Stock Review: PVR

 

PVR's recent buyback offer and an impending film release in the third quarter of this fiscal would be positive triggers for investors to hold on to the company's stock for at least the next two quarters.

The company, which is the segment leader in the exhibition business, has put a cap of . 140 as the maximum price for the buyback that begins on July 1 and ends on May 26, 2012. Currently, the company's stock is trading at . 100. With few big releases in the next quarter and considering the seasonality of the business, the company's revenues would see momentum from the beginning of the third quarter of this fiscal. Besides many big releases such as Shahrukh Khan-starrer Ra.One, the company has its own production Shanghai (directed by Dibakar Banerjee) in the third quarter of this fiscal that would boost its revenues, both as an exhibitioner and as a production house. Hence, investors must hold onto the company's stock for at least the next two quarters. Besides this, the company's focus on cutting down on production projects and concentrating on expanding its screen count and the highmargin bowling business is also a sensible strategy to ensure consistent flow of revenues in times of weak business. Recently, the company sold and leased back its Mumbai-based Phoenix Mills property for . 100 crore. Analysts estimate that this deal would reduce the company's debt to equity to 0.5 in FY11 from close to 1 in FY10. Hence, considering such a low debt-to-equity ratio, the company can afford to expand just by internal accruals (it has cash of around . 79 crore on its books). Currently, the company is expanding its bowling alley capacity to 74. Also, its screen count will go up to 194 from current 144. Much of the expansion in the bowling alleys and screen count would come in this fiscal. Hence, the company would be able to capture more revenues in case of good business situation in the third quarter of this fiscal.

Through the buyback offer, the company plans to buyback around 10% of its total equity. This buyback will increase the company's earnings per share (EPS). Currently, the company stock is yielding earnings per share of . 6, if the company completes the buyback of 10% of its total equity, considering its FY11 net profit of . 8 crore, the company's share would yield EPS of . 29. In the last six months, the company's stock has fallen by 30% against a 11% decline in the benchmark Sensex.