Screen additions, ad growth, ticket prices bode well for PVR's FY19 show

India’s largest film exhibitor put out a strong March quarter performance, beating Street estimates on all counts. Revenues were up 19 per cent over the year-ago period. primarily on account of higher average ticket prices, which increased by 10 per cent, and 5 per cent more footfalls. 

Footfalls on a comparable basis however fell by 2 per cent on account of a strike by South Indian film producers and issues concerning the release of Padmavat in certain states. Had it not been for the two issues, comparable footfalls would have been up 8 per cent.

Ticket prices were higher on account of premium screen additions as well as price hikes in screens that were renovated in some locations. In addition, what aided the top line growth was strong ancillary revenues, both due to a 37 per cent gain in advertising revenues and a 22 per cent jump in food and beverage consumption at the theatres. Strong advertising performance helped the company achieve its 20 per cent advertising growth guidance in FY18. Theatre collections account for 55 per cent of revenues, while food and beverages add 27 per cent to the top line. 

The good top line performance rubbed off at the operating profit which was 60 per cent higher than the year ago quarter while margins were higher by 440 basis points to 17.2 per cent. For FY18, margins were up 110 basis points to 18.3 per cent. Net profit stood at Rs 259 million as compared to Rs 1 million in the March quarter last year. 

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Going ahead growth will come from the aggressive screen additions of over 90 the company has guided for in FY19 as compared to the 49 it added in FY18. Pan India, the company has about 625 screens as of FY18. Analysts at Motilal Oswal Securities Securities believe that aggressive screen additions in FY19 and FY20 coupled with rising average ticket prices and healthy movie pipeline bode well for PVR. Rising incomes and PVR’s premium location augur well for ticket collections while good quality content is expected to keep the footfalls higher. What should add to overall revenue growth is the strong momentum in advertisement growth. 

Despite the positives, analysts at Emkay Research say that the stock is unlikely to be rerated as valuations are discounting healthy content performance, going forward and the fact that the stock has already run up by 14 per cent over the last month. The stock is trading at 45 times its FY19 earnings estimates.