| PVR Limited | ||||||||||||||
| 'CRISIL AA-/Positive' assigned to Non Convertible Debentures; rated amount enhanced for Commercial Paper | ||||||||||||||
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| Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||||||||||
| 1 crore = 10 million | ||||||||||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has assigned its ‘CRISIL AA-/Positive’ rating to Rs 50 crore non-convertible debentures of PVR Limited (PVR) and reaffirmed its ‘CRISIL AA-/Positive/CRISIL A1+’ ratings on the bank facilities and other debt instruments of the company.
The ‘Positive’ outlook indicates the credit risk profile of PVR may benefit from increased scale of operations once more contemporary content is released on multiplexes leading to stability in occupancy levels.
PVR, post the merger of INOX, is the largest multiplex chain in India with presence in 115 cities across the country and a collective screen-count of 1,680. PVR will have market share of 18%, based on number of screens (43% share in multiplexes), and will account for around 30% of total box office collections.
Fiscal 2023 saw a significant variability in the operating performance of multiplex operators due to polarization of some of the Bollywood content as well as fewer Hollywood releases. Moreover, majority of the content released over the past 12 months was conceptualized before or during the pandemic and needed a refresh to meet changing viewer preferences. However, a fresh content pipeline slated for release during fiscal 2024 and increased Hollywood content should help address the variability in occupancy, though it will remain a key monitorable.
The merged entity has a healthy balance sheet with proforma adjusted tangible networth of Rs 2,089 crore as on September 30, 2022. The management has indicated addition of 180-200 screens every year which will entail capital expenditure (capex) of Rs 750-850 crore annually (including maintenance capex). Given the large scale of operations, the capex will likely be funded through internal accrual and debt such that overall debt does not increase materially from that at March 2023.
The merger also enables synergies on revenue through synchronization of ticket and food menu as INOX had lower food and ticket prices compared with PVR and bridging ad revenues per screen as INOX had lower ad revenue per screen compared with PVR.
Liquidity remains healthy backed by cash and bank balance and other liquid investments of around Rs 400 crore (including unutilized OD lines) as on March 31, 2023. Sustained increase in revenue and operating margin, along with maintenance of healthy liquidity, will remain monitorable.
The ratings continue to reflect the strong market position and established brand value of PVR-INOX, improving operating efficiency, and healthy financial risk profile and liquidity. These strengths are partially offset by exposure to risks inherent in the film exhibition business. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of PVR; its subsidiaries, PVR Pictures Ltd, PVR Lanka Ltd, Zea Maize Pvt Ltd, Shouri Properties Pvt Ltd and joint venture (JV), Vkaao Entertainment Pvt Ltd. The entities, collectively referred to as PVR, are in the same business and have common promoters.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
PVR is the largest multiplex player in the country and has significantly consolidated its market position following the merger of INOX with PVR. PVR now has a combined screen portfolio of 1,680 screens across 115 cities as on March 31, 2023. PVR will now hold 43% market share in multiplex screens. The second largest player in this segment is one-fourth the size of PVR.
The merged entity has a geographically diversified screen portfolio with around 31% screens in south India, which typically contributes over 40% to the overall box office collection. PVR should benefit from its strong and established market position over the medium term.
Key operating parameters such as average ticket price (ATP) and spend per head (SPH) on food and beverages for PVR rose to Rs 241 and Rs 132, respectively, during the first nine months of fiscal 2023 from Rs 204 and Rs 100, respectively, for the corresponding period of fiscal 2020 (pre-pandemic). The merger of INOX should lead to revenue synergies through synchronization of ticket prices and food menu by bridging the gap between INOX and PVR screens. Moreover, with a wider screen portfolio, PVR will benefit through advertising revenue once occupancy level stabilizes.
PVR reported operating profit (ex-Ind AS-116 adjustment) of Rs 362 crore for the nine months ended December 31, 2022 (operating margin of 13.6%), after reporting operating losses for fiscals 2021 and 2022. However, the operating performance was constrained by weak content performance and fewer film releases compared with the pre-pandemic era.
The strong content pipeline and increased number of releases should improve the operating metrics as occupancy bounces back.
Debt is estimated at Rs 1,800 crore as on March 31, 2023 with a comfortable gearing profile. Given the expected healthy rebound in operating performance, cash accrual should support the financial risk profile.
The addition of 180-200 screens every year at a cost of Rs 750-850 crore annually (including maintenance capex) should not materially increase debt as the capex will likely be funded through a prudent mix of internal accrual and debt. Therefore, the debt protection metrics are expected to remain healthy with interest coverage sustaining above 5 times over the medium term.
Moreover, PVR has strong ability to raise funds from capital markets as exhibited through Rs 1,100 crore of equity raised during fiscals 2021 and 2022 when the operations were impacted by the pandemic.
Weakness:
The film exhibition business is inherently susceptible to fluctuations in profitability due to variability in the performance of content and such fluctuations impact the multiplex players, given their high fixed costs, remain dependent on occupancy, which is driven by the success of films. In the post-pandemic era, the extent of variability in profitability has increased vis-à-vis pre-pandemic, when even films with poor reviews delivered average box office collection, supporting occupancy. The harsher impact of weak content on occupancy post-pandemic has made the film exhibition business much riskier. Other forms of entertainment and new content distribution platforms, including over-the-top, will continue to pose challenges in sustaining profitability and growth. |
Liquidity: Strong Liquidity for the combined entity was around Rs 400 crore as on March 31, 2023 (including unutilized OD lines). Moreover, cash accrual is expected to remain healthy over Rs 750 crore for fiscal 2024 against term loan obligations of Rs 311 crore and commercial paper repayment of Rs 50 crore during the fiscal. Capex planned over the medium term will likely be funded prudently through debt and internal accrual such that debt does not increase materially. |
Outlook: Positive CRISIL Ratings believes the business risk profile of PVR will improve with steady recovery in occupancy leading to higher revenue and operating margin, while the financial risk profile will benefit from strong accrual. |
Rating Sensitivity factors Upward factors
Downward factors
ESG profile CRISIL Ratings believes the Environment, Social, and Governance (ESG) profile of PVR supports its strong credit risk profile.
The media and entertainment sector has a low impact on the environment because of low greenhouse gas emissions in core operations as well as lower generation of hazardous waste. The sector has a social impact because of its large workforce. PVR has continuously focused on mitigating its environmental and social impact.
Key ESG highlights:
There is growing importance of ESG among investors and lenders. PVR’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given the high shareholding of foreign portfolio investors in the company. |
About the Company PVR was established in 1995 as a 60:40 JV between Priya Exhibitors Pvt Ltd and Village Roadshow Ltd (VRL), a world leader in the multiplex business. In 1995, PVR took a single-screen cinema hall, Anupam, in Saket, Delhi, on lease and converted it into a four-screen multiplex, which started operations in 1997 as PVR Anupam, and was the first multiscreen cineplex in India. As part of its global business strategy, VRL exited the JV in 2002.
In November 2012, PVR acquired Cinemax, strengthening its presence in west India. Cinemax operated in 39 locations with 138 screens. This acquisition made PVR the largest multiplex operator in India. In May 2016, it completed the acquisition of DT Cinemas' 32 screens (29 operational and 3 upcoming) for Rs 433 crore. In January 2017, Warburg Pincus LLC acquired a 14% stake in PVR—9% from current shareholders (Multiples Private Equity Fund I Ltd) and 5% from the promoters. In August 2018, PVR acquired SPI Cinemas, which added 76 screens to the company’s portfolio. In January 2023, the NCLT Mumbai Bench approved the proposed scheme of amalgamation of INOX with PVR and the merger was effective from February 6, 2023.
PVR had a net loss of Rs 2 crore and operating revenue of Rs 2,609 crore for the nine months ended December 31, 2022, as compared with a net loss of Rs 383 crore and operating revenue of Rs 794 crore in the corresponding period of the previous fiscal. |
Key Financial Indicators
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Any other information: Not applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
***Not yet issued *Letter of credit of Rs 10 crore as a sublimit and overdraft of Rs 12 crore as a sublimit # Letter of credit of Rs 10 crore as a sublimit and working capital demand loan for Rs 25 crore as a sublimit @Short-term line of credit of Rs 16 crore as a sublimit and bank guarantee and letter of credit aggregating to Rs 32 crore as a sublimit ** Bank guarantee of Rs 23.85 crore has a sublimit of Rs 16.44 crore issued to M/s Shouri Properties Pvt Ltd (subsidiary of INOX Leisure Ltd | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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*Letter of credit of Rs 10 crore as a sublimit and overdraft of Rs 12 crore as a sublimit
# Letter of credit of Rs 10 crore as a sublimit and working capital demand loan for Rs 25 crore as a sublimit
@Short-term line of credit of Rs 16 crore as a sublimit and bank guarantee and letter of credit aggregating to Rs 32 crore as a sublimit
** Bank guarantee of Rs 23.85 crore has a sublimit of Rs 16.44 crore issued to M/s Shouri Properties Pvt Ltd (subsidiary of INOX Leisure Ltd
Criteria Details
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