Stock Review: PVR

 

In the past six months, the stock of multiplex major PVR has fallen 46% as against the 9% drop in the benchmark Sensex. Investors will have to wait for some more time to see a reversal in the trend since the company's performance is expected to remain sluggish for at least two quarters.

The absence of big film releases following events such as the cricket World Cup 2011 and Indian Cricket Premier League would result in weak business for multiplex players. Given the big investment of PVR in the multiplex operations relative to its peers, the company is expected to suffer the most in terms of earnings due to the slack period. The exhibitor is likely to report a fall in its occupancy rates and average ticket price. An Edelweiss report expects the exhibitor's occupancy rates to come down by 7% to as low as 23% of the total seats available in the March 2011 quarter. It also foresees a drop in the average ticket price of the company to . 163 from . 167.

Despite the sluggishness, PVR plans to add 50-60 screens by FY12 to its current capacity of 142 screens. It is estimated that on the average, a screen requires a capital investment of . 1.75 crore. This means that the company would have to invest around . 102 crore to install 60 screens. However, a mere addition of screens may not boost performance since it may result in price war, thereby impacting revenue.

Even on a decent opening of a film project, a multiplex would average less than 50% occupancy rates. Hence, on days when film projects do not attract high footfalls, many multiplex players bear additional maintenance costs.
To diversify its revenue stream, PVR plans to add 26-lane bowling alley in Delhi and another 28-lane bowling alley in Bangalore in FY12. As of FY10, the bowling business of the company contributed around 4% to the total revenues of Rs 338 crore. Gaming zone in a multiplex is one way of ensuring consistent revenue even when films do not attract high footfalls. Considering this, it is expected that revenues from bowling business would double in FY12.