Buy PVR says Edelweiss Research

Edelweiss report on PVR

Leader in the multiplex industry

"With 67 screens across 17 multiplexes, PVR is the leading player in the Indian multiplex industry. It has announced an ambitious expansion plan which will take the total number of screens to 170 by end FY08E. The rollout of this plan will ensure that PVR will continue to be the largest player in the industry."

Aggressive expansion plan to drive revenue growth at 94% CAGR

"Favourable demographics, strong movie-going habits and improving quality of content provide a positive outlook on the multiplex industry. PVR's aggressive expansion plans will help it capitalize on this opportunity. Driven by the rollout of new properties, we expect PVR's revenues to grow at a phenomenal CAGR of 94% to INR 4.0 bn in FY08E from INR 1.1 bn in FY06."

Margins to improve due to e-tax benefits and economies of scale

"Only two multiplexes of PVR enjoyed entertainment tax exemptions in FY06. However, majority of the upcoming multiplexes will have e-tax exemptions. This will result in lowering of PVR's effective e-tax rate (as a percentage of gross ticket prices) to 19.9% in FY07E and 15.2% in FY08E from 24.4% in FY06. Moreover, with higher number of screens, PVR will start enjoying benefits of economies of scale in bargaining for movie rights and procurement of F&B supplies and overheads will also be distributed over more properties. As a result, we expect EBIITDA margins to improve to 25% in FY08E from 15.1% in FY06 and PAT margins to improve to 10.3% in FY08E from 5% in FY06."

EBITDA and PAT to grow at CAGR of 150% and 178% respectively

"Due to improvement in margins, we estimate that PVR's EBITDA will grow at a CAGR of 150% over FY06-08E to INR 989 mn in FY08E from INR 158 mn in FY06. We expect that PAT will grow at a CAGR of 178% to INR 405 mn in FY08E."

Valuations attractive; Initiate coverage with 'BUY'

"Our EPS estimates for PVR for FY07E and FY08E are INR 5.0 and INR 17.1, respectively. At CMP of INR 210, the stock trades at P/E of 41.7x FY07E and 12.3x FY08E, and EV/EBITDA of 14.7x FY07E and 6.9x FY08E. Given PVR's leadership in the multiplex industry, strong management team with good execution capabilities and a healthy growth outlook in FY06- 08E, we initiate coverage on PVR with a 'BUY' recommendation."