Film Production is a Risky Business, So Avoid PVR

Daniel Radcliffe

PVR is a risky share


Q2 not satisfactory

PVR has not produced a satisfactory results for the quarter ended 30.09.11 as compared to the quarter ended 30.06.11. The company is in the speciality retail sector. Its revenue has increased from Rs.104 crore to Rs.128 crore. For the full year 2010-11, its revenue was at Rs.352 crore. Net profit declined steeply from Rs.22.47 crore to Rs.12.27 crore. Net profit for the year 2010-11 was at Rs.16.34 crore. Operating profit margin declined from 34.4% to 22.2%. Net profit margin declined from 21.5% to 9.58%. The shares of PVR are traded in the Indian stock markets at Rs.154.45 now (05.11.11). Its highest share price was at Rs.177.50 on 03.11.10. Lowest price was at Rs.93.50 on 21.03.11. The present share price of the company is close to its highest price in the last one year.

Movie on demand!

Ajay Bijli is the Chairman & Managing Director of PVR. The company has unveiled a four-screen, high-end multiplex complex called Director’s Cut in New Delhi at Vasanth Kunj. Multiplex industry is two decades old in India. Director’s Cut is a top rate luxury experience for the movie buff who does not mind in shelling out money for the experience. There are only around 280 seats. Apart from latest releases, classic and vintage movies are also screened. Film festivals are conducted and award winning movies are screened. PVR is also planning to offer ‘movie on demand’ option. Under this option, a group of people can demand screening of a particular movie and book a movie auditorium. The investment cost of the company was Rs.20 crore at the rate of Rs.5 crore per screen. For the other screens, the cost was at Rs.1 crore to Rs.2 crore per screen.

Presenting enjoyable movie experience

The company is also weighing carefully the location where the Director’s Cut will make a success. Mumbai’s Juhu area is an option. The ticket cost will be in the range of Rs.650 to Rs.1050. In some cities like Chennai and Hyderabad, the State governments have imposed price control on the price of theatre tickets. Hence, PVR cannot enter in such cities with its high technology. Or else, it has to convince the respective State governments and obtain a special permission to charge high from the affordable movie buffs. PVR, apart from the revenue from sale of tickets, will also increase its revenue from sale of food and beverages in the theatre complex. An average spending inside the Director’s Cut may be around Rs.550, apart from ticket cost. In fact, PVR is aiming to realise 50% of its revenues from sale of food and beverages.

Mera Nam Joker was a failure, but Bobby was an outstanding success

PVR sold off its property in Phoenix Mills, Mumbai for Rs.100 crore. This deal has reduced the debt equity ratio of the company from 1 to 0.5. The company owned this property in CR Retail Mall. In all other cases, PVR operates through lease cinema halls and does not own any property. But in Delhi, PVR has some properties. PVR also bought other partners’ stake in PVR Pictures Ltd. Now PVR Pictures has become a wholly owned subsidiary of PVR. PVR also demerged PVR Pictures from it and brought back the production area of the company under its fold. The company is planning to focus on its exhibition business. The losses have increased in movie production and distribution. Moreover, it is an uncertain business. Raj Kapoor produced Mera Nam Joker and expected it to be an outstanding success. But it failed miserably and left Raj Kapoor crestfallen. But his other movie Bobby was expected to be a failure. But its sweet songs, Rishi Kapoor’s star value, Dimple Kapadia’s beauty and K A Abbas’ dialogues brought outstanding success to the movie. One cannot understand the market thoroughly in movie production. Therefore it is right logic for the company to concentrate on movie exhibitions and go slow on movie production.

Ra.One has failed, will Shanghai succeed?

PVR has another subsidiary PVR bluO. It is setting up bowling centres across India with 2 new centres with 54 lanes slated to be opened in the current fiscal year. PVR Pictures has co-produced some Bollywood movies like the Aamir Khan starrer Taare Zameen Par that was released in 2007, Jaane Tu Ya Jaane Na, Contract and Mere Khwabon Mein Jo Aaye. PVR has announced a buy-back of its shares at a maximum price of Rs.140 per share. The offer ends on May 26, 2012. The company was expecting big things from the Shahrukh Khan starrer Ra.One, but it has been disappointed. PVR has its own production Shanghai directed by Dibakar Banerjee. It will boost the company’s revenues in the third quarter both as a producer and as an exhibitioner.

Hollywood movies in small towns

Considering its low debt equity ratio, PVR can expand through its internal accrual alone. It has cash kitty worth around Rs.80 crore. PVR is expanding its bowling alley capacity to around 75. It is also expanding its screens from 144 to around 200. The company plans to buy back 10% of its total equity through its buy-back scheme. PVR plans to dub latest English releases of Hollywood movies in Hindi and other languages and markets them in small towns in India. Now Hollywood fans in small towns can really look forward to enjoying a thrilling experience as language barrier also will not pose a problem. For many Indians, British accent is understandable and so British movies are enjoyable. But American accent is different. Americans speak ‘what do you want’ as ‘wadaya wan’. Therefore Hollywood movies are not very enjoyable experience for the Indians. Maybe because India was a British Colony for two hundred years, British English and its accent comes naturally to Indians. Now PVR will remove this accent difficulty and make the American movies also an equally enjoyable experience for the Indians.

Big demand for English movies

In B and C towns in India, there is a big demand for English movies. The English movie ‘Fast and Furious’ was a big hit in India. PVR Cinema at Hyderabad’s Central Mall is planning one Hollywood movie every month to cater to the tastes of the Hyderabad people. Dubbing will be most profitable for the company if it dubs it in Hindi, Tamil and Telugu. PVR has Talkies, a low-cost model of distribution of films in Augangabad and Latur. Tickets are priced at Rs.65. PVR plans to set up Talkies in Ujjain, Bilaspur and Nanded. PVR has established its presence in Lucknow, Raipur, Allahabad, Baroda, Ghaziabad and Faridabad. It is planning to set up screens in places like Surat, Bhopal, Mysore, Udaipur and Pune this fiscal year itself. Today, dubbed movies fetch very little revenue. But it has the potential to expand to big business tomorrow. PVR will have then the early bird advantage.

Woman in Black, a horror movie by Daniel Radcliffe

PVR has either released or planning to release blockbuster movies like Three Musketeers (in 3D), Breaking Down, Bellamy (a French movie), Woman in Black (a horror movie starred by Daniel Radcliffe in 3D) and Ann-Hathaway. PVR incurred big losses in the production of the Bollywood movie Khele Hum Jee Jan. But Aisha produced profits for the company. Shanghai, being produced by the company in 3D is expected to do well and fetch rewards for PVR. PVR has 33 properties in India. It wants to add 10 more this fiscal year. PVR wants to maintain at least two to three 3D screens in each property to cater to the interests of the movie goers.

Budget movies under Rs.30 crore

For the financial year 2011-12, PVR will invest around Rs.125 crore for enhancing its distribution activities and production of a few Bollywood movies. PVR has three movies under production, distribution deals for 15 Hollywood and 4 Hindi movies. All these movies are set to be released in 2012. PVR produces each film under a budget of Rs.30 crore. PVR will also be investing Rs.75 crore in bowling alley business. The expansion will be in big cities like Bangalore, Pune, Chennai, Chandigarh, Ludhiana and Mumbai. At present, the company has two centres at Gurgaon and New Delhi. In two years, PVR wants to expand its operations to 250 lanes as compared to 50 now. However, movie exhibition business will continue to be the mainstay of the company in foreseeable future.

Do not buy the shares of PVR as it is in risky business

At the present share price of Rs.154, only those who have the appetite to take high risk can enter into the company’s shares. Movie production and distribution is a high risk game. Nobody can predict the market mood. Rich people have overnight become paupers and vice versa in film world. Tinsel world has been a witness to many rags to rich stories and quite the opposite has also happened more often than not. Therefore, prudent investors should not touch the company’s shares at any point of time. But risk taking investors can buy the shares of the company at declines, preferably at around Rs.125 for decent returns in the medium term.

PVR - Share price movement in the last one year

 
 
 
Weekly H/L
163.4
126.3
Monthly H/L
163.4
108.25
52 Weeks H/L
177.5
93.5
 
( 3 Nov 10 )
( 21 Mar 11 )
Delivery / Var+ELM %
28.31
18.02

PVR - Quarterly results

(in Cr.)
Sep-11
Jun-11
FY10-11
Revenue
128.02
104.49
351.99
Net Profit
12.27
22.47
16.34
EPS
4.65
8.28
6.03
Cash EPS
--
10.52
--
OPM %
22.2
34.4
17.26
NPM %
9.58
21.5
4.64

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