Haryana 9 32 4%

Chhattisgarh 4 17 2%

West Bengal 4 16 2%

Chandigarh 3 15 2%

Kerala 3 15 2%

MP 3 11 1%

AP 2 9 1%

Rajasthan 2 7 1%

Jharkhand 2 7 1%

Assam 2 7 1%

Uttarakhand 1 5 1%

Pondicherry 1 5 1%

J&K 1 2 0%

Total 168 794

Source: Company, PL Note: Numbers as on 25th July 2019

PVR


Story in charts

NBOC share/admit to decline to 54% in FY21 (Rs)

139 143 150 164 169 178 188

59 67 7380 85 91

9829 30

3339 37

3942

77

1113 17

1818

234 247266

295 308326

346

0

50

100

150

200

250

300

350

FY15 FY16 FY17 FY18 FY19 FY20E FY21E

NBOC F&B Ad revenue Other operating revenue

Source: Company, PL

F&B share/screen to rise to 28% in FY21 (Rs mn)

18 21 20 21 23 23 25

810 10 10

12 1213

4

4 4 55 5

5

1

1 1 2

2 22

3136 36 38

42 4345

0

10

20

30

40

50


NBOC F&B Ad revenue Other operating revenue

Source: Company, PL

EBITDA/ticket to rise to Rs115 in FY21

3139 39

5158

108115

0

20

40

60

80

100

120

140


(Rs

)

Source: Company, PL

Footfalls/screen volatile, driven by content

1,3

2,6

24

1,4

4,8

49

1,3

5,6

48

1,2

7,2

58

1,3

6,7

09

1,3

1,6

52

1,3

0,8

55

1,15,000

1,20,000

1,25,000

1,30,000

1,35,000

1,40,000

1,45,000

1,50,000


Source: Company, PL

Average screens/property inching up

4.4

4.5

4.6 4.6

4.7

4.7

4.8

4.2

4.3

4.4

4.5

4.6

4.7

4.8

4.9


Source: Company, PL

Rent cost/screen to fall post Ind-AS 116 (Rs mn)

2.9 3.5 3.7 4.0 4.4 4.6 4.8

6.1 6.7 6.8 6.8 7.2

1.2 1.2

4.3 4.2 4.3 4.3 4.4

4.5 4.6

1.3 1.4 1.6 1.5

1.7

- -

-

5.0

10.0

15.0

20.0


Employee cost Rent

CAM & electricity charges Repairs & maintenance*

Source: Company, PL

Note: Standalone data ex of SPI Cinemas * From FY20 repairs & maintenance is clubbed with other expenses

PVR


Market leader in film exhibition

Locational moat is a big entry barrier

PVR is the most preferred multiplex brand & has carved out a niche for itself by

tactical positioning across formats (mix of premium & economy screens) and towns

(across tier 1/2/3 markets). Though proximity to residence plays a bigger role while

visiting a multiplex for a movie yet, gentry, architecture style, interiors, comfort &

convenience have also become prominent part, with rising disposable incomes.

Location is the biggest moat in multiplex business which acts as a strong entry

barrier. Establishing an early presence in right catchment areas is a key in driving

footfalls. Subsequent competitive risk is low as another establishment in vicinity can

lead to cannibalization of footfalls. Limited availability of real estate in metros and

high rental cost acts as a further deterrent. Starting out in 1997, PVR enjoyed early

mover advantage thereby creating a multi-pronged network across the country at

key locations. In fact, PVR spearheaded the multiplex revolution in India. As of July

2019, PVR has presence in 21 states (67 cities) with 168 properties and 794

screens translating into ~175,000 seats with a screen market share of ~28%.

Except for East, it is a market leader in 3 out of 4 regions.

PVR has diversified geographical presence

Region Screen count Screen mix Rank

South 272 34% 1

West 253 32% 1

North 239 30% 1

East 30 4% 2

Total 794

Source: Company, PL Note: Figures as of July 2019 & including SPI acquisition

We believe PVR’s market leadership would remain intact as 1) tier 1 markets are

already saturated with limited possibilities of opening new multiplexes 2) M&A

opportunities are limited as industry consolidation is more or less over (top 4 players

have already cornered 79% of the multiplex screen count) and 3) PVR has

aggressive organic expansion plans with focus on tier 2 & 3 markets where

penetration is generally low.

PVR has strong presence in metro/tier 1 markets

Market type Screen proportion by tier

Metro 55%

Tier 1 25%

Tier 2 10%

Tier 3 10%

Source: Company, PL

Top 4 players constitute ~79% of screen count

Particulars Screens Ratio

Screen count of top 4 players 2,114 79%

Screen count of remaining players 562 21%

Total multiplex screen count 2,676 100%

Source: Company, PL Note: Figures as of Feb 2019

As tier 1 markets are saturated and there are limited acquisition opportunities, the

only way to surpass PVR is via organic route by opening more screens. However,

amid aggressive screen expansion plans and lead of ~200 screens over the nearest

competitor Inox, we believe PVR’s leadership position will remain intact.

PVR


Redefining movie experience by technology

PVR has been a pioneer in redefining the movie viewing experience in India by

bringing in the latest technologies and formats. Premium screens are not only

technologically advanced (dolby stereo, digital cinema, 4K screening etc) but also

have palatial interiors and luxury seating which redefines cinema viewing

experience for patrons.

PVR’s premium screen formats includes Gold class, 4DX, Playhouse, IMAX, P[XL],

and Onyx. As of July 2019, PVR had 78 premium screens constituting ~10% of the

total screen portfolio and the plan is to increase the share to ~15% over the next

few years.

PVR's premium screen portfolio overview

Premium screen format Brief overview Total screens*

Gold Class Most premium format. Best in theatre comfort with delectable F&B basket 37

4DX Multi-sensory cinema experience 15

Playhouse Directed towards kids 9

IMAX Immersive movie experience with high end technology 8

P[XL] Extra large luxurious screen format 8

Onyx NA 1

Total 78

Source: Company, PL * Figures as of July 2019

PVR’s premium screen count is on a rise

55 58 59 62 70 76 78

9.0%

9.3% 9.3%

8.5%

9.4%

9.9% 9.8%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

0

10

20

30

40

50

60

70

80

90

3QFY18 4QFY18 1QFY19 2QFY19 3QFY19 4QFY19 1QFY20

Premium screens Premium screens as a % of total screens (RHS)

Source: Company, PL Note: Figures surpass the quarter end date by 15-30 days.

Despite capex on premium screens being 50-100% higher than the company

average of Rs25-30mn per screen, pay back is faster due to higher occupancy,

ATP and SPH. For instance, in case of Gold class screens ATP is 2.5x the regular

ATP while for other formats the premium ranges from Rs25 to Rs150 over

company’s average. Also, the F&B contribution from premium screens is 50% more

than normal screens.

Apart from being focussed on premium/luxury screens which are typically located

in metros and tier 1 markets, PVR also operates economy screens with affordable

pricing under the PVR talkies/Utsav format in tier2/3 markets. Expansion in these

regions via affordable pricing format will enable PVR to leverage the untapped

potential in these under screened markets.

PVR


Best placed to exploit content diversity & availability

PVR has diversified geographical presence in India except for East which is anyway

an under-penetrated market with low appetite for discretionary spends. PVR’s

screen mix is roughly equal in the other 3 regions. Diversified geographical

presence enables PVR to capture India’s content diversity efficiently. As an

example, share of regional movies is increasing in overall NBOC and since this type

of content is viewed in a particular geography having a multiplex there becomes a

pre-requisite. Further, having access to content is equally important considering

that more 2,000+ movies release in India every year. As seen below, PVR has been

able to screen more than 1500+ movies in FY19 (75% of the releases) given large

number of screens across regions.

Content diversity reduces concentration risk

14% 15% 16% 15% 13%

66% 62% 63% 63%58%

20% 23% 21% 22% 29%

0%

20%

40%

60%

80%

100%


English Hindi Regional

Source: Company, PL

Count of movies released in PVR rising steadily

1100+1200+ 1200+

1400+1500+

0

200

400

600

800

1000

1200

1400

1600


Source: Company, PL

PVR


Driving loyalty via deeper engagement programs

Proximity to residence and content drive footfalls in the multiplex business. Both

these are external factors over which multiplexes have no control and thus gaining

customer loyalty is a challenging task. In order to deeply engage with customers

PVR has launched various initiatives like 1) the loyalty program 2) VKAAO (movie

on demand initiative) 3) ticket cancellation options and 4) miscellaneous offers &

schemes. Such initiatives go a long way in increasing consumer visits, by creating

a deeper engagement with them.

PVR Privilege program: This is a customer loyalty program started by PVR.

Members typically earn points on ticket and F&B spends which can be redeemed

later. The program rewards 5 points (equal to Rs5) on every Rs100 spent by the

user and a voucher is generated once Rs50 is reached. There is no upper limit on

points that can be collected and it just requires customer’s mobile number (no cards

needed). PVR has 4.6mn+ members in this program. Such program entices repeat

visits and drives sales.

Ticket cancellation options: On a payment of small cancellation fee (depending

upon when the ticket is cancelled) PVR tries to drive tentative bookings by providing

this option. It is beneficial to both customer (as he gets refund) and PVR (helps in

driving sales).

Offers & schemes: PVR continuously offers various schemes like cash backs,

discounts on F&B, coupons, flat discounts on certain days to keep viewers

engaged.

VKAAO; the movie on demand (MoD) platform is one of its types: VKAAO is a

MoD platform offered by PVR in partnership with BookMyShow. It is engaged in

private screening of movies for its customers through theatres. Once certain

number of bookings are confirmed the movie is screened. VKAAO provides

personalized movie experience to patrons on movies that are cults or did not get

wider screen opening at the outset.

While it is easy to replicate these options we believe PVR’s loyalty program is more

likely to induce customers as it has diversified geographical presence with highest

screens amongst peers (gives more redemption options to viewers once they

accumulate reward points). Also, VKAAO is one of its type MoD platform with PVR.

PVR


Aggressive organic expansion plans in place

PVR’s screen count has grown at a CAGR of 24.3% over FY12-19 driven by organic

as well as inorganic growth. PVR has made 3 acquisitions viz; Cinemax (138

screens), DT Cinemas (32 screens), and SPI Cinema’s (76 screens) over the last

7 years. Going ahead, we expect PVR to add 70 screens (management guidance

of 80 screens) in FY20E and 75 screens in FY21E enabling it to cross the 900

screens mark, within the next two years. Further, given the fact that more than 100

screens are currently under fit-out and 36 screens have already been opened till

July 2019 we believe PVR is on track to easily add 70+ screens organically in FY20

and FY21.

PVR's screen count to increase at a CAGR of 9.1% over FY19-21E

166 213

421 464 516 550625

691

833908

138

29

72

0

100

200

300

400

500

600

700

800

900

1000

FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Own Screens Acquisitions

Acquired Cnimeax

Acquired DT Cinemas

Acquired SPI Cinemas

Source: Company, PL

Average capex per screen is in the range of Rs25-30mn (varies from Rs20mn to

Rs40mn depending upon the location and type of screen). Renovation capex is

typically 30% of initial capex while renovation is typically done after a period of 6-9

years. We expect capex of Rs4,977mn for FY20E and Rs4,590mn for FY21E as

apart from routine organic capex (function of screens opened during a year), PVR

regularly engages into refurbishing existing matured properties which entails

renovation capex. The pay back of incremental investment on refurbished screen

is high and even better than existing screens as it enables the company to increase

ATP and F&B pricing.

ATP & F&B realization increased post renovation of Oberoi mall property

The Oberoi property in Mumbai was closed for renovation for 4-5 months in FY18.

However, post renovation, ATP was up by almost 15% while F&B realization was

up by almost 20%. In fact, even the Phoenix mills property in Mumbai has seen a

rise in ATP and F&B spends post renovation during FY19.

PVR


SPI acquisition strengthens presence in South

In August 2018, PVR acquired 72% stake in SPI Cinemas (leading player in South

India with major dominance in Tamil Nadu) for a consideration of Rs6.3bn.

Additional 1.6mn shares are expected be issued for residual 28% stake and the

transaction is expected to be completed by end of 2QFY20 (NCLT approval for

amalgamation has been received).

SPI Cinema is a leading player in South India with 75 screens as of 1QFY20. It

operates several brands like Sathyam, Escape, Palazzo, The Cinema and S2

Cinema which enjoy strong goodwill and customer affinity.

Acquisition of SPI Cinemas makes PVR the number one operator in top three cities

of South India (Chennai, Bangalore and Hyderabad). However, the film exhibition

market of South India is completely different than rest of India as 1) occupancy is

high than national average with a tendency to consume 2-3 different languages 2)

multiplex penetration is low at ~14-15% despite screen penetration being in the

region of ~45-50% which provides significant opportunity for growth and 3)

regulated ticket prices.

Southern India operates in a regulated price regime

State Price cap Comments

Karnataka Rs 200 The cap is exclusive of tax & only on weekdays for regular tickets. Premium/special formats screens are excluded from the cap

Tamil Nadu Rs120-150 The cap is exclusive of tax

Andhra Pradesh & Telangana Rs150-200 The cap is inclusive of tax

Source: Company, PL

We believe SPI acquisition would 1) drive profits (higher occupancy compensates

for regulated pricing, resulting in higher RoCE’s) as multiplex penetration is low. For

instance, in Tamil Nadu, the multiplex penetration is in single digits but it comprises

~20% of all screens in the country 2) reduce the content risk of PVR as reliance on

Bollywood movies will decline and 3) provide an ideal platform for further expansion

in Southern market. SPI Cinema’s reported revenue of Rs2,971mn in FY19

(consolidated from 18th Aug 2018) and EBITDA margin of ~18% over the last 5

years.

SPI’s screen network

States Number of screens

Tamil Nadu 42

Maharashtra 5

Kerala 2

Telangana 12

Karnataka 9

AP 5

Total 75

Source: Company, PL

Share of South rises in FY19 post SPI acquisition

Particulars FY15 FY16 FY17 FY18 FY19

Screens in South 105 125 125 155 258

As a % of total screens 22% 24% 22% 25% 33%

Source: Company, PL Note 1): Consolidated screen count

including acquisitions 2) Figures surpass the year end date by 15-

30 days.

PVR


Financial projections

We expect consolidated sales to grow at a CAGR of 17.4% over FY19-21E driven

by 1) 70/75 screen additions in FY20E/FY21E resulting in strong growth in ticketing

revenue (NBOC), F&B sales, in-cinema advertising and 2) consolidation of SPI

cinemas.

NBOC revenues to grow at a CAGR of 13% over FY19-21E

Highest ATP in the industry; growth to claw back from FY21E: PVR has highest

ATP in the industry due to 1) location advantage 2) quality interiors and 3) better

technology. Over the last five years, PVR’s gross ATP has grown at a CAGR of

4.8%. Typically, ATP growth is indexed to inflation. However, in FY19, ATP was flat

due to reduction in GST rate in Jan 2019. While we expect gross ATP to be flat in

FY20E as benefits of reduced rates would be passed on to the patrons, growth is

expected to claw back from FY21E.

Gross ATP to grow at a CAGR of 2.5% over FY19-21E

178

188

196

210

212

210

223

139

143

150

164

169

178

188

21.8%23.9% 23.6%

21.9%20.1%

15.5% 15.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

0

50

100

150

200

250


Gross ATP (Rs) Net ATP (Rs) Tax incidence on GBOC (RHS)

Source: Company, PL Note: Standalone data ex-of SPI

Occupancy to increase to 35.9% in FY21E: Given the low base in FY18 (strike in

South India & ban of Padmavaat in certain states), footfalls increased by 17.1%

YoY to 89.1mn in FY19. Led by strong line-up of movies in FY20, we expect footfalls

to grow at a CAGR of 7.2% over FY19-21E. We expect occupancy to settle down

at 35.4%/35.9% in FY20E/21E.

Footfalls/occupancy to increase to 102mn/35.9% in FY21E

59 70 75 76 89 95 102

31.2%

34.3%

32.9%

31.3%

34.9%35.4%

35.9%

28.0%

29.0%

30.0%

31.0%

32.0%

33.0%

34.0%

35.0%

36.0%

37.0%

-

20

40

60

80

100

120


Footfalls (In mn) Occupancy (RHS)


PVR


On the back of rising ATP and increasing footfalls amid rising screen additions we

expect standalone NBOC revenues (ex-of SPI) to increase at a CAGR of 13% over

FY19-21E.

F&B revenues to increase at a CAGR of 15.3% over FY19-

21E driven by SPH growth

Apart from offering a wide set of menu for food & drinks, PVR has taken numerous

initiatives to drive F&B consumption such as happy hours, deals day, discounted

pricing in morning shows and loyalty points amongst others. Nonetheless, as PVR’s

pricing is perceived to be higher SPH growth was flattish in FY19 (steps were being

taken to address the price value equation).

Apart from price hike, increasing the conversion rate (number of people buying F&B

products) and inducing patrons to increase their quantum of spends (buying a

basket of pop-corn as compared to a smaller one) also drives SPH growth. Given

steps taken to focus on other alternatives apart from price, we expect SPH to grow

at a CAGR of 7.4% over FY19-21E. While PVR’s SPH is highest in the multiplex

industry, we still believe that there is marginal room for expansion as global peers

operate at SPH/ATP ratio (indicates F&B spend per head as a proportion of ticket

price) of more than 45%. We expect the SPH/ATP ratio to increase from 43% in

FY19 to 47% in FY21E.

Gross SPH to grow at a CAGR of 7.4% over FY19-21E

64

72

81

89

91

98

105

59

67

73

80

85

91

98

8%

7%

10%10%

7% 7% 6%

0%

2%

4%

6%

8%

10%

12%

-

20

40

60

80

100

120


Gross SPH (Rs) Net SPH (Rs) Tax incidence on F&B (RHS)


PVR's SPH/ATP ratio is low as compared to global peers

25%

32%

43%45%

50% 50%

60% 61%

0%

10%

20%

30%

40%

50%

60%

70%

CJ CGV Majorcineplex

PVR Cineworld Kinepolis AMC Cinemark Cineplex

Source: Company, PL Note: PVR’s data is ex-of SPI

PVR


Overall, we expect F&B revenues to increase at a CAGR of 15.3% over FY19-21E.

Gross margins have declined from a peak of 76% in FY17 due to 1) disallowance

of input tax credit that came into force in Nov 2017 2) conscious decision taken by

the company to address the price/value equation. Given improved logistics and

inventory management, we expect F&B gross margin to expand 160bps to 74.9%

in FY21E.

Steps taken by PVR to address price/value equation

In 2QFY19, F&B pricing was lowered by 30-40% in Maharashtra. It also ran

two strategic promotions namely deals day & Happy Hours all over India.

In 3QFY19 call, PVR categorically stated to not take any price hike in F&B

In nutshell, during FY19, PVR revamped its product mix & pricing and focused on

the strike rate (proportion of people buying F&B products) rather than increasing

the price to drive SPH

F&B revenues to grow at a CAGR of 15.3% over FY19-21E

3,4

82

4,6

67

5,5

05

6,0

77

7,5

70

8,6

89

10,0

66

36.0%38%

41% 42% 43%46% 47%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

50.0%

-

2,000

4,000

6,000

8,000

10,000

12,000


F&B revenues (Rs mn) SPH/ATP ratio (RHS)


F&B gross margin to expand 160bps to reach 74.9% in FY21E

71.2%

75.1%

76.0%

74.5%

73.3%

74.8% 74.9%

68.0%

69.0%

70.0%

71.0%

72.0%

73.0%

74.0%

75.0%

76.0%

77.0%



PVR


Highest in-cinema advertising revenue amongst peers; a

key profitability driver

In-cinema advertising, as a medium, has been growing at a strong pace since it

offers captive audience with effective RoI measurement as consumer profile is

known. In-cinema advertising typically sells on perception and thus bigger the

star/movie, higher the advertising revenue (rates are typically higher by 75-100% if

the star-cast/movie is good). There are also some deals/clients that have footfall

linked payment plans as eyeballs are key in advertising business. (In such plans

the revenue is linked to footfalls)

PVR has the highest in-cinema advertising revenue amongst peers (Rs3.3bn as of

FY19). The rates are higher than peers as it has a wide screen portfolio (provides

better reach) and location advantage (~80% of the screens are in metro & tier 1

cities where propensity to spend is high). Mumbai, Delhi and Bangalore are key

markets and share of national advertisers is ~80%.

PVR has decided to limit the advertising volumes to 18 minutes in iconic cinema’s

and 22 minutes in non-iconic cinemas. Growth will be driven by hike in yields and

traction in off-screen advertisement (contributes ~10% to the ad revenues).

We expect advertising revenues to grow at a CAGR of 13.7% over FY19-21E driven

by increase in ad revenue per screen (3.8% CAGR over FY19-21E; yield hike and

off screen ad composition will be key here) and addition of new screens (9.1%

CAGR over FY19-21E). This is expected to be the biggest profitability driver as

advertising is a high gross margin business and there are no direct costs

attributable to it.

Ad sales to grow at CAGR of 13.7% over FY19-21

2,0

65

2,4

50

2,9

49

3,2

90

3,7

45

4,2

53

22.4%

18.6%20.3%

11.6%13.8% 13.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

FY16 FY17 FY18 FY19 FY20E FY21E

Advertising revenues (Rs mn) YoY gr. (RHS)


Ad revenue/screen to reach Rs5.4mn in FY21E

4.3 4.4 4.9 5.0 5.2

5.4 13.7%

2.8%

11.6%

2.4% 2.5%

5.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

-

1.0

2.0

3.0

4.0

5.0

6.0


Ad revenue per screen (Rs mn) YoY gr. (RHS)


PVR


SPI Cinema acquisition provides growth kicker

We expect SPI Cinema’s to report sales of Rs5,273mn/Rs6,471mn for

FY20E/FY21E backed by increasing number of screens, and rising ATP and SPH

(SPI’s SPH was at par with standalone SPH of PVR at Rs102 in 1QFY20). SPI

acquisition has provided an additional growth kicker to PVR.

KPI snapshot of SPI Cinema’s

Particulars FY19* FY20E FY21E

Screens 72 82 94

Footfalls (In mn) 10.2 18.2 21.5

YoY growth NM 18.1%

Occupancy 54% 52% 53%

ATP (Rs) 164 164 173

YoY growth NM 5.5%

SPH (Rs) 89 95 102

YoY growth NM 7.0%

Source: Company, PL *Consolidated from 18th Aug 2018

Revenue mix trend of SPI Cinema's

Particulars (Rs mn) FY19* FY20E FY21E

NBOC 1,268 2,324 2,893

YoY growth NM 24.5%

As a % of sales 42.7% 44.1% 44.7%

F&B sales 897 1,696 2,145

YoY growth NM 26.5%

As a % of sales 30.2% 32.2% 33.2%

Advertisement income 245 374 422

YoY growth NM 13.0%

As a % of sales 8.2% 7.1% 6.5%

Convenience fees 243 406 467

YoY growth NM 15.0%

As a % of sales 8.2% 7.7% 7.2%

Other revenues 318 473 544

YoY growth NM 15.0%

As a % of sales 10.7% 9.0% 8.4%

Total revenues 2,971 5,273 6,471

YoY growth NM 22.7%

Source: Company, PL *Consolidated from 18th Aug 2018

PVR


EBITDA margin to expand aided by rising share of non-ticketing revenue & SPI acquisition

We expect EBITDA margin to expand to 33.7% in FY20E (Ind-AS adjusted margin

of 20.1%) and 34.3% (Ind-AS adjusted margin of 21.3%) in FY21E backed by 1)

rising share of non-ticketing revenue and 2) SPI acquisition.

Share of non-ticketing revenue to rise to 45.6% in FY21E: The share of non-

ticketing revenue comprising of F&B sales, advertising and other operating income

is expected to rise from 45.1% in FY19 to 45.6% in FY21E and drive profits as it is

a high margin business as compared to traditional ticket sales.

SPI consolidation to aid margins: The SPI circuit has an exhibition margin closer

to 25%. The blended margins appear lower because SPI is also into distribution of

Tamil movies. The distribution business operates at lower operating margin of 8-

9% and is a working capital intensive business. As the SPI circuit scales,

management expects EBITDA to be at Rs1bn (non-Ind AS adjusted) in FY20E. As

seen below, SPI’s margin profile has seen an improvement post-acquisition as: -

Ticket prices in Chennai were increased by 40% in FY18 (constitutes 41% of

the screen count; highest market share)

Measures taken to boost SPH (in 1QFY20 SPI’s SPH was at par with the

standalone exhibition business of PVR) and

Potential synergies in the areas of F&B and advertising.

EBITDA margin profile of SPI Cinema’s

Pre-acquisition margin profile Post-acquisition margin profile

FY15 FY16 FY17 FY18 2QFY19 3QFY19 4QFY19 FY19* 1QFY20^

18.8% 17.7% 13.2% 19.5% 20.8% 22.5% 18.7% 20.8% 32.9%

Source: Company, Note: 1) *Consolidated from 18th Aug 2018 2)^Ind-AS adjusted EBITDA margin was 24.4%

Transition to Ind-AS 116: Since 1st April 2019, new AS 116 has come into effect

which requires operating leases to be capitalized on the BS. The present value of

future rentals is capitalized as right to use asset and corresponding lease liability is

created. Transition to Ind-AS 116 is expected to:-

Positively impact EBITDA as lease rentals (pre-EBITDA expense) will be

apportioned between depreciation and finance charge (post-EBITDA

expense).

Negatively impact PAT as rise in depreciation & finance cost is higher than

reduction in rental expenses since future rent escalations are front loaded (total

rent expenses including escalations are amortized over the lease term).

Enlarge BS size with asset capitalization of Rs32.5bn and corresponding

liability creation of Rs39.6bn (balance figure is adjusted in reserves) as of June

2019.

Impact of Ind AS 116 on financials

Balance Sheet Inc/Dec Amount P&L Inc/Dec Amount*

Assets (Right to use asset) Increase Rs32.5bn Rent expenses Decrease Rs1.2bn

Liabilities (Lease liability) Increase Rs39.6bn EBITDA Increase Rs1.2bn

Equity (Difference adjusted in reserves) Decrease Rs5.2bn (net of tax) Depreciation Increase Rs0.7bn

Interest Increase Rs0.9bn

PBT Decrease Rs0.4bn

PAT Decrease Rs0.3bn

Source: Company, PL *P&L figures pertain to 1QFY20

PVR


Rent expenses to fall post transition to Ind AS 116

Particulars (Rs mn) FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Rent expenses 2,736.7 3,207.9 3,782.4 4,053.5 4,694.7 856.0 939.0

Rent expenses per property 27.1 30.2 31.4 31.2 33.6 5.6 5.8

Rent expenses per screen 6.1 6.7 6.8 6.8 7.2 1.2 1.2

Rent expense as % of sales 19.8% 18.6% 18.9% 18.0% 17.1% 2.8% 2.7%


KPIs of PVR (Standalone ex-of SPI cinema's)

Key Parameters FY17 FY18 FY19 FY20E* FY21E*

Property 126 134 148 158 167

Screens 579 625 691 751 814

Screens added 63 46 66 60 63

Seats 1,32,026 1,39,509 1,51,151 1,60,480 1,70,780

Capacity (In mn) 232 247 263 285 302

Footfalls (In mn) 75 76 89 95 102

Occupancy 33% 31% 35% 35% 36%

Gross ATP (Rs) 196 210 212 210 223

YoY growth 4.3% 7.1% 1.0% -0.9% 6.0%

Gross F&B SPH (Rs) 81 89 91 98 105

YoY growth 12.5% 9.9% 2.2% 7.3% 7.5%

Revenue mix (Rs mn)

NBOC 11,256 12,481 15,088 16,908 19,278

YoY growth 13.1% 10.9% 20.9% 12.1% 14.0%

As a % of sales 56.2% 55.6% 54.9% 54.5% 54.4%

Net F&B 5,505 6,077 7,570 8,689 10,066

YoY growth 18.0% 10.4% 24.6% 14.8% 15.9%

As a % of sales 27.5% 27.1% 27.6% 28.0% 28.4%

Advertisement revenue 2,450 2,949 3,290 3,745 4,253

YoY growth 18.6% 20.3% 11.6% 13.8% 13.6%

As a % of sales 12.2% 13.1% 12.0% 12.1% 12.0%

Convenience income 582 597 1,060 1,162 1,205

YoY growth 74.7% 2.7% 77.6% 9.6% 3.7%

As a % of sales 2.9% 2.7% 3.9% 3.7% 3.4%

Other revenue from operations 227 358 458 537 621

YoY growth 21.8% 58.1% 27.9% 17.2% 15.7%

As a % of sales 1.1% 1.6% 1.7% 1.7% 1.8%

Total 20,020 22,461 27,467 31,041 35,423

Cost breakdown (Rs mn)

Movie exhibition cost 4,938 5,558 6,603 7,507 8,579

As a % of NBOC 43.9% 44.5% 43.8% 44.4% 44.5%

Consumption of F&B 1,322 1,547 2,018 2,194 2,527

As a % of F&B sales 24.0% 25.5% 26.7% 25.2% 25.1%

CAM & Electricity charges 2,408 2,563 2,869 3,226 3,600

Per property (Rs mn) 20.0 19.7 20.5 21.1 22.2

EBITDA (Rs mn) 2,943 3,856 5,161 10,298 11,809

EBITDA margin 14.7% 17.2% 18.8% 33.2% 33.3%

PAT (Rs mn) 929 1,214 1,728 1,091 1,918

PAT margin 4.6% 5.4% 6.3% 3.5% 5.4%

Source: Company, PL *Ind-AS 116 compliant projections

PVR


Valuations

Premium valuations justified; steady compounder

As seen below, the stock has been a steady compounding story since 2012 and

has delivered a CAGR of 32% over the last ten years buoyed by acquisition drive

that PVR undertook to catapult itself to number one position in the multiplex

industry. With M&A opportunities drying out, organic growth will be the key lever

from here on.

Stock has delivered a CAGR of 32% over the last 10 years

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Aug-0

9

Jan-1

0

Jul-10

Jan-1

1

Jul-11

Dec-1

1

Jun-1

2

Dec-1

2

Jun-1

3

Dec-1

3

May-1

4

Nov-1

4

May-1

5

Nov-1

5

May-1

6

Oct-16

Apr-

17

Oct-17

Apr-

18

Sep-1

8

Mar-

19

Sep-1

9

2012Acquired Cinemax

2016Acquired DT

Cinemas

2018SPI Cinemas

Source: PL, Ace Equity

We believe EV/EBITDA is the right valuation metric for multiplexes including PVR

given 1) leveraged balance sheets (funds needed for expansion; D/E of 0.9x as of

FY19) which results in higher finance cost and 2) capital intensive nature of the

industry which results in higher depreciation & amortization.

However, amid transition to Ind-AS 116 forward EBITDA is overstated (1QFY20

EBITDA was higher by Rs1.2bn). Thus, a comparison with past valuation history

becomes redundant. On the other hand, contrary to expectations, PAT is

understated (depreciation & finance cost impact is higher than rental expenses) as

future rent escalations are front loaded (total rent expenses including escalations

are amortized over the lease term). For instance, due to transition to Ind-AS 116,

PVR’s PBT was lower by Rs410mn in 1QFY20. Thus, even earnings based

valuation metric like P/E become irrelevant.

However, in order to facilitate comparison with past history we adjust our EBITDA

estimates and arrive at forward band charts. As seen below, over the last ten years,

PVR has traded at average one year forward EV/EBITDA multiple of 11.6x.

PVR


One-year forward EV/EBITDA band

9.0x

12.0x

15.0x

18.0x

21.0x

0

20,000

40,000

60,000

80,000

1,00,000

1,20,000

1,40,000

1,60,000

1,80,000

Ma

r-1

0

Sep

-10

Ma

r-1

1

Sep

-11

Ma

r-1

2

Sep

-12

Ma

r-1

3

Sep

-13

Ma

r-1

4

Sep

-14

Ma

r-1

5

Sep

-15

Ma

r-1

6

Sep

-16

Ma

r-1

7

Sep

-17

Ma

r-1

8

Sep

-18

Ma

r-1

9

Sep

-19

Source: Company, PL

One year forward EV/EBTIDA

10.1

19.7

11.6

12.0

5.4

0.0

5.0

10.0

15.0

20.0

25.0

Ma

r-1

0

Sep

-10

Ma

r-1

1

Sep

-11

Ma

r-1

2

Sep

-12

Ma

r-1

3

Sep

-13

Ma

r-1

4

Sep

-14

Ma

r-1

5

Sep

-15

Ma

r-1

6

Sep

-16

Ma

r-1

7

Sep

-17

Ma

r-1

8

Sep

-18

Ma

r-1

9

Sep

-19

EV/EBITDA (x) Peak(x) Avg(x) Median(x) Min(x)

Source: Company, PL

We assign a EV/EBITDA of multiple of 10x to our FY21E EBITDA of Rs14.6bn (Ind-

AS 116 compliant estimate). This translates into Ind-AS adjusted EV/EBITDA

multiple of 11.7x on Ind-AS adjusted FY21E EBITDA of Rs9bn which is in-line with

10-year average one year forward multiple of 11.6x and is justified given 1) PVR’s

market leadership 2) preferred brand positioning 3) strong organic screen pipeline

and 4) industry’s leading metrics. At our target multiple of 10x, we arrive at a TP of

Rs2,099 per share. Initiate with a ACCUMULATE.

EV/EBITDA valuation table

Particulars (Rs mn) FY21*

EV/EBITDA 10

EBITDA 14,599

EV 1,45,986

Less: Debt* 51,806

Add: Cash 3,938

Equity Value 98,118

No of shares 47

Per share value (Rs) 2,099

Source: Company, PL *Ind AS 116 compliant projections

PVR


Key tables & charts

Distribution sales to grow with entry in local films

13,703

17,310

20,506

22,574

30,284

36,247

41,894

1,253

1,591

1,624

1,307

1,108

1,200

1,260

- 10,000 20,000 30,000 40,000 50,000

FY15

FY16

FY17

FY18

FY19

FY20E

FY21E

(Rs mn)

Movie exhibition Movie production/distribution & gaming

Source: Company, PL

Ind-AS (Adj) EBITDA margin to be at 21% in FY21

2,0

08

2,9

24

3,1

36

4,0

18

5,8

63

7,4

05

9,0

55

13.6%15.8% 14.8%

17.2%19.0% 20.1% 21.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

2,000

4,000

6,000

8,000

10,000

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20E

FY

21E

Ind-AS Adj. EBITDA (Rs mn)

Ind-AS Adj. EBITDA margin (RHS)

Source: Company, PL

Ind-AS (Adj) PAT margin to rise to 8% in FY21E

128

986

958

1,2

47

1,8

36

2,5

75

3,4

07 0.9%

5.3%4.5%

5.3%6.0%

7.0%8.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

- 500

1,000 1,500 2,000 2,500 3,000 3,500 4,000

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20E

FY

21E

Ind-AS Adj. PAT (Rs mn)

Ind-AS Adj. PAT margin (RHS)

Source: Company, PL

Zee Maize’s sales CAGR was 71% over FY15-19

20 20

50

100

170

0

20

40

60

80

100

120

140

160

180


(Rs

mn

)

Source: Company, PL

PVR's ATP & SPH is lower than global peers

3.0

5.0

6.5 7

.5 8.1 8.6 9

.4

1.3 1.6

3.9

1.9

4.9

4.3 4.7

0.0

2.0

4.0

6.0

8.0

10.0

(US

$)

ATP SPH

Source: Company, PL

PVR has diverse ad partners across sectors

Pepsi Vijay Sales RADO

Oppo Welspun Myntra

OnePlus BYJUs Havells

Manyavar PAYTM LOREAL

TVS ICICI Pru Life JustDial

Louis Phillipe Jockey Peter England

Source: Company, PL Note: List is non exhaustive

PVR


Financials

Income Statement (Rs m)


Net Revenues 30,856 36,888 42,552 49,055

YoY gr. (%) 32.2 19.6 15.4 15.3

Cost of Goods Sold 9,407 11,016 12,611 14,523

Gross Profit 21,449 25,872 29,941 34,532

Margin (%) 69.5 70.1 70.4 70.4

Employee Cost 3,373 4,106 4,662 5,379

Other Expenses 12,213 9,338 10,680 12,005

EBITDA 5,863 12,427 14,599 17,148

YoY gr. (%) 45.9 112.0 17.5 17.5

Margin (%) 19.0 33.7 34.3 35.0

Depreciation and Amortization 1,913 5,075 5,447 5,985

EBIT 3,951 7,353 9,152 11,164

Margin (%) 12.8 19.9 21.5 22.8

Net Interest 1,280 5,402 5,659 6,279

Other Income 331 278 300 350

Profit Before Tax 3,002 2,229 3,793 5,235

Margin (%) 9.7 6.0 8.9 10.7

Total Tax 1,097 591 952 1,314

Effective tax rate (%) 36.5 26.5 25.1 25.1

Profit after tax 1,905 1,638 2,841 3,920

Minority interest 57 45 45 45

Share Profit from Associate (12) (11) (12) (13)

Adjusted PAT 1,836 1,582 2,784 3,862

YoY gr. (%) 46.6 (13.8) 76.0 38.7

Margin (%) 6.0 4.3 6.5 7.9

Extra Ord. Income / (Exp) - - - -

Reported PAT 1,836 1,582 2,784 3,862

YoY gr. (%) 47.3 (13.8) 76.0 38.7

Margin (%) 6.0 4.3 6.5 7.9

Other Comprehensive Income (130) (31) - -

Total Comprehensive Income 1,706 1,551 2,784 3,862

Equity Shares O/s (m) 47 47 47 47

EPS (Rs) 39.3 33.8 59.6 82.6

Source: Company Data, PL Research

Balance Sheet Abstract (Rs m)


Non-Current Assets

Gross Block 22,646 60,173 64,764 69,311

Tangibles 20,056 57,583 62,174 66,721

Intangibles 2,590 2,590 2,590 2,590

Acc: Dep / Amortization 5,754 10,829 16,276 22,260

Tangibles 5,157 10,231 15,678 21,663

Intangibles 598 598 598 598

Net fixed assets 16,892 49,344 48,488 47,051

Tangibles 14,900 47,352 46,496 45,059

Intangibles 1,992 1,992 1,992 1,992

Capital Work In Progress 2,208 2,208 2,358 2,508

Goodwill 11,116 11,116 11,116 11,116

Non-Current Investments 2,613 3,335 4,088 4,994

Net Deferred tax assets (848) (266) (19) 78

Other Non-Current Assets 2,220 2,675 3,443 4,317

Current Assets

Investments 11 11 11 11

Inventories 303 404 466 538

Trade receivables 1,839 2,426 2,914 3,494

Cash & Bank Balance 341 1,129 3,997 8,489

Other Current Assets 1,107 1,476 1,915 2,453

Total Assets 39,090 74,854 79,781 86,221

Equity

Equity Share Capital 467 467 467 467

Other Equity 11,928 6,325 9,016 12,785

Total Networth 12,395 6,793 9,483 13,252

Non-Current Liabilities

Long Term borrowings 10,188 50,295 50,754 51,209

Provisions 183 221 255 294

Other non current liabilities 1,850 1,881 2,085 2,207

Current Liabilities

ST Debt / Current of LT Debt 852 952 1,052 1,152

Trade payables 3,677 4,346 5,013 6,048

Other current liabilities 6,004 6,935 7,830 8,732

Total Equity & Liabilities 39,090 74,854 79,781 86,221


PVR


Cash Flow (Rs m)

Y/e Mar FY19 FY20E FY21E FY22E Year

PBT 2,990 2,218 3,781 5,222

Add. Depreciation 1,913 5,075 5,447 5,985

Add. Interest 1,198 5,402 5,659 6,279

Less Financial Other Income 331 278 300 350

Add. Other 45 (1,001) (917) (960)

Op. profit before WC changes 6,146 11,693 13,970 16,525

Net Changes-WC 2,984 (19) 116 384

Direct tax (834) (591) (952) (1,314)

Net cash from Op. activities 8,296 11,083 13,134 15,595

Capital expenditures (4,349) (37,527) (4,590) (4,547)

Interest / Dividend Income 27 - - -

Others (5,833) (942) (1,031) (1,209)

Net Cash from Invt. activities (10,154) (38,469) (5,622) (5,756)

Issue of share cap. / premium - - - -

Debt changes 2,570 40,208 559 555

Dividend paid (113) (93) (93) (93)

Interest paid (1,033) (5,402) (5,659) (6,279)

Others - (6,539) 549 470

Net cash from Fin. activities 1,424 28,174 (4,645) (5,348)

Net change in cash (434) 788 2,868 4,491

Free Cash Flow 3,935 (26,444) 8,544 11,048


Quarterly Financials (Rs m)

Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20

Net Revenue 7,086 8,431 8,376 8,804

YoY gr. (%) 27.6 51.3 43.2 26.4

Raw Material Expenses 2,193 2,508 2,534 2,707

Gross Profit 4,892 5,923 5,842 6,097

Margin (%) 69.0 70.3 69.7 69.2

EBITDA 1,240 1,643 1,608 2,786

YoY gr. (%) 35.4 61.9 70.3 103.0

Margin (%) 17.5 19.5 19.2 31.6

Depreciation / Depletion 448 514 549 1,259

EBIT 792 1,129 1,059 1,527

Margin (%) 11.2 13.4 12.6 17.3

Net Interest 298 379 395 1,314

Other Income 61 143 85 68

Profit before Tax 554 891 742 280

Margin (%) 7.8 10.6 8.9 3.2

Total Tax 212 337 265 103


Profit after Tax 342 554 477 177

Minority interest 12 36 11 15

Share Profit from Associates - - - -

Adjusted PAT 330 518 467 162

YoY gr. (%) 31.2 79.3 78.2 (69.0)

Margin (%) 4.7 6.1 5.6 1.8

Extra Ord. Income / (Exp) - - - -

Reported PAT 330 518 467 162

YoY gr. (%) 31.2 79.3 78.2 (69.0)

Margin (%) 4.7 6.1 5.6 1.8

Other Comprehensive Income (43) (72) 27 (31)

Total Comprehensive Income 287 446 494 131

Avg. Shares O/s (m) 47 47 47 47

EPS (Rs) 7.1 11.1 10.0 3.5


Key Financial Metrics


Per Share(Rs)

EPS 39.3 33.8 59.6 82.6

CEPS 80.2 142.4 176.1 210.7

BVPS 265.2 145.3 202.9 283.5

FCF 84.2 (565.8) 182.8 236.4

DPS 2.0 2.0 2.0 2.0

Return Ratio(%)

RoCE 16.9 12.7 14.9 17.0

ROIC 15.0 16.6 18.3 19.9

RoE 13.8 22.8 29.4 29.1

Balance Sheet

Net Debt : Equity (x) 0.9 7.4 5.0 3.3

Net Working Capital (Days) (18) (15) (14) (15)

Valuation(x)

PER 46.1 53.5 30.4 21.9

P/B 6.8 12.5 8.9 6.4

P/CEPS 22.6 12.7 10.3 8.6

EV/EBITDA 16.3 10.8 9.1 7.5

EV/Sales 3.1 3.7 3.1 2.6

Dividend Yield (%) 0.1 0.1 0.1 0.1



Rating: BUY | CMP: Rs338 | TP: Rs394

Playing a catch up game

We initiate coverage on INOL with a BUY rating given 1) strong number 2

position in film exhibition market (~21% screen market share) 2) renewed

focus on premium format screens (~9% of screen mix; aim to take it to ~10-

12%) and 3) aggressive screen addition plans (we expect 72/75 screens to be

added in FY20/21 after doubling the strength of the project team and creation

of a separate liaising team). We believe strategy to focus on metro/tier-1

markets (~63% of screen mix) will yield rich dividends and improve ATP &

SPH narrowing the gap with market leader PVR. Saturated nature of these

markets & high rental cost will make it difficult for competition to replicate

INOL’s premiumisation approach. Increasing share of ad revenue (share to

rise from 10.4% of sales in FY19 to 11.2% in FY21) and focus on premium

format screens are key margin levers. We expect sales/Ind-AS adjusted

EBITDA to grow at a CAGR of 14.8%/18.6% over FY19-21E driven by strong

growth in non-ticketing revenue. We assign EV/EBITDA of multiple of 8.5x

(Ind-AS adjusted multiple of 9x) to our FY21E EBITDA of Rs7.1bn (Ind-AS

adjusted estimate of Rs4.3bn) and arrive at a TP of Rs394. Initiate with a BUY.

Threat from OTT and contagion of local body tax are key risks to our call.

Emerging as a strong metro/tier 1 player: Out of the 82 screens (net of closure)

opened in FY19, ~29% were opened in metro areas. In FY20E, ~38% of the new

screens are expected to be opened in metro’s. Increasing focus on metro/tier-1

markets where propensity to spend is high is likely to drive ATP & SPH and narrow

the gap with market leader PVR.

Strong focus on super premium formats: As of August 2019, Inox had 52

premium screens constituting ~9% of the total screen portfolio and the target is to

increase the share to ~10-12% over the next few years. Increasing share of

premium screens will drive occupancy, ATP&SPH (For premium screens

ATP&SPH is 3.5x of regular screens).

Screen count to rise after strengthening the project team: Doubling the strength

of project team (from 25 to 50 people) and creating a separate liaising team (10

people) has led to improved turn-around time in execution & getting approvals

enabling Inox to add 82 new screens (highest ever new screen openings for the

industry in a year) in FY19. Given the changes made in project management team

and improved screen addition pipeline (visibility of 129 properties & 877 screens

beyond FY20E in place backed by signed agreements), we expect Inox to add 72

screens (21 screens already opened in 1QFY20) in FY20E and 75 screens in

FY21E.

Outlook & valuation: We value Inox at an EV/EBITDA of multiple of 8.5x (Ind-AS

adjusted multiple of 9x) to our FY21E EBITDA of Rs7.1bn (Ind-AS adjusted

estimate of Rs4.3bn) This is broadly in-line with one year forward multiple of 9.8x

since FY11 and is justified given 1) significant improvement in KPIs over the last

12-15 months 2) strong organic screen pipeline trajectory and 3) debt free BS (only

national chain which is net debt free). Initiate with a BUY and TP of Rs394.

Inox Leisure (INOL IN)

September 24, 2019

Company Report

Key Financials - Consolidated


Sales (Rs. m) 16,922 19,443 22,295 25,653

EBITDA (Rs. m) 3,092 6,125 7,188 8,421

Margin (%) 18.3 31.5 32.2 32.8

PAT (Rs. m) 1,393 1,238 1,774 2,288

EPS (Rs.) 13.6 12.1 17.3 22.3

Gr. (%) 3.4 (11.1) 43.3 29.0

DPS (Rs.) - - - -

Yield (%) - - - -

RoE (%) 13.9 22.2 24.1 23.7

RoCE (%) 20.6 12.8 14.4 15.8

EV/Sales (x) 2.1 2.9 2.5 2.1

EV/EBITDA (x) 11.4 9.2 7.7 6.3

PE (x) 24.9 28.0 19.5 15.1

P/BV (x) 3.6 6.2 4.7 3.6

Note: All estimates are IND-AS116 compliant unless otherwise stated

Key Data INOL.BO | INOL IN

52-W High / Low Rs.383 / Rs.188

Sensex / Nifty 39,090 / 11,603

Market Cap Rs.35bn/ $ 490m

Shares Outstanding 103m

3M Avg. Daily Value Rs.133.91m

Shareholding Pattern (%)

Promoter’s 52.12

Foreign 12.19

Domestic Institution 19.72

Public & Others 15.97

Promoter Pledge (Rs bn) -

Stock Performance (%)

1M 6M 12M

Absolute 32.1 14.8 42.5

Relative 24.0 12.1 34.4

Jinesh Joshi


Inox Leisure


Company overview

Incorporated in 1999, Inox Leisure Ltd (Inox) is the second largest film exhibition

company in India. It is a part of Inox Group which is diversified across industrial

gases, engineering plastics, refrigerants, chemicals and renewable energy. As of

August 2019, Inox has presence in 67 cities with 143 properties and 595 screens

translating into ~139,000 seats. Inox has a screen market share of ~21% as of Feb

2019 with a strong presence in the West (~42% of the screen network).

Over the years, Inox has grown strategically by adding screens organically and

making selective acquisitions. It kicked off the consolidation phase in multiplex

industry by acquiring Calcutta Cine Pvt Ltd (CCPL) in 2007. This was followed by

the acquisition of Fame India Limited, another multiplex player having nationwide

presence in May 2010. In August 2014, Inox acquired a third multiplex chain

Satyam Cineplex Ltd, thereby strengthening its presence as a significant player in

the Indian film exhibition space.

Key timeline of events for Inox

Year Event

1999 Date of incorporation

2006 Came out with an IPO

2007 Kicked off the consolidation drive by acquiring Calcutta Cine Pvt Ltd

2010 Acquired Fame India Ltd

2014 Acquired Satyam Cineplex Ltd

2018 Preferential allotment was done to promoters (stake increased to 52%) of 6.4mn shares. Funds raised (Rs1.6bn) used to reduce debt. Becomes the first national chain to be net debt free.

2019 Highest ever screen openings (82 in all) in the industry in a single year (FY19)

Source: Company, PL

Inox has a pan-India screen portfolio

Region Properties/Cinema's Screens Geographical mix of screens

Maharashtra 28 130 22%

Gujarat 20 81 14%

West Bengal 15 59 10%

Karnataka 12 49 8%

Rajasthan 13 47 8%

Andhra Pradesh 8 33 6%

UP 8 31 5%

Tamil Nadu 5 31 5%

MP 5 22 4%

Haryana 6 19 3%

Telangana 3 19 3%

Delhi 5 16 3%

Goa 4 14 2%

Odisha 4 14 2%

Punjab 2 10 2%

Chhattisgarh 2 8 1%

Kerala 1 6 1%

Jharkhand 1 4 1%

Assam 1 2 0%

Total 143 595

Source: Company, PL Note: 1) Data as of August 2019, 2) Includes 8 properties (29 screens and 7,370 seats) on

management fee basis

Inox Leisure


Story in charts

Ad revenue share/ticket to rise to 11% in FY21 (Rs)

134 133 139 151 156 164 172

46 50 5357

7075

81

20 17 1826

2831

34

17 17 1719

1717

16

218 217 227

253271

287304

0

50

100

150

200

250

300


NBOC Net F&B Ad revenue Other operating revenue

Source: Company, PL

F&B share/screen to rise to 27% in FY21 (Rs mn)

15.9 18.1 17.1 16.7 18.2 18.2 18.5

5.56.7 6.5 6.4

8.2 8.3 8.72.4

2.32.2 2.9

3.3 3.4 3.6

2.1

2.32.1 2.1

2.0 1.9 1.8

26

2928 28

32 32 33

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0


NBOC Net F&B Ad revenue Other operating revenue

Source: Company, PL

EBITDA/ticket to rise to Rs98 in FY21E

30 35

27

39

49

90 98

-

20

40

60

80

100

120


(Rs

)

Source: Company, PL

Footfall/screen volatile, driven by content

1,1

8,5

29

1,3

5,2

75

1,2

2,4

62

1,1

0,7

53

1,1

6,9

32

1,1

0,9

43

1,0

7,2

20

-

20,000

40,000

60,000

80,000

1,00,000

1,20,000

1,40,000

1,60,000


Source: Company, PL

Average screens/property inching up

3.9 3.93.9

4.04.1

4.2

4.4

3.6

3.7

3.8

3.9

4.0

4.1

4.2

4.3

4.4

4.5


Source: Company, PL

Rent cost/screen to fall post Ind AS 116 (Rs mn)

1.9 2.0 2.0 2.2 2.2 2.3

4.1 4.2 4.2 4.7

0.6 0.7

4.3 4.0 3.9 4.0

4.0 4.0

-

2.0

4.0

6.0

8.0

10.0

12.0


Employee cost Rent CAM, Power & Fuel & R&M

Source: Company, PL

Inox Leisure


Focus on metro/tier 1 markets & premium formats

Emerging as strong metro/tier 1 player

As of August 2019, Inox has presence in 67 cities with 143 properties and 595

screens translating into ~139,000 seats. It is the second largest player in multiplex

industry with a screen market share of ~21%. While Inox has a pan-India screen

portfolio, it has strong presence in West (forms 42% of the screen mix). Over the

years, Inox has created an unmatched presence in tier 2/3 markets which are under

penetrated to a large extent. Inox has benefitted from this move largely given 1)

rising share of middle & affluent class in these markets and 2) rising content

diversity (tendency to consume regional content is high in tier 2/3 markets).

However, in FY19, focus to expand in metro/tier 1 markets was clearly visible. Out

of the 82 screens (net of closure) opened in FY19, ~29% were opened in metro

areas (including renovation of existing properties the share rises to ~39%). Further,

in FY20E, ~38% of the screens are expected to be opened in metros. We believe

renewed focus on metro markets (Inox was traditionally deemed to be a tier 2/3

market player) where propensity to spend is high is likely to improve ATP & SPH

and narrow the gap with market leader PVR.

West constitutes 42% of Inox’s screen mix

Region Screen count Screen mix

East 87 15%

West 247 42%

North 123 21%

South 138 23%

Total 595

Source: Company, PL Note: Data as of August 2019

Metro/tier 1 markets constitute 63% of Inox's screen mix as of FY19

Market type No of screens Screen mix No of properties Property mix No of seats Seats mix

Metro 218 38% 47 34% 49,583 37%

Tier 1 143 25% 34 24% 34,776 26%

Tier 2 119 21% 31 22% 29,122 21%

Tier 3 72 13% 20 14% 16,821 12%

Tier 4 22 4% 7 5% 5,284 4%

Total 574 139 1,35,586

Source: Company, PL

We believe Inox’s standing as a strong number two player will remain intact given:

1) early mover advantage in tier 2/3 markets which are under penetrated, 2)

renewed focus on expanding in metro/tier 1 markets (difficult for competition to

replicate given saturated nature of these markets as availability of properties is low),

3) drying M&A opportunities as consolidation exercise is more or less over (top 4

players have already cornered 79% of the multiplex screen count) and 4)

aggressive organic expansion plans.

Inox Leisure


Strong focus on premium format screens

Inox has carved out a niche for itself by focusing more on premium screens with

latest technology in metro/tier 1 markets, over the last two years. Premium screens

are not only technologically advanced (dolby stereo, digital cinema, 4K screening

etc) but also have plush interiors and luxury seating which redefines cinema viewing

experience for patrons.

Inox’s premium screen formats includes Insignia, IMAX, Onyx, MX (4D), BIGPIX,

CLUB, Kiddles and ScreenX. As of August 2019, Inox had 52 premium screens

constituting ~9% of the total screen portfolio (PVR’s premium screen count is

~10%). Management intends to increase this share to ~10-12% over the next few

years. ATP & SPH for premium screens is ~3.5x of regular screens and hence rising

share is expected to be a key factor driving profitability.

Inox’s premium screen portfolio overview

Premium screen format Brief overview Total screens

Insignia-Premium 7 star movie viewing experience 31

Insignia Similar to above 8

IMAX Giant screen clubbed with digital format. High end technology 5

Onyx LED screen technology with improved contrast ratio & visual quality 1

MX(4D) In-cinema 4D effects like moving seats 1

ScreenX 270 degree viewing experience on 3 walls (provides panoramic view) 1

Kiddles Kids format 2

BIGPIX Large screen experience 1

CLUB Affordable luxury 2

Total 52

Source: Company, PL Note: Data as of August 2019

Target is to increase premium screen share to ~10-12%

Particulars FY18 FY19 1QFY20* Target

Premium screen count 28 ~45-50 52 The aim is to increase the share to ~10-12% of the total screen count over the next few years Premium screens as a % of total screens 5.7% ~8-9% 8.7%

Source: Company, PL * Figures surpass quarter end date by 15-30 days

Inox Leisure


Improved execution increases screen additions

Buoyed by organic as well as inorganic growth, Inox’s screen count has grown at a

CAGR of 19.1% over FY10-19. Inorganic growth was led by 2 acquisitions viz;

Fame (97 screens) in FY11 and Satyam Cineplex (38 screens) in FY15 over the

last 10 years. On the organic front, Inox’s performance was subdued with screen

additions of 48/24 in FY17/FY18 respectively. However, FY19 saw a big turnaround

with 82 screen openings (highest ever openings in the industry in a year) led by:-

Doubling the strength of project team from 25 to 50 people which streamlined

the ordering process relating to design, amenities & aesthetics

Creating a separate liaising team (10 people) which led to improved turn-

around time in execution & getting approvals.

Furthermore, we expect Inox to add 72 screens (management guidance of 80

screens) in FY20E and 75 screens in FY21E aiding it to take the total screen count

to 700 within the next two years.

Inox's screen count to increase at a CAGR of 12.1% over FY19-21E

11

9

142

257

279

310

334

420

468

492

574

646

721

97

38

0

100

200

300

400

500

600

700

800

FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E

Own Screens Acquisitions

Acquired Fame

Acquired Satyam Cineplex

Source: Company, PL

Inox Leisure


Robust screen addition pipeline backed by signed agreements

Location Properties Screens Seats

Lucknow 1 4 803

Vadodara 1 5 976

Bangalore 1 4 756

Hyderabad 1 8 1,691

Openings till 1QFY20 4 21 4,226

Gurugram 2 8 970

Kolkatta 1 2 342

Bengaluru 1 5 629

Gorakhpur 1 4 761

Lucknow 2 9 1,817

Jalandhar 1 3 822

Indore (existing) - 6 403

Pune 1 5 1,160

Delhi 2 6 498

Tumkur 1 5 1,061

Vijayawada 1 3 1,022

Salem 1 3 803

Total openings/additions expected in FY20 18 80 14,514

Grand total as of FY20E 157 654 1,50,085

Additions post FY20E 129 877 1,61,427

Leading to 286 1,531 3,11,512

Source: Company, PL

Average capex per screen is in the range of Rs25-30mn (varies depending upon

the location and type of screen). Renovation capex is typically 30% of initial capex

and refurbishment is done after a period of 6-9 years. We expect capex of

Rs2,743mn/Rs2,919mn for FY20E/FY21E. Routine capex, which is a function of

screens opened during a year is expected to be at Rs2,160mn/Rs2,250mn while

refurbishment/renovation capex is expected to be at Rs583mn/Rs669mn

respectively for FY20E/21E.

Inox Leisure


Financial projections

We expect consolidated sales to grow at a CAGR of 14.8% over FY19-21E driven

by strong growth in exhibition business, F&B sales and in-cinema advertising.

NBOC sales to grow at a CAGR of 13.8% over FY19-21E

ATP growth to claw back from FY21E: Inox’s gross ATP has grown at a CAGR

of 4.8% over the last five years. Except for FY19, where-in gross ATP was flat as

benefits of reduced GST were passed on to the patrons, Inox’s gross ATP has risen

at a steady pace in the past due to increasing number of premium screens and

improved focus on technology. For instance, Inox has continuously invested in

upcoming technologies and has come up with high end screens like Laserplex,

MX4D, ScreenX, and IMAX which have higher ATP. While we expect gross ATP to

be flat in FY20E as benefits of reduced rates would be passed on to the patrons,

growth is expected to claw back from FY21E.

Gross ATP to grow at a CAGR of 2.4% over FY19-21E

164

170

178

193

197

197

206

134

133

139

151

156

164

172

18.2%

21.5% 21.8% 22.0%20.8%

16.5% 16.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

0

50

100

150

200

250


Gross ATP (Rs) Net ATP (Rs) Tax incidence on GBOC (RHS)

Source: Company, PL

Occupancy to increase to 28.1% in FY21E: In FY17, footfalls were flat due to

poor content quality. However, in FY18, footfall growth was impacted due to 1)

strike in South India 2) ban of the movie ‘Padmavaat’ in certain states (the movie

was not played in 111 screens of Inox). Total footfalls lost in FY18 due to these

exceptional events was 2.4mn. Given the low base of FY18 and strong content,

footfalls increased 17.3% YoY to 62.5mn in FY19. Given the strong line-up of

movies, we expect footfalls to grow at a CAGR of 8.3% over FY19-21E.

Accordingly, we expect occupancy to be at 28.3%/28.1% in FY20E/21E.

Inox Leisure


Footfalls to increase to 73.3mn in FY21E

41.1

53.4

53.7

53.3

62.5

67.7

73.3

25%

29%

28%

26%

28%28% 28%

23%

24%

25%

26%

27%

28%

29%

30%

0

10

20

30

40

50

60

70

80


Footfalls (In mn) Occupancy (RHS)

Source: Company, PL

On the back of rising ATP and increasing footfalls amid rising screen additions we

expect NBOC revenues to increase at a CAGR of 13.8% over FY19-21E.

Refreshed menu & increasing point of sales to drive F&B

Inox’s F&B revenues have grown at a CAGR of 21.8% over FY14-19 driven by

numerous initiatives to drive consumption such as: -

Customizing menu & offering wide variety of snack combos to customers

Presenting interactive menu options

Launching butler on call service, automatic kiosks and food app

Increasing point of sales and offering better convenience (resulted in

increasing quantum of F&B spends).

All these measures coupled with calibrated price hikes have increased the SPH to

Rs74 (12.1% YoY growth) and SPH/ATP ratio to 38% in FY19 (5-year average ex-

of FY19 was 34%). We expect SPH to grow at a CAGR of 8.3% over FY19-21E

while the SPH/ATP ratio is expected to increase from 38% in FY19 to 42% in

FY21E.

Gross SPH to grow at a CAGR of 8.3% over FY19-21E

55

58

62

66

74

80

87

46

50

53

57

70

75

81

15.5%14.2% 14.7%

13.0%

5.7% 6.0% 6.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

0

10

20

30

40

50

60

70

80

90

100


Gross SPH (Rs) Net SPH (Rs) Tax incidence on F&B (RHS)

Source: Company, PL

Inox Leisure


Refreshed menu with wide F&B offerings

Source: Company, PL

We thus expect F&B revenues to increase at a CAGR of 17.0% over FY19-21E.

Gross margins have declined from an average of ~75-76% in last 3 years to 74.2%

in FY19 due to disallowance of input tax credit that came into force in Nov 2017.

However, amid improved variety of premium F&B offerings, we expect F&B gross

margin to expand 80bps to 75.0% in FY21E.

F&B sales to grow at CAGR of 17% over FY19-21E

1,9

10

2,6

56

2,8

41

3,0

60

4,3

60

5,0

91

5,9

69

34% 34% 35% 34%38%

41% 42%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000


F&B revenues (Rs mn) SPH/ATP ratio (RHS)

Source: Company, PL

F&B gross margin to rise to 75.0% in FY21E

74.1%

75.1%

76.0%

75.7%

74.2%

74.8%75.0%

73.0%

73.5%

74.0%

74.5%

75.0%

75.5%

76.0%

76.5%


Source: Company, PL

Marketing strategy revamp to sustain ad momentum

Inox’s ad revenue per screen significantly lagged PVR (~35% lower in FY19) in the

past. However, the gap has narrowed, as Inox has taken corrective measures like:-

Strengthening the in-house advertising team

Working with few agencies and directly with advertisers for better discount

Shedding off low paying advertisers and focusing on yield

Signing strategic alliances with ad aggregators

Focusing on shorter duration deals

Engaging with media planners

Amid renewed focus on yield, one price hike was taken in FY16 and two major hikes

in FY17 (~14-15% hike in 1QFY17 and ~20% hike in 2QFY17) thus resetting the

base. As a result, advertisement revenue increased by 44.4% in FY18 and 26.7%

in FY19 (growth was driven by both rise in yields and volumes).

We expect advertising revenues to grow at a CAGR of 18.9% over FY19-21E driven

by increase in ad revenue per screen (5.1% CAGR over FY19-21E; yield hike and

volumes will be key here) and addition of new screens (12.1% CAGR over FY19-

21E).

Inox Leisure


Ad sales to grow at CAGR of 19% over FY19-21E

91

0

2,0

86

1,3

89

1,7

60

2,0

86

2,4

88

11.7%

18.5%

44.4%

26.7%

18.5% 19.2%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

-

500

1,000

1,500

2,000

2,500

3,000


Advertising revenues (Rs mn) YoY gr. (RHS)

Source: Company, PL

Ad revenues/screen growing steadily

2.3 2.2

2.9

3.3 3.43.6

-1.9%-4.9%

31.6%

14.1%

3.8%6.5%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0


Ad revenue per screen (Rs mn) YoY gr. (RHS)

Source: Company, PL

EBITDA margin to expand aided by rising share of non-ticketing revenue

We expect EBITDA margin to expand to 31.5% in FY20E (Ind-AS adjusted margin

of 18.5%) and 32.2% (Ind-AS adjusted margin of 19.5%) in FY21E backed by rising

share of non-ticketing revenue.

Share of non-ticketing revenue to rise to 43.3% in FY21E: The share of non-

ticketing revenue comprising of F&B sales, advertising and other operating income

is expected to rise from 42.4% in FY19 to 43.3% in FY21E which will aid in margin

expansion (high margin business).

Transition to Ind-AS 116: Since 1st April 2019, new AS 116 has come into effect

which requires operating leases to be capitalized on the BS. The present value of

future rentals is capitalized as right to use asset and corresponding lease liability is

created. Transition to Ind-AS 116 is expected to:-

1) Positively impact EBITDA as lease rentals (pre-EBITDA expense) will be

apportioned between depreciation and finance charge (post-EBITDA expense) 2)

Negatively impact PAT as rise in depreciation & finance cost is higher than

reduction in rental expenses since future rent escalations are front loaded (total rent

expenses including escalations are amortized over the lease term). 3) Enlarge BS

size with asset capitalization of Rs16.6bn and corresponding liability creation of

Rs21.9bn (balance figure is adjusted in reserves & DTA)

Impact of Ind AS 116 on financials

Balance Sheet Inc/Dec Amount P&L Inc/Dec Amount*

Assets (Right to use asset) Increase Rs16.6bn Rent expenses Decrease Rs613.5mn

Liabilities (Lease lialibility) Increase Rs21.9bn EBITDA Increase Rs613.5mn

Equity (Difference adjusted in reserves) Decrease Rs5.3bn Depreciation Increase Rs349.1mn

Interest Increase Rs482.7mn

PBT Decrease Rs218.3mn

PAT Decrease Rs142.0mn

Source: Company, PL *P&L figures as of 1QFY20

Inox Leisure


Rent expenses to fall post transition to Ind AS 116

Particulars (Rs mn) FY16 FY17 FY18 FY19 FY20E FY21E

Rent expenses 1,629 1,858 2,038 2,493 360 444

Rent expenses per property 16.1 16.7 16.9 18.9 2.5 2.8

Rent expenses per screen 4.1 4.2 4.2 4.7 0.6 0.7

Rent expense as % of sales 14.0% 15.2% 15.1% 14.7% 1.8% 2.0%

Source: Company, PL

As seen in the above table, Inox’s average annual rent expense per property/screen

over the last 4 years is Rs17.2mn/Rs4.3mn respectively. Post capitalization of

leases the rental expense will cease to exist (only short term rentals will be

expensed) and reported EBITDA will increase.

KPIs of Inox

Key Parameters FY17 FY18 FY19 FY20E FY21E

Property 119 123 139 151 162

Screens 468 492 574 646 721

Screens added 48 24 82 72 75

Seats 1,18,947 1,21,573 1,35,586 1,49,097 1,62,897

Capacity (In mn) 205 219 236 260 285

Footfalls (In mn) 54 53 63 68 73

Occupancy 28.0% 26.0% 28.0% 28.3% 28.1%

Gross ATP (Rs) 178 193 197 197 206

YoY growth 4.7% 8.4% 2.1% -0.2% 5.0%

Gross F&B SPH (Rs) 62 66 74 80 87

YoY growth 6.9% 6.5% 12.1% 8.0% 8.5%

Revenue mix (Rs mn)

NBOC 7,481 8,022 9,750 11,126 12,633

YoY growth 5.0% 7.2% 21.5% 14.1% 13.5%

As a % of sales 61.3% 59.5% 57.6% 57.2% 56.7%

Net F&B 2,841 3,060 4,360 5,091 5,969

YoY growth 7.0% 7.7% 42.5% 16.8% 17.2%

As a % of sales 23.3% 22.7% 25.8% 26.2% 26.8%

Advertisement revenue 962 1,389 1,760 2,086 2,488

YoY growth 5.7% 44.4% 26.7% 18.5% 19.2%

As a % of sales 7.9% 10.3% 10.4% 10.7% 11.2%

Other revenue from operations 923 1,010 1,050 1,139 1,205

YoY growth 1.3% 9.4% 4.0% 8.5% 5.8%

As a % of sales 7.6% 7.5% 6.2% 5.9% 5.4%

Total 12,207 13,481 16,920 19,443 22,295

Cost breakdown (Rs mn)

Movie exhibition cost 3,453 3,673 4,442 5,049 5,710

As a % of NBOC 46.2% 45.8% 45.6% 45.4% 45.2%

Consumption of F&B 681 744 1,125 1,296 1,492

As a % of F&B sales 24.0% 24.3% 25.8% 25.2% 25.0%

CAM, Power & Fuel and RM 1,745 1,882 2,119 2,448 2,734

Per property (Rs mn) 15.7 15.6 16.1 16.9 17.5

EBITDA (Rs mn) 1,461 2,104 3,092 6,125 7,188

EBITDA margin 12.0% 15.6% 18.3% 31.5% 32.2%

PAT (Rs mn) 306 1,146 1,335 1,238 1,774

PAT margin 2.5% 8.5% 7.9% 6.4% 8.0%

Source: Company, PL

Inox Leisure


Valuations

Valuation gap with market leader to narrow

As seen below, the valuation gap of Inox has narrowed with PVR due to

improvement in key performance indicators like ATP and SPH over the last few

years.

Inox’s valuation gap is narrowing with PVR

10.1

7.3

0.0

5.0

10.0

15.0

20.0

25.0

Mar-

11

Sep-1

1

Mar-

12

Sep-1

2

Mar-

13

Sep-1

3

Mar-

14

Sep-1

4

Mar-

15

Sep-1

5

Mar-

16

Sep-1

6

Mar-

17

Sep-1

7

Mar-

18

Sep-1

8

Mar-

19

Sep-1

9

EV

/EB

TID

A (x

)

Inox Leisure PVR

Valuation gap narrowing

Source: Company, PL

We value Inox on EV/EBITDA valuation metric. However, due to transition to Ind-

AS 116 forward EBITDA is overstated (1QFY20 EBITDA was higher by Rs614mn).

Thus, a comparison with past valuation history becomes redundant. On the other

hand, contrary to expectations, PAT is understated (depreciation & finance cost

impact is higher than rental expenses) as future rent escalations are front loaded

(total rent expenses including escalations are amortized over the lease term). For

instance, due to transition to Ind-AS 116, Inox’s PBT was lower by Rs218mn in

1QFY20. Thus, even earnings based valuation metric like P/E become irrelevant.

However, in order to facilitate comparison with past history we adjust our EBITDA

estimates and arrive at forward band charts. As seen below, since FY11, Inox has

traded at average one year forward EV/EBITDA multiple of 9.8x.

One year forward EV/EBITDA

5.0x

8.0x

11.0x

14.0x

17.0x

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

Ma

r-1

1

Sep

-11

Ma

r-1

2

Sep

-12

Ma

r-1

3

Sep

-13

Ma

r-1

4

Sep

-14

Ma

r-1

5

Sep

-15

Ma

r-1

6

Sep

-16

Ma

r-1

7

Sep

-17

Ma

r-1

8

Sep

-18

Ma

r-1

9

Sep

-19

Source: Company, PL

Inox Leisure


One year forward EV/EBITDA band chart

17.3

9.8

5.1

7.3

0.0

5.0

10.0

15.0

20.0

Ma

r-1

1

Sep

-11

Ma

r-1

2

Sep

-12

Ma

r-1

3

Sep

-13

Ma

r-1

4

Sep

-14

Ma

r-1

5

Sep

-15

Ma

r-1

6

Sep

-16

Ma

r-1

7

Sep

-17

Ma

r-1

8

Sep

-18

Ma

r-1

9

Sep

-19

EV/EBITDA (x) Peak(x) Avg(x) Median(x) Min(x)

Source: Company, PL

We assign a EV/EBITDA of multiple of 8.5x to our FY21E EBITDA of Rs7.1bn. This

translates into Ind-AS adjusted EV/EBITDA multiple of 9x on Ind-AS adjusted

FY21E EBITDA of Rs4.3bn which is in-line with average one year forward multiple

of 9.8x since FY11 and is justified given 1) significant improvement in KPIs over the

last 12-15 months 2) strong organic screen pipeline trajectory and 3) debt free BS

(only national chain which is net debt free)

EV/EBITDA valuation table

Particulars FY21*

EV/EBITDA 8.5

EBITDA 7,188

EV 61,097

Less: Debt 23,519

Add: Cash 2,950

Equity Value 40,527

No of shares 103

Per share value (Rs) 394

Source: Company, PL *Ind AS 116 compliant projections

At our target multiple of 8.5x, we arrive at a TP of Rs394 per share. Initiate with a

BUY.

Inox Leisure


Key tables & charts

Ind-AS (Adj) EBITDA margin to be at 20% in FY21

1,2

28

1,8

91 1,4

61

2,1

04

3,0

92

3,5

98

4,3

51

13.7% 16.3% 12.0% 15.6%18.3% 18.5% 19.5%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

-

1,000

2,000

3,000

4,000

5,000

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20E

FY

21E

Ind-AS Adj. EBITDA (Rs mn)

Ind-AS Adj. EBITDA margin (RHS)

Source: Company, PL

Ind-AS (Adj) PAT margin to rise to 9.6% in FY21E

200

810

306

1,1

46

1,3

35

1,8

18

2,1

41

2.2%

7.0%

2.5%

8.5% 7.9%9.3% 9.6%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

-

500

1,000

1,500

2,000

2,500

FY

15

FY

16

FY

17

FY

18

FY

19

FY

20E

FY

21E

Ind-AS Adj. PAT (Rs mn)

Ind-AS Adj. PAT margin (RHS)

Source: Company, PL

Average cost per operating screen is ~Rs16mn

2.0 2.0 2.1 2.2 2.4

4.1 4.4 4.6 4.7 5.1

4.1 4.6 4.3 4.3 4.3

4.3 4.8 5.3 4.8 5.1

14.6 15.7 16.2 15.9

16.8

-

3.0

6.0

9.0

12.0

15.0

18.0


(Rs

mn

)

Employee benefits Lease rental & hire charges

CAM, power & fuel and R&M Other overheads

Source: Company, PL

West formed 42% of screen mix in FY19

18% 16% 15% 15% 15%

36% 40% 44% 45% 42%

22% 20% 20% 21% 21%

24% 23% 21% 20% 22%

0%

20%

40%

60%

80%

100%


East West North South

Source: Company, PL

North formed 21% of seats mix in FY19

18% 17% 16% 15% 16%

39% 42% 44% 44% 42%

21% 20% 20% 21% 21%

22% 21% 20% 19% 21%

0%

20%

40%

60%

80%

100%


East West North South

Source: Company, PL

Inox has diverse set of ad partners

SBI Havells Star

Kotak LG Sony

LIC Samsung AirBNB

ITC Honda PayTM

HUL Hero Iphone

P&G Toyota OnePlus

Reliance Kajaria Raymond

Source: Company, PL Note: The list is not exhaustive

Inox Leisure


Financials

Income Statement (Rs m)


Net Revenues 16,922 19,443 22,295 25,653

YoY gr. (%) 25.5 14.9 14.7 15.1

Cost of Goods Sold 5,567 6,344 7,202 8,232

Gross Profit 11,355 13,099 15,093 17,421

Margin (%) 67.1 67.4 67.7 67.9

Employee Cost 1,152 1,335 1,538 1,770

Other Expenses 7,112 5,639 6,366 7,230

EBITDA 3,092 6,125 7,188 8,421

YoY gr. (%) 46.9 98.1 17.4 17.2

Margin (%) 18.3 31.5 32.2 32.8

Depreciation and Amortization 955 2,459 2,742 3,104

EBIT 2,137 3,666 4,446 5,317

Margin (%) 12.6 18.9 19.9 20.7

Net Interest 237 2,089 2,229 2,437

Other Income 149 132 156 180

Profit Before Tax 1,991 1,709 2,372 3,059

Margin (%) 11.8 8.8 10.6 11.9

Total Tax 656 471 598 771


Profit after tax 1,335 1,238 1,774 2,288

Minority interest - - - -

Share Profit from Associate - - - -

Adjusted PAT 1,393 1,238 1,774 2,288

YoY gr. (%) 10.3 (11.1) 43.3 29.0

Margin (%) 8.2 6.4 8.0 8.9

Extra Ord. Income / (Exp) (58) - - -

Reported PAT 1,335 1,238 1,774 2,288

YoY gr. (%) 16.5 (7.3) 43.3 29.0

Margin (%) 7.9 6.4 8.0 8.9

Other Comprehensive Income 1 (11) - -

Total Comprehensive Income 1,336 1,227 1,774 2,288

Equity Shares O/s (m) 103 103 103 103

EPS (Rs) 13.6 12.1 17.3 22.3


Balance Sheet Abstract (Rs m)


Non-Current Assets

Gross Block 12,158 31,537 34,460 37,575

Tangibles 11,947 31,320 34,239 37,349


Acc: Dep / Amortization 3,109 5,568 8,310 11,414

Tangibles 3,009 5,467 8,210 11,314


Net fixed assets 9,049 25,969 26,150 26,161

Tangibles 8,939 25,853 26,030 26,035


Capital Work In Progress 637 637 637 637

Goodwill 175 175 175 175

Non-Current Investments 1,758 2,009 2,302 2,623

Net Deferred tax assets 529 461 640 826

Other Non-Current Assets 1,127 1,263 1,491 1,757

Current Assets

Investments 6 6 6 6

Inventories 122 160 183 211

Trade receivables 882 1,065 1,283 1,546

Cash & Bank Balance 137 1,352 2,968 5,316

Other Current Assets 312 350 389 404

Total Assets 14,788 33,508 36,296 39,741

Equity

Equity Share Capital 1,026 1,026 1,026 1,026

Other Equity 8,612 4,560 6,334 8,623

Total Networth 9,638 5,586 7,360 9,649

Non-Current Liabilities

Long Term borrowings 550 22,881 23,319 23,786

Provisions 127 136 156 180

Other non current liabilities 690 797 892 1,000

Current Liabilities

ST Debt / Current of LT Debt 200 200 200 200

Trade payables 1,596 1,705 1,955 2,249

Other current liabilities 1,897 2,109 2,315 2,574

Total Equity & Liabilities 14,788 33,508 36,296 39,741


Inox Leisure


Cash Flow (Rs m)

Y/e Mar FY19 FY20E FY21E FY22E Year

PBT 1,335 1,709 2,372 3,059

Add. Depreciation 955 2,459 2,742 3,104

Add. Interest 237 2,089 2,229 2,437

Less Financial Other Income 149 132 156 180

Add. Other 551 (1) (351) (357)

Op. profit before WC changes 3,077 6,256 6,993 8,243

Net Changes-WC 88 (144) (63) (40)

Direct tax (369) (471) (598) (771)

Net cash from Op. activities 2,797 5,641 6,332 7,432

Capital expenditures (2,492) (19,378) (2,924) (3,115)

Interest / Dividend Income 32 - - -

Others 104 - - -

Net Cash from Invt. activities (2,356) (19,378) (2,924) (3,115)

Issue of share cap. / premium - - - -

Debt changes (1,819) 17,041 438 466

Dividend paid - - - -

Interest paid (231) (2,089) (2,229) (2,437)

Others 1,594 - - -

Net cash from Fin. activities (456) 14,953 (1,792) (1,971)

Net change in cash (16) 1,216 1,616 2,347

Free Cash Flow 301 (13,737) 3,408 4,318


Quarterly Financials (Rs m)

Y/e Mar Q2FY19 Q3FY19 Q4FY19 Q1FY20

Net Revenue 3,653 4,331 4,788 4,930

YoY gr. (%) 17.4 32.9 48.0 18.8

Raw Material Expenses 1,205 1,405 1,589 1,632

Gross Profit 2,449 2,926 3,200 3,298

Margin (%) 67.0 67.6 66.8 66.9

EBITDA 448 835 974 1,501

YoY gr. (%) 0.8 80.4 121.9 79.8

Margin (%) 12.3 19.3 20.3 30.4

Depreciation / Depletion 234 245 249 608

EBIT 214 590 725 893

Margin (%) 5.9 13.6 15.1 18.1

Net Interest 68 62 38 509

Other Income 38 31 53 31

Profit before Tax 184 559 682 415

Margin (%) 5.0 12.9 14.2 8.4

Total Tax 64 194 201 145


Profit after Tax 120 365 481 270

Minority interest - - - -

Share Profit from Associates - - - -

Adjusted PAT 120 365 539 270

YoY gr. (%) (3.1) 176.8 (20.8) (27.0)

Margin (%) 3.3 8.4 11.3 5.5

Extra Ord. Income / (Exp) - - (58) -

Reported PAT 120 365 481 270

YoY gr. (%) (67.6) 204.6 31.9 (43.8)

Margin (%) 3.3 8.4 10.0 5.5

Other Comprehensive Income 1 (2) 1 (11)

Total Comprehensive Income 121 363 481 259

Avg. Shares O/s (m) 96 103 103 103

EPS (Rs) 1.3 3.9 5.0 2.8


Key Financial Metrics


Per Share(Rs)

EPS 13.6 12.1 17.3 22.3

CEPS 22.9 36.0 44.0 52.6

BVPS 93.9 54.4 71.7 94.0

FCF 2.9 (133.9) 33.2 42.1

DPS - - - -

Return Ratio(%)

RoCE 20.6 12.8 14.4 15.8

ROIC 20.9 18.3 19.8 21.2

RoE 13.9 22.2 24.1 23.7

Balance Sheet

Net Debt : Equity (x) 0.1 3.9 2.8 1.9

Net Working Capital (Days) (13) (9) (8) (7)

Valuation(x)

PER 24.9 28.0 19.5 15.1

P/B 3.6 6.2 4.7 3.6

P/CEPS 14.8 9.4 7.7 6.4

EV/EBITDA 11.4 9.2 7.7 6.3

EV/Sales 2.1 2.9 2.5 2.1

Dividend Yield (%) - - - -


Multiplex


Notes:

Multiplex


Analyst Coverage Universe

Sr. No. Company Name Rating TP (Rs) Share Price (Rs)

1 Dish TV India NR - 74

2 Entertainment Network (India) Hold 483 384

3 Music Broadcast Hold 58 46

4 Navneet Education BUY 134 103

5 S Chand and Company Hold 62 57

6 V.I.P. Industries BUY 488 386

7 Zee Media Corporation Under Review - 14

PL’s Recommendation Nomenclature

Buy : > 15%

Accumulate : 5% to 15%

Hold : +5% to -5%

Reduce : -5% to -15%

Sell : < -15%

Not Rated (NR) : No specific call on the stock

Under Review (UR) : Rating likely to change shortly

Multiplex


ANALYST CERTIFICATION

(Indian Clients)

We/I Mr. Jinesh Joshi- MS(Finance) and CFA Research Analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our views about the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report.

(US Clients)

The research analysts, with respect to each issuer and its securities covered by them in this research report, certify that: All of the views expressed in this research report accurately reflect his or her or their personal views about all of the issuers and their securities; and No part of his or her or their compensation was, is or will be directly related to the specific recommendation or views expressed in this research report.

DISCLAIMER

Indian Clients

Prabhudas Lilladher Pvt. Ltd, Mumbai, India (hereinafter referred to as “PL”) is engaged in the business of Stock Broking, Portfolio Manager, Depository Participant and distribution for third party financial products. PL is a subsidiary of Prabhudas Lilladher Advisory Services Pvt Ltd. which has its various subsidiaries engaged in business of commodity broking, investment banking, financial services (margin funding) and distribution of third party financial/other products, details in respect of which are available at www.plindia.com.

This document has been prepared by the Research Division of PL and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security.

The information contained in this report has been obtained from sources that are considered to be reliable. However, PL has not independently verified the accuracy or completeness of the same. Neither PL nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein.

Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient's particular circumstances and, in case of doubt, advice should be sought from an independent expert/advisor.

Either PL or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication.

PL may from time to time solicit or perform investment banking or other services for any company mentioned in this document.

PL is in the process of applying for certificate of registration as Research Analyst under Securities and Exchange Board of India (Research Analysts) Regulations, 2014

PL submits that no material disciplinary action has been taken on us by any Regulatory Authority impacting Equity Research Analysis activities.

PL or its research analysts or its associates or his relatives do not have any financial interest in the subject company.

PL or its research analysts or its associates or his relatives do not have actual/beneficial ownership of one per cent or more securities of the subject company at the end of the month immediately preceding the date of publication of the research report.

PL or its research analysts or its associates or his relatives do not have any material conflict of interest at the time of publication of the research report.

PL or its associates might have received compensation from the subject company in the past twelve months.

PL or its associates might have managed or co-managed public offering of securities for the subject company in the past twelve months or mandated by the subject company for any other assignment in the past twelve months.

PL or its associates might have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past twelve months.

PL or its associates might have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past twelve months

PL or its associates might have received any compensation or other benefits from the subject company or third party in connection with the research report.

PL encourages independence in research report preparation and strives to minimize conflict in preparation of research report. PL or its analysts did not receive any compensation or other benefits from the subject Company or third party in connection with the preparation of the research report. PL or its Research Analysts do not have any material conflict of interest at the time of publication of this report.

It is confirmed that Mr. Jinesh Joshi- MS(Finance) and CFA Research Analysts of this report have not received any compensation from the companies mentioned in the report in the preceding twelve months

Compensation of our Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

The Research analysts for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report.

The research analysts for this report has not served as an officer, director or employee of the subject company PL or its research analysts have not engaged in market making activity for the subject company

Our sales people, traders, and other professionals or affiliates may provide oral or written market commentary or trading strategies to our clients that reflect opinions that are contrary to the opinions expressed herein, and our proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. In reviewing these materials, you should be aware that any or all o the foregoing, among other things, may give rise to real or potential conflicts of interest.

PL and its associates, their directors and employees may (a) from time to time, have a long or short position in, and buy or sell the securities of the subject company or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation or act as a market maker in the financial instruments of the subject company or act as an advisor or lender/borrower to the subject company or may have any other potential conflict of interests with respect to any recommendation and other related information and opinions.

US Clients

This research report is a product of Prabhudas Lilladher Pvt. Ltd., which is the employer of the research analyst(s) who has prepared the research report. The research analyst(s) preparing the research report is/are resident outside the United States (U.S.) and are not associated persons of any U.S. regulated broker-dealer and therefore the analyst(s) is/are not subject to supervision by a U.S. broker-dealer, and is/are not required to satisfy the regulatory licensing requirements of FINRA or required to otherwise comply with U.S. rules or regulations regarding, among other things, communications with a subject company, public appearances and trading securities held by a research analyst account.

This report is intended for distribution by Prabhudas Lilladher Pvt. Ltd. only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the U.S. Securities and Exchange Act, 1934 (the Exchange Act) and interpretations thereof by U.S. Securities and Exchange Commission (SEC) in reliance on Rule 15a 6(a)(2). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not the Major Institutional Investor.

In reliance on the exemption from registration provided by Rule 15a-6 of the Exchange Act and interpretations thereof by the SEC in order to conduct certain business with Major Institutional Investors, Prabhudas Lilladher Pvt. Ltd. has entered into an agreement with a U.S. registered broker-dealer, Marco Polo Securities Inc. ("Marco Polo").

Transactions in securities discussed in this research report should be effected through Marco Polo or another U.S. registered broker dealer.

Prabhudas Lilladher Pvt. Ltd. 3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India | Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

www.plindia.com | Bloomberg Research Page: PRLD <GO>

http://www.plindia.com/

multiplex - investmentguruindiavid.investmentguruindia.com/report/2019/september/multiplex -...

Documents