Expect turnover of Rs 700cr in FY13: PVR

Multiplex major PVR entered into a definitive agreement with Cinemax India to buy up to 95.27 percent stake in the company for Rs 543 crore. Cinemax India operates 39 properties with 138 screens. PVR shot up to a 5-year high of Rs 341.10 on Tuesday.

Nitin Sood, chief financial officer, PVR told CNBC-TV18 that the combined leverage of both PVR and Cinemax would be around Rs 600 crore once the entire transaction is over. "We have a current year expected EBITDA of about Rs 200 crore plus for the combined entity. We are fairly comfortable on debt-EBITDA and debt to equity ratio perspective and the leverage is well within our comfort limits," he added. He futher added that with the Cinemax deal, PVR will now have presence in 36 cities across the country.   PVR expects to clock in revenue of Rs 700 crore in FY13 and targets a topline of Rs 1,300-1,500 crore top line in 24 months. Here is the edited transcript of the interview on CNBC-TV18. Q: If one assumes that your open offer of 26 percent is successful, you will get to that 95 percent kind of holding on Cinemax India. What's the eventual game plan, would you delist it, will you then want to offload some stake, bring it down to 75 percent, what is the managements thinking on that front? A: As of now, the eventual plan is to comply with the SEBI (Securities and Exchange Board of India) guidelines and if required, we will bring down the eventual shareholding down to 75 percent and continue with the company in the present form. There has been no thought process around delisting as of now. A final call would be taken only after the success of the open offer and how much stake we are able to garner in the open offer. Q: The other minor apprehension is about the leverage for the entire entity. Not talking about an eventual merger but what would be the combined debt for PVR and Cinemax right now once the entire transaction is over? A: If you look at the combined leverage of both the enterprises put together, including the leverage that we have taken for part funding this acquisition, the combined leverage would be about Rs 600 crore for the overall entity. We have a current year expected EBITDA of about Rs 200 crore plus for the combined entity. On a current year basis, it is debt to EBITDA of less than three times. PVR itself is rolling out about 80 screens this year which is about 50 percent capacity addition. It is largely going to throw up their full year numbers next year only. We are fairly comfortable on debt-EBITDA and debt to equity ratio perspective and the leverage is well within our comfort limits. Q: Depending on how this open offer goes through, would you even consider doing a reverse merger for PVR-Cinemax? A: Quite honestly, we haven’t thought through those lines as of now. The first plan is to get through with the open offer, look at what we are able to get in terms of stake in the open offer and then we are working on a plan to figure out what would be the eventual roadmap, depending upon how much final shareholding we will hold in Cinemax. _PAGEBREAK_ Q: What has the revenue outlook changed into, both in terms of exhibition and production and distribution once Cinemax comes on board for PVR? A: From an exhibition perspective, last two years have been extremely good years. What we are seeing is a dramatic change in the domestic consumption story. People are consuming entertainment at a very good pace both in urban markets as well as semi-urban markets. We have now expanded ourselves to 27 cities and with Cinemax combined we are now in 36 cities across the country. What we are seeing is clearly a consumer at every price point and every market. There is a discretionary spend happening and the culture of going out and spending is also changing very fast in every market. All that holds very well for the industry. Globally, the second cue is that the Hollywood box office and globally films are doing extremely well. So combined with the success of the domestic box office and international box office, I think the content supply is looking fairly robust over the next 18-24 months. We are in for good times. Q: Your investors will now be trying to value the combined entity. Both of you put together a market cap of Rs 1400 crore and you just said Rs 600 crore of combined debt. Can you give us some sense of what kind of top line you are looking at for the combined entity say one year out, FY14 and what kind of EBITDA levels? A: If you look at this year’s numbers, PVR should broadly have a turnover of close to Rs 700 crore and Cinemax reported a Rs 212 crore top line in the first six months. So, it is roughly about Rs 400 crore. Anything between Rs 1,000 to Rs 1,100 crore will be the top line of the combined entity this year. With the next 24 months out, we are clearly looking at a 20 percent Compound Annual Growth Rate (CAGR) growth. We should be in the range of Rs 1300-1500 crore top line in 24 months time frame. Q: What kind of EBITDA percentage on that Rs 1500 crore? A: Overall, EBITDA percentage today is in the range of about 18-19 percent and we believe it will sustain. It is bbout 18-20 percent kind of an EBITDA margin for the business if we assume the current EBITDA level. Q: The expectation also is that with this combined entity you have the upper hand in terms of negotiations on revenue sharing with producers. Have you already begun those kind of discussions, do you think it could be a different ratio that has worked out because of the sheer size of the PVR-Cinemax combine? A: Not really. We haven’t worked on anything. We believe what this combination and synergy would throw up is a huge amount of potential on the revenue synergy front. For example, today PVR does about 3.3 crore footfalls, people come in to watch movies at its theatres. Cinemax would probably have about 2.2 crore. The combined entity gets about 5.5 crore people coming to watch movies at our cinemas this year, which already puts us amongst the tenth largest chain in the world, amongst the top 10 chains in the world in terms of number of people coming to watch movies across the chain. We believe this will throw up a lot of opportunities in future as we build out and rollout more screens. This number will eventually move to 7.5 crore footfall in the next 24-30 months, which in terms of size will throw up a lot of opportunities in terms of how we monetize ticketing revenues, how we monetize the entire sponsorship revenue, advertising and how people consume food and beverage within the cinemas. We are working on a plan which will eventually help us realise synergies both on the revenue front as well as on the various cost fronts, simply because of the scale advantages that we will get.