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PVR V/s Inox: Battle for eyeballs - Views on News from Equitymaster
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PVR V/s Inox: Battle for eyeballs
Sep 7, 2006

In the Indian entertainment and media industry, the concept of multiplex cinemas is growing at a fair clip. They have emerged as one of the fastest growing segments of the media industry. This growth in multiplexes is due to the organised retail boom and entertainment tax benefits for multiplex cinemas. Due to tremendous growth in this segment, large number of players is entering into this market. In this article, we compare the two major multiplex players in this sector –PVR Cinemas and Inox Leisure– and see where they stand on a relative basis.

About PVR Cinemas
PVR Cinemas is India's largest multiplex Cinema operator by number of screens. They established the first Multiplex Cinema in India, PVR Anupam, in Delhi in 1997 and the largest Multiplex Cinema in India, PVR Bangalore in 2004. As on date, it has 11 cinemas with a total of 47 screens in five A-class centres. Of these, PVR operates nine Multiplex Cinemas and two single-screen cinemas and manages one Multiplex Cinema with three screens. PVR was incorporated in April 1995 pursuant to a joint venture agreement between Priya Exhibitors Private and Village Roadshow, one of the largest non-US cinema exhibition companies in the world with more than 1,000 screens under operation. The latter's international experience enabled the company to begin its film exhibition business operations. PVR also operates a small film distribution business through its wholly owned subsidiary, PVR Pictures, which acquires and distributes Indian and international films.

About Inox
INOX Leisure is primarily engaged in the exhibition of films. The company, after being incorporated in 1999, became a subsidiary of Gujarat Fluorochemicals Ltd. (GFL), as part of the latter’s growth and diversification strategy. The company is engaged in the film exhibition business. It operates and manages a national chain of world-class multiplexes under the brand name, INOX. After opening its first multiplex in Pune in May 2002, it has since then reached a total base of 11 properties with 41 screens across the country. Further, it recently ventured into the films distribution business, albeit on a smaller scale. The company is planning to expand its capacity to 25 multiplexes and more than 90 screens.

The comparison…
Extensive Reach: Earlier PVR Cinemas was largely concentrated in the Northern parts of India, with Delhi and Haryana accounting for 78% of its total cinema seating capacity followed by Banglore (22%). But now the scenario seems to be changing. In FY06, Delhi and Haryana’s contribution to total seating capacity fell to 60% of its total cinema seating capacity and Mumbai and other states emerged as new markets. The company is planning to establish further new cinemas and new screens across the country. (see chart adjacent).

On the other hand, INOX already has a more diversified presence with screens in Jaipur, Mumbai, Pune, Goa, Banglore and Kolkata. Further, it intends to set up multiplexes in Indore, Chennai, Hyderabad, Lucknow and many more places in the country.

With penetration in Tier 1 cities having increased considerably, both these player have now set their eyes on the Tier 2 cities. It remains to be seen who will be able to garner a larger share of these markets.

Business Mix: As seen from the charts below, both the companies earn their revenues from three major sources viz. sale of tickets, food and beverages and advertisement. However, their contribution to the topline of each company is in varying proportions. While ticketing accounted for 64% of PVR’s revenues in FY05 and 68% in FY06, Inox had a slightly higher 71% of its revenues coming from ticketing in FY05. Break up of Inox’s revenues for FY06 is however not available. Food, the next largest contributor accounted for 21% and 17% of PVR’s and Inox’s topline respectively in FY05. Advertisement revenues as a percentage of total revenues at 5% were much lower for Inox as compared to 13% for PVR.

If we compare the revenue segment of both the companies then we will observe that the revenue segment of Inox is growing at a faster speed as compare to the PVR Cinemas. During the period FY03 to FY06 total revenues of Inox had increased by a CAGR of 88% whereas that of PVR Cinemas had grown by a CAGR of 40%. Inox revenues are growing on account of economies of scale. The company is having an edge over local competition in accessing content. It is among the few players to establish a national presence at such an early phase.

On comparing these two companies on financial parameters, while Inox Leisure has grown revenues and net profits compounded rates of 88% and 482% during the period FY03 to FY06, the growth for PVR Cinemas has been 40% and 42% respectively. However, if one were to compare the profitability, Inox Leisure scores over PVR Cinemas. As seen from the adjacent chart, while EBIDTA margins for Inox Leisure have moved in a range of 29% to 34% during FY03 to FY06, the same for PVR Cinemas have declined from 17% to just over 15% during this period. Scenario on the net profit margins front is no different with Inox’s margins at 16% are far better than the 5% margin that PVR earned during FY06.

Financial comparison (FY06)
(Rs m) PVR Cinemas Inox Lesiure
Net Sales 1,049 1,071
EBITDA 159 360
EBITDA margins (%) 15% 34%
Other Income 43 20
Depreciation 83 52
EBIT 118 328
EBIT margins (%) 11% 31%
Interest 30.7 79
PBT 87 249
Tax 35 74
PAT 53 175
Net profit margin(%) 5% 16%
Annualised EPS (Rs) 2.3 2.9
P/E 106 56

Comparative valuations
At their respective current prices of Rs 243 and Rs 163, PVR Cinemas and Inox Leisure are trading at price to earnings multiples of 106 times and 56 times their FY06 earnings respectively. Despite its superior growth and better margins, Inox seems to be trading at a discount to PVR. Moreover, near term expansion plans for Inox seem to be greater than its rival thus leading to better visibility. Having said that, the industry is a high fixed cost industry and hence the kind of funding both the companies will utilise for their expansion plans is likely to decide who will emerge as a winner. As for now, Inox seems to have an edge over its rival.

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