Rating Rationale
November 06, 2018 | Mumbai
PVR Limited
Rated amount enhanced
Rating Action
Total Bank Loan Facilities Rated Rs.448.33 Crore (Enhanced from Rs.348.33 Crore)
Long Term Rating CRISIL AA-/Stable (Reaffirmed)
Non-Convertible Debentures Aggregating Rs.685 Crore  CRISIL AA-/Stable (Reaffirmed)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
Detailed Rationale

CRISIL has reaffirmed its 'CRISIL AA-/Stable' rating on the long-term bank facilities and non-convertible debentures of PVR Limited (PVR).

The rating continues to reflect PVR's strong market position and established brand, healthy operating efficiency, and a comfortable financial risk profile. These strengths are partially offset by exposure to risks inherent in the film exhibition business.

On August 17, 2018, CRISIL had reaffirmed the rating following PVR's announcement of acquiring 71.69% stake in SPI Cinemas Pvt Ltd (SPI). Post-acquisition of SPI, PVR's market position in southern India will strengthen with the addition of 76 (72 operational and 4 awaiting license) screens. Therefore, contribution to PVR's screen portfolio from southern India will increase to 35% from 26% in FY19. The transaction is, however, expected to temporarily weaken PVR's financial risk profile due to increase in debt to around Rs 1,300 crore from Rs 832 crore as on March 31, 2018. The debt to EBITDA (earnings before interest, tax, depreciation, and amortisation) ratio will, therefore, increase from 2 times as on March 31, 2018, but will remain below 2.5 times at peak debt.

Analytical Approach

For arriving at the rating, CRISIL has combined the business and financial risk profiles of PVR and its subsidiaries. This is because both these entities, collectively referred to as PVR, are in the same business and have common promoters.

Key Rating Drivers & Detailed Description
* Strong market position and established brand: PVR is the largest multiplex operator in India with a strong brand equity. It has 711 screens and presence in over 153 locations and  60 cities as on September 30, 2018 Addition of SPI screens will lead to significant improvement in market position in South India and help diversify content as Tamil, Telugu, and Kannada languages account for 37% of total box office collection in India.

* Healthy operating efficiency: Presence in prime locations in major cities helps command a higher average ticket price than peers. Moreover, high-margin food and beverages revenue and advertisement revenue (together 37-39% of total income) remain high. Acquisition of SPI will further strengthen operating efficiencies as the company had high occupancy of 58% in fiscal 2018. Furthermore, increasing scale of operations should enable higher bargaining power with advertisers and suppliers, which will further support operating efficiencies.

* Comfortable financial risk profile: PVR has followed a prudent funding strategy for both organic and inorganic expansions. Hence, gearing remains healthy and debt protection metrics robust, despite significant expansion in scale in recent years. Debt was Rs 832 crore and gearing 0.91 time as on March 31, 2018. Interest coverage and net cash accrual to total debt ratios were 5.1 times and 0.33 time, respectively, in fiscal 2018. Though debt is expected to increase significantly with SPI's acquisition (estimated peak debt of Rs 1,300 crore), financial risk profile is expected to remain healthy with steady accrual. Debt to EBITDA ratio is expected to remain below 2.5 times. Organic expansion plans, its funding, and consequent impact on debt and financial risk profile need to be closely monitored.

* Exposure to risks inherent in the film exhibition business: Volatility in profitability, inherent in the film exhibition business, will continue to impact PVR, though this will be cushioned marginally by large scale of operations. Multiplex players, given their high fixed costs, will remain dependent on occupancy, which is driven by success of films (occupancy was 33% and 30% in the quarter ended September 30, 2018, and September 30, 2017, respectively). Other forms of entertainment and new properties expose the company to challenges of sustaining profitability and growth.
Outlook: Stable

CRISIL believes PVR will continue to benefit over the medium term from its dominant market position and strong brand equity.

Upside scenario
* Sustained improvement in operating profitability and scale of operations
* Significant reduction in debt leading to steady improvement in financial risk profile

Downside scenario
* Sizeable, debt-funded capital expenditure or acquisitions affecting financial risk profile
* Weaker-than-expected operating performance.

About the Company

PVR was set up in 1995 as a 60:40 joint venture (JV) between Priya Exhibitors Pvt Ltd and Village Roadshow Ltd (VRL), a world leader in the multiplex business. In the same year, PVR took a single-screen cinema hall, Anupam, at Saket in Delhi, on lease and converted it into a four-screen multiplex. It started operations in 1997 as PVR Anupam and was the first multi-screen 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 western 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 a consideration of Rs 433 crore. PVR had raised equity of Rs 350 crore in fiscal 2016 to part-fund the acquisition. The balance was to be funded through debt and internal cash accrual. During January 2017, Warburg Pincus Llc acquired 14% stake in the company, 9% from its existing shareholders (Multiples Private Equity Fund I Ltd), and 5% from promoters.

For the six months ended September 30, 2018, operating income was Rs 1337 crore and profit after tax (PAT) Rs 81 crore, against Rs 1153 crore and Rs 65 crore, respectively, for the corresponding period of the previous fiscal.

Key Financial Indicators
As on/for the period ended March 31 Unit 2018 2017
Revenue Rs crore 2,334 2,119
Profit After Tax (PAT) Rs crore 125 96
PAT Margin % 5.4 4.5
Adjusted debt/adjusted networth Times 0.91 0.97
Interest coverage Times 5.13 4.61
Numbers as reported by the company

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
ISIN Name of Instrument Date of Allotment Coupon Rate (%) Maturity Date Issue Size
Rating Assigned with Outlook
INE191H07011 Debentures* 01-Jan-10 11.40% 01-Jan-17 2 CRISIL AA-/Stable
INE191H07029 Debentures* 01-Jan-10 11.40% 01-Jan-18 2 CRISIL AA-/Stable
INE191H07037 Debentures 01-Jan-10 11.40% 01-Jan-19 3 CRISIL AA-/Stable
INE191H07045 Debentures 01-Jan-10 11.40% 01-Jan-20 3 CRISIL AA-/Stable
INE191H07060 Debentures 25-Feb-14 10.95% 25-Feb-19 50 CRISIL AA-/Stable
INE191H07078 Debentures 10-Jun-14 10.75% 10-Jun-19 50 CRISIL AA-/Stable
INE191H07128 Debentures* 16-Oct-14 11.00% 16-Oct-18 25 CRISIL AA-/Stable
INE191H07136 Debentures 16-Oct-14 11.00% 16-Oct-19 25 CRISIL AA-/Stable
INE191H07144 Debentures 16-Oct-14 11.00% 16-Oct-20 25 CRISIL AA-/Stable
INE191H07151 Debentures 16-Oct-14 11.00% 16-Oct-21 25 CRISIL AA-/Stable
INE191H07169 Debentures 24-Nov-14 11.00% 24-Nov-19 15 CRISIL AA-/Stable
INE191H07177 Debentures 24-Nov-14 11.00% 24-Nov-20 15 CRISIL AA-/Stable
INE191H07185 Debentures 24-Nov-14 11.00% 24-Nov-21 20 CRISIL AA-/Stable
INE191H07193 Debentures 09-Jan-15 10.75% 08-Jan-21 50 CRISIL AA-/Stable
INE191H07201 Debentures 09-Jan-15 10.75% 07-Jan-22 50 CRISIL AA-/Stable
INE191H07219 Debentures* 29-Jul-16 8.90% 31-Jul-17 16.5 CRISIL AA-/Stable
INE191H07227 Debentures* 29-Jul-16 8.90% 31-Jul-18 16.5 CRISIL AA-/Stable
INE191H07235 Debentures 29-Jul-16 8.90% 31-Jul-19 17 CRISIL AA-/Stable
INE191H07243 Debentures 12-Jan-17 7.84% 10-Jul-20 50 CRISIL AA-/Stable
INE191H07250 Debentures 03-Apr-17 8.05% 02-Apr-21 25 CRISIL AA-/Stable
INE191H07268 Debentures 03-Apr-17 8.15% 02-Apr-22 50 CRISIL AA-/Stable
INE191H07276 Debentures 18-Aug-17 7.85% 18-Aug-22 50 CRISIL AA-/Stable
INE191H07284 Debentures 16-Apr-18 8.72% 16-Apr-21 10 CRISIL AA-/Stable
INE191H07292 Debentures 16-Apr-18 8.72% 15-Apr-22 20 CRISIL AA-/Stable
INE191H07300 Debentures 16-Apr-18 8.72% 14-Apr-23 20 CRISIL AA-/Stable
NA   Debentures** NA NA NA 50 CRISIL AA-/Stable
NA Long-Term Loan NA NA Sep-2019 25.73 CRISIL AA-/Stable
NA Long-Term Loan NA NA May-2024 170.4 CRISIL AA-/Stable
NA Long-Term Loan NA NA May-2025 127.2 CRISIL AA-/Stable
NA Long-Term Loan NA NA Sept-2025  100 CRISIL AA-/Stable
NA Working Capital Facility NA NA NA 25.00 CRISIL AA-/Stable
*CRISIL is awaiting independent confirmation of redemption before withdrawing ratings on these instruments
**Yet Not Issued
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Non Convertible Debentures  LT  598.00
CRISIL AA-/Stable  17-08-18  CRISIL AA-/Stable  26-12-17  CRISIL AA-/Stable  21-07-16  CRISIL AA-/Stable  22-07-15  CRISIL A+/Stable  CRISIL A+/Positive 
            10-08-17  CRISIL AA-/Stable  21-06-16  CRISIL AA-/Stable  11-06-15  CRISIL A+/Watch Developing   
            24-03-17  CRISIL AA-/Stable  22-01-16  CRISIL A+/Positive  07-01-15  CRISIL A+/Stable   
            06-01-17  CRISIL AA-/Stable           
Fund-based Bank Facilities  LT/ST  448.33  CRISIL AA-/Stable  17-08-18  CRISIL AA-/Stable  26-12-17  CRISIL AA-/Stable  21-07-16  CRISIL AA-/Stable  22-07-15  CRISIL A+/Stable  CRISIL A+/Positive 
            10-08-17  CRISIL AA-/Stable  21-06-16  CRISIL AA-/Stable  11-06-15  CRISIL A+/Watch Developing   
            24-03-17  CRISIL AA-/Stable  22-01-16  CRISIL A+/Positive  07-01-15  CRISIL A+/Stable   
            06-01-17  CRISIL AA-/Stable           
All amounts are in Rs.Cr.
Annexure - Details of various bank facilities
Current facilities Previous facilities
Facility Amount (Rs.Crore) Rating Facility Amount (Rs.Crore) Rating
Long Term Loan 423.33 CRISIL AA-/Stable Long Term Loan 323.33 CRISIL AA-/Stable
Working Capital Facility 25 CRISIL AA-/Stable Working Capital Facility 25 CRISIL AA-/Stable
Total 448.33 -- Total 348.33 --
Links to related criteria
CRISILs Approach to Financial Ratios
CRISILs Bank Loan Ratings - process, scale and default recognition
Rating criteria for manufaturing and service sector companies
CRISILs Criteria for Consolidation

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