VISIT NOTE

PVR Box -office coffers likely to jingle again from June

India Equity Research| Media

EDELWEISS 4D RATINGS In our recent meeting with Mr. Nitin Sood, CFO, PVR, he was optimistic Absolute Rating BUY about FY15 despite mediocre show in Q3FY14 and lacklustre initial two months of Q4FY14. In March 2014, PVR saw ~20% YoY increase in Rating Relative to Sector Performer footfalls led by hit movies like Queen and Shaadi Ke Side Effects . With Q4 Risk Rating Relative to Sector Medium Sector Relative to Market Overweight being a seasonally weak quarter, we expect PVR to report after-tax loss for the quarter under review. Incrementally, benefits arising from

Cinemax acquisition will be more in terms of robust F&B and ad revenue MARKET DATA (R: PVRL.BO, B: PVRL IN) growth. Company will benefit from huge expansion potential (in 2013, CMP : INR 536 ~5,000 multiplex screens opened in China, while added ~300), likely Target Price : INR 589 urban revival, partial shift of IPL outside India and a relatively stronger 52-week range (INR) : 658 / 275 movie pipeline from June 2014. Also, post disappointing Q3FY14 Share in issue (mn) : 40.0 performance the stock has corrected by ~18%. Recommend ‘BUY’ on dips. M cap (INR bn/USD mn) : 21 / 358 Avg. Daily Vol.BSE/NSE(‘000) : 90.4

Margin expansion to be driven by high F&B and ad revenue growth SHARE HOLDING PATTER N (%) Company expects share of food and beverage (F&B) and ad revenues to increase by Current Q2FY14 Q1FY14 200-300bps (currently ~34% of revenues) over next few years. This should lead to Promoters * 29.8 31.0 31.0 margin expansion as these are higher-margin segments. MF's, FI's & BK’s 17.2 18.7 19.6

Consumer discretionary spends witness green offshoots in March FII's 18.4 15.2 13.5 Others 34.6 35.1 35.9 As per Shoppers Stop, there has been buoyant surge in footfalls in departmental stores * Promoters pledged shares : 1.2 in March 2014 . In another example of some recovery in consumer discretionary space, (% of share in issue)

two-wheelers reported healthy double-digit growth in March. PVR management remains confident that even if there is any slowdown in consumer discretionary space, PRIC E PERFORMANCE (%) EW Media it will not hamper footfalls at multiplexes. Stock Nifty Index

Outlook and valuations: Positive; recommend ‘BUY’ on dips 1 month (9.0) 6.5 4.9 3 months (23.0) 5.2 (0.1) We are enthused by PVR’s sharp expansion in exhibition business and the movie 12 months 66.4 17.7 10.6 pipeline from June 2014. However, any further signs of box-office slowdown will be a

key monitorable. At CMP, the stock is trading at 30.6x and 18.3x FY15E and FY16E EPS, respectively. Maintain ‘BUY/Sector Performer’.

Financials Year to March FY13 FY14E FY15E FY16E Revenues (INR mn) 8,053 13,551 15,995 19,116 Rev. growth (%) 55.5 68.3 18.0 19.5 EBITDA (INR mn) 1,169 2,144 2,702 3,622 Abneesh Roy Net profit (INR mn) 456 456 720 1,202 +91 22 6620 3141 Share outstanding (mn) 40 40 40 40 [email protected]

Diluted EPS (INR) 11.5 11.1 17.5 29.2 Alankar Garude EPS growth (%) 8.5 (4.2) 58.5 66.7 +91 22 6623 3301 Diluted P/E (x) 46.4 48.5 30.6 18.3 [email protected]

EV/EBITDA (x) 23.9 13.7 11.0 8.2 ROAE (%) 9.9 6.7 10.0 15.3 April 9, 2014 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL , Thomson First Call, Reuters and Factset. Edelweiss Securities Limited

Media

Management confident of better show in FY15 As per PVR, if there are three-four flop movies in succession, public sentiment towards movies is lowered. This happened in Q3FY14 when slew of movies like Besharam , Boss , R…Rajkumar and Gori Tere Pyaar Mein failed at the box office. In FY14, many mass entertaining movies were released. In FY15, as per management, the genre of movies is different as compared to FY14. Management expects PVR’s average ticket price (ATP) to increase by 4-5% YoY in FY15. Post revamp of Cinemax’s properties in Delhi, average spend per head has already increased from INR95 to INR120. In FY15, the company expects growth rate in F&B and ad revenues (both high-margin segments) to outpace box-office revenue growth, which should lead to margin expansion. Currently, ~66% of PVR’s revenue comes from box-office, with the balance flowing from F&B and ad revenues. Management targets Nitin Sood, CFO, PVR to increase share of above-mentioned high-margin segments by 200-300bps over ensuing years. However, growth potential of PVR’s ad revenues in smaller cities would be limited as price differential between cinema advertising and other media of advertising like print and radio is lower in smaller cities as compared to Tier 1 cities. Thus, in smaller cities, advertisers can choose media like print and radio which have higher reach than cinema advertising.

Consumer discretionary spends witness green offshoots in March As per PVR, primarily due to hit movies like Queen and Shaadi Ke Side Effects , there was ~20% YoY surge in footfalls in March 2014. As per Shoppers Stop too, there has been buoyant increase in footfalls in departmental stores in March . In another example of some recovery in consumer discretionary space, two-wheelers reported healthy double-digit growth in March. PVR management remains confident that any slowdown in consumer discretionary space will not hamper footfalls at multiplexes. Unlike commentary by some retail companies that stock market performance does have adverse impact on footfalls, PVR management maintains there is no correlation between multiplex footfalls and stock market performance.

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Table 1: Movie line-up in H1FY15 Release Date Movie Title Language Cast Banner 4-Apr-14 Hindi Varun Dhawan, 4-Apr-14 Jal Hindi Purab Kohli, Tannishtha Chatterjee 4-Apr-14 Captain America: The Winter Soldier English Chris Evans, Frank Grillo, Sebastian Stan Utv Software Communication Ltd. 11-Apr-14 Kaanchi Hindi Rishi Kapoor, Mithun Chakraborty, Kartik Mukta Arts Ltd. 11-Apr-14 Bhoothnath Returns Hindi Amitabh Bachan, Boman Irani 11-Apr-14 Kochadaiiyaan (Tentative) Hindi Rajnikanth, , Shobana Eros International Media Ltd. 11-Apr-14 Rio 2 (3D) English Anne Hathaway, Jesse Eisenberg, Jake T. Fox Star Studio 18-Apr-14 2 State Hindi , Alia Bhatt Utv Software Communication Ltd. 18-Apr-14 Transendence English Johnny Depp Pvr Pictures Ltd 25-Apr-14 Kuku Mathur Ki Jhand Ho Gayi Hindi Siddharth Gupta, Simran Kaur Mundi Bala Ji Motion Picture 25-Apr-14 Lateef Hindi Nawazuddin Siddiqui, Murli Sharma, Mukesh 2-May-14 Samrat & Co. Hindi Rajeev, Khandelwal Rajshri Productions Pvt. Ltd. 2-May-14 The Amazing Spiderman 2 (3D) English Andrew Garfield, Emma Stone, Jamie Foxx Spe Films India Pvt. Ltd. 9-May-14 Daawat -E- Ishq Hindi Aditya Roy Kapoor, Parineeti Chopra Yashraj Films 16-May-14 Heropanti Hindi Tiger Shroff, Kriti Sanon, Sandeepa Dhar Utv Software Communication Ltd. 16-May-14 Godzilla English Aaron Taylor Johnson, Elizabeth Olsen, Bryan Warner Bros. Pictures India Pvt. Ltd. 23-May-14 Hindi Sanjay Dutt, Emraan Hashmi, Kangna Ranaut 23-May-14 Saat Uchhakkey Hindi Manoj Bajpayee, Vijay Raaz Wave Cinemas 23-May-14 (3D) X-Men: Days Of Future Past English Hugh Jackman, Jennifer Lawrence Fox Star Studios 6-Jun-14 Holiday- A Soldier Is Never Off Duty Hindi Akshay Kumar, Sonakshi Sinha Reliance Big Entertainment 6-Jun-14 Action Jackson Hindi Ajay Devgan, Sonakshi Sinha 13-Jun-14 (3D) Edge Of Tomorrow English Tom Cruise, Emily Blunt, Bill Paxton Warner Bros. Pictures India Pvt. Ltd. 13-Jun-14 (3D) How To Train Your Dragon 2 English Jay Baruchel, Jonah Hill, Gerard Butler Fox Star Studios 20-Jun-14 Humshakals Hindi Saif Ali Khan, Ritiesh Deshmukh, Bipasha Fox Star Studio 27-Jun-14 The Villain Hindi Siddharth Malhotra, Ritiesh Deshmukh Balaji Motion Pictures 4-Jul-14 Mary Kom Hindi Priyanka Chopra Viacom18 Media Pvt. Ltd 4-Jul-14 Finding Fanny Hinglish Arjun Kapoor, Deepika Padukone Fox Star Studio 11-Jul-14 Humpty Sharma Ki Dulhania Hindi Varun Dhawan, Alia Bhatt Dharma Productions 11-Jul-14 Fast & Furious 7 English Vin Diesal, Paul Walker, Dwayne Johnson Universal Picture India 11-Jul-14 (3D) Dawn Of The Planet Of The Apes English Gary Oldman, Keri Russell, Judy Greer , Andy Fox Star Studio 18-Jul-14 Mardaani Hindi Rani Mukharji Yashraj Films 27-Jul-14 Kick Hindi Salman Khan, Jacqueline Fernandez, Randeep Utv Software Communication Ltd. 8-Aug-14 Its Entertainment Hindi Akshay Kumar, Tamanhaa Bhatia, Prakash Tips Films 15-Aug-14 Singham 2 Hindi Ajay Devgan, Reliance Big Entertainment 5-Sep-14 Kill Dil Hindi , Ali Zafar, Parineeti Chopra Yashraj Films 12-Sep-14 Roy Hindi Ranbir Kapoor, Jacqueline Fernandez, Arjun 12-Sep-14 Haider Hindi , Shradhha Kapoor, Tabu Utv Software Communication Ltd. 12-Sep-14 Nh10 Hindi Source: Company, Edelweiss research

PVR enjoys edge over smaller multiplexes and single screens Due to its huge scale, content cost payout of smaller multiplexes is 75-100bps higher than that of PVR (~46% of box office revenues for PVR). Smaller multiplexes often have to sign at least a two-week contract with producers and distributors. This means that even if a movie fails at the box office, the multiplex operator is obliged to screen the movie and suffer from lower footfalls. In case of PVR, all contracts are signed for a period of one week. For Hollywood movies and even smaller-budget Bollywood movies, PVR enjoys an advantage as it gets majority of the movie prints. For instance, in the recently released movie Hollywood movie Sabotage , not many multiplexes apart from PVR got the opportunity to screen it.

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Cannibalisation does hit footfalls Though cannibalisation is not a major factor currently for PVR, few geographies in India do have huge concentration of multiplexes. For instance, there are three properties in a one km radius in Andheri, Mumbai. One is a Cinemax property, second erstwhile Fame (acquired by PVR) and the third is Fun Cinemas. The erstwhile Fame property shut operations for eight- nine months for maintenance purposes. Post re-opening, due to cannibalisation, footfalls at Cinemax dropped by 15% YoY and at Fun Cinemas by 6% YoY. However, a revamped Fame saw 65% increase in footfalls from earlier levels. Combined footfalls of all three properties increased from 15mn earlier to 19.5mn. As per PVR management, it will take two-three years for footfalls growth to return to earlier levels. Cannibalisation is also being seen in Pune, where there is huge concentration of malls.

Convenience fee directive by Bombay HC a negative As per a Bombay High Court directive of March 2014, movie theatres and multiplexes in Maharashtra would have to set up their own website and provide online ticket booking facility without levying any convenience charge. This is a negative for PVR as convenience fees accounted for ~1% of its total revenues in FY13. As per management, if Indian Railway Catering and Tourism Corporation (IRCTC) can charge surcharge on each train ticket booking, logically even multiplex operators can charge extra for online ticket booking since it involves maintaining the website and having a dedicated staff for the same. Apart from these costs, PVR also has to pay ~1.5% surcharge per transaction to credit card companies. As per the High Court directive, as of now, PVR is not charging any convenience fee in Maharashtra.

Total multiplex screens in India lag other countries In 2013, ~5,000 multiplex screens were opened in China, while in India mere ~300 multiplex screens were started. On an average, PVR exhibits 5.75 shows per day, while in the US major multiplexes show 3.5 shows per day. Hence, a like-to-like comparison of PVR’s occupancy level with US multiplexes is not possible. In India, there are 150,000 persons per screen. This figure is 40,000 in the US, ~90,000 in Thailand and ~110,000 in Korea. Globally, 4-5% revenues are through alternate content like FIFA , parties, etc.

Early TV premieres pose risk to multiplexes The time interval between cinema and TV premieres of a movie is around three months in the US. In India, the time interval is much lower at ~40-45 days. At present, this poses a risk to PVR’s revenues. However, eventually, management expects this time interval between cinema and TV premiere to increase from current levels to two-three months.

Other key highlights • PVR’s expansion plans remain on track and management aims to reach 500 screens in FY15 and 1,000 screens till FY18 end. • Company cannot change ticket prices mid-week. • It has ~40% market share in . • Megaplexes (12-18 screens per property) help in better screen optimisation and have lower capex per screen. • PVR has started offering some promotions, which have been received well by customers. Internet-based promotions were higher in Q4FY14 versus Q3FY14. • Failure rates are higher for smaller movies.

4 Edelweiss Securities Limited PVR

• Large corporate houses like Eros, Yashraj and Reliance produce as well as distribute movies.

Outlook and valuations: Positive; recommend ‘BUY’ on dips Box office performance has been more muted in Q3FY14 and first two months of Q4FY14 as compared to our expectations. This has resulted in rationalisation of footfall assumptions. However, we remain enthused by the movie lineup from June 2014 and expect PVR to be a key beneficiary of possible uptick in urban consumption. Going ahead, we expect operational synergies due to Cinemax acquisition to kick in further. Also, despite the acquisition, PVR’s and Cinemax’s expansion plans continue to be on track. Bargaining power of the combined entity is expected to improve significantly. Maintaining our FY16E P/E target multiple of 20x for PVR, we derive a target price of INR589 (INR651 earlier). At CMP, the stock is trading at 30.2x and 18.2x FY15E and FY16E earnings, respectively. We maintain ‘BUY/ Sector Performer ’.

Chart 1: PVR (excluding Cinemax) has increased ATP by 5.8% YoY in Q3FY14 200

180

160 (INR) 140

120

100

Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Chart 2: PVR’s footfalls growth (excluding Cinemax) was muted in Q3FY14 12.0

9.6

7.2

(mn) 4.8

2.4

0.0 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Source: Company, Edelweiss research

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Chart 3: Average food & beverage realisation (LTL) for PVR surged by 19% YoY 59

54

49 (INR) 44

39

34 Q3FY11 Q4FY11 Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14

Source: Company, Edelweiss research

Table 2: Number of properties Q4FY13 Q1FY14 Q2FY14 Q3FY14 PVR + Cinemax PVR + Cinemax PVR + Cinemax PVR + Cinemax East 4 4 5 5 West 46 46 47 48 North 25 28 29 30 South 10 11 11 12 Total 85 89 92 95

Table 3: Number of screens Q4FY13 Q1FY14 Q2FY14 Q3FY14 PVR + Cinemax PVR + Cinemax PVR + Cinemax PVR + Cinemax East 14 14 19 19 West 186 187 194 196 North 96 109 112 116 South 64 73 73 77 Total 360 383 398 408

Table 4: Number of seats Q4FY13 Q1FY14 Q2FY14 Q3FY14 PVR + Cinemax PVR + Cinemax PVR + Cinemax PVR + Cinemax East 3,868 3,868 5,014 5,014 West 47,572 47,693 49,212 49,537 North 23,343 26,171 26,852 27,605 South 14,383 15,657 15,657 16,616 Total 89,166 93,389 96,735 98,772 Source: Company, Edelweiss research

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Table 5: Segmental performance Segment revenues Q1FY12 Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Q1FY14 Q2FY14 Q3FY14 Movie Exhibition 1,061 1,278 1,282 1,044 1,478 1,784 1,873 2,147 3,131 3,434 3,162 Movie production & distribution 81 84 103 73 230 72 72 179 63 61 68 Bowling Alleys 40 37 55 68 73 87 100 138 189 187 172 Inter segment rev./elimination (10) (15) (26) (8) (90) (22) (22) (20) (31) (24) (29) Total 1,171 1,384 1,413 1,177 1,690 1,921 2,023 2,444 3,352 3,658 3,373

Segment results (EBIT) Movie Exhibition 113 202 161 (45) 141 264 269 (48) 419 542 276 Movie production & distribution (46) 11 5 17 10 12 - 4 (10) 0 25 Bowling Alleys 12 4 (1) 2 10 4 (6) (8) 2 (3) (17) Inter segment rev./elimination 0 (0) - (6) (2) (2) (37) 42 (1) (1) (1) Total 80 217 165 (32) 159 277 226 (10) 412 539 284 Interest (net)/dividend 19 13 36 29 39 43 81 157 173 197 186 Exceptional items 122 (0) (145) - - - 13 41 23 - Profit before tax 61 204 129 (61) 120 234 145 (167) 238 342 99 Source: Company, Edelweiss research

Change in Estimates FY15E FY16E New Old % change New Old % change Comments Net revenue 15,994 16,887 (5.3) 19,116 19,479 (1.9) Revenue estimates have been tempered slightly mainly due to average movie line-up. EBITDA 2,702 3,271 (17.4) 3,622 3,815 (5.1) Fixed cost nature of business and higher S, G & A expenses. EBITDA margin 16.9 19.4 18.9 19.6 Core profit 728 1,160 (37.2) 1,209 1,335 (9.4) Mainly flow-through from EBITDA. PAT margin 4.6 6.9 6.3 6.9 Capex 2,420 2,420 2,110 2,110

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Company Description PVR was incorporated in 1995 pursuant to a JV with Village Roadshows, one of the largest cinema exhibition companies in the world. It opened its first multiplex in Delhi in 1997. In November 2002, Village Roadshows divested its stake in PVR as part of an overall strategy to rationalize its operations across 18 countries. It has also ventured into retail entertainment and management of food courts to diversify its revenue stream. PVR operates a bowling business PVR bluO Entertainment, in partnership with Major Cineplex Group, a leading provider of lifestyle entertainment in Thailand. In November 2012, PVR announced the acquisition of Cinemax, making the combined entity the largest multiplex operator in India.

Investment Theme PVR has 267 screens while that of Cinemax is 137 taking the total to 404 screens as of Q3FY14 end. The company plans to add 70-80 screens in FY15. With its primary focus on the movie exhibition business, PVR has decided to go slow in the loss-making movie production business. Increasing 3D content will further enhance revenues. Cinemax acquisition is expected to create operating synergies going ahead.

Key Risks High debt levels, delay in rollout of proposed multiplexes, higher share of net box office collections to the distributor for movie rights, unavailability of quality content, and competition from other forms of entertainment are some of the key risks to our recommendation.

8 Edelweiss Securities Limited PVR

Financial Statements

Key Assumptions Income statement (INR mn) Year to March FY13 FY14E FY15E FY16E Year to March FY13 FY14 FY15E FY16E Macro Net revenue 8,053 13,551 15,995 19,116 GDP(Y -o-Y %) 5.0 4.8 5.4 6.3 Direct costs 2,764 4,573 5,265 6,144 Inflation (Avg) 7.4 6.2 5.5 6.0 Employee costs 796 1,248 1,426 1,624 Repo rate (exit rate) 7.5 8.0 7.5 7.0 Total SG&A expenses 3,324 5,586 6,602 7,726 USD/INR (Avg) 54.5 62.0 60.0 58.0 EBITDA 1,169 2,144 2,702 3,622 Company Depreciation & Amortization 560 819 973 1,131 Sales assumptions EBIT 609 1,325 1,728 2,491 Ad revenue growth (%) 31.5 25.0 15.0 18.0 Other income 91 81 117 140 Average Ticket Price (ATP) 171.0 175.0 178.0 182.0 Interest expenses 368 849 886 914 Footfalls (mn) 55 35 42 48 Exceptionals (12) 6 - - F&B revenues (% of rev.) 19.3 20.9 20.1 20.2 Profit before tax 332 557 960 1,716 SPH (INR) 47.0 50.0 55.0 60.0 Provision for tax (124) 100 240 515 Prod/distrn revenues (% of rev.) 4.3 2.4 1.8 1.8 Net profit 456 456 720 1,202 Bowling revenues (% of rev.) 1.8 2.0 2.9 2.8 Profit After Tax 443 462 720 1,202 Cost assumptions Minority interest (2) 15 20 35 COGS of F&B (% of F&B rev.) 30.9 32.0 31.0 29.5 Profit after minority interest 445 447 700 1,167 Movie distribution cost (% distribution rev.) 54.1 54.0 51.0 51.0 Shares outstanding (mn) 40 40 40 40 Personnel cost (% of rev.) 9.9 9.2 8.9 8.5 Diluted EPS (INR) 11.5 11.1 17.5 29.2 Rent expenses (% of rev.) 14.2 14.4 14.3 14.2 Dividend per share (INR) 1.0 3.4 5.3 8.8 Financial assumptions Dividend payout (%) 8.7 30.4 30.0 30.0 Tax rate (%) (37.3) 18.0 25.0 30.0

Capex (INR mn) 4,343 2,485 2,420 2,110 Common size metrics Debtor days 16 18 19 17 Year to March FY13 FY14 FY15E FY16E Inventory days 12 15 15 15 S G & A expenses 41.3 41.2 41.3 40.4 Payable days 100 92 92 95 Direct Cost 34.3 33.7 32.9 32.1 Cash conversion cycle (days) (72) (59) (59) (64) EBITDA margins 14.5 15.8 16.9 18.9 Interest rate on o/standing debt (%) 8.5 12.3 11.5 11.3 Net profit margins 5.7 3.4 4.5 6.3 Depreciation as % of gross block 5.7 6.6 6.2 6.2

Growth ratios (%) Year to March FY13 FY14 FY15E FY16E Revenues 55.5 68.3 18.0 19.5 EBITDA 53.7 83.4 26.0 34.1 Net profit 66.0 0.2 57.7 66.9 EPS 8.5 (4.2) 58.5 66.7

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Balance sheet (INR mn) Cash flow metrics As on 31st March FY13 FY14 FY15E FY16E Year to March FY13 FY14 FY15E FY16E Equity capital 396 399 399 399 Operating cash flow 1,530 2,200 3,107 3,323 Reserves & surplus 6,031 6,338 6,821 7,632 Investing cash flow (8,073) (2,240) (2,853) (1,970) Shareholders funds 6,427 6,737 7,221 8,031 Financing cash flow 6,612 (247) (302) (1,270) Minority interest (BS) 854 869 889 924 Net cash flow 69 (287) (48) 82 Short term debt 776 500 800 800 Capex (4,343) (2,485) (2,420) (2,110) Long term debt 5,790 6,800 7,300 7,300 Dividends paid (46) (141) (216) (356) Borrowings 6,566 7,300 8,100 8,100

Deferred tax liability (10) (10) (10) (10) Profitability & efficiency ratios Sources of funds 13,838 14,897 16,200 17,045 Year to March FY13 FY14 FY15E FY16E Tangible assets 5,718 7,560 9,005 10,126 ROAE (%) 9.9 6.7 10.0 15.3 Intangible assets 4,242 4,219 4,221 4,179 ROACE (%) 6.6 9.4 11.5 15.7 CWIP (incl. intangible) 1,453 1,300 1,300 1,200 Inventory day 12 15 15 15 Total net fixed assets 11,413 13,079 14,526 15,505 Debtors days 16 18 19 17 Non current investments 16 16 16 16 Payable days 100 92 92 95 Current Investments 364 200 750 750 Current ratio 2.2 1.6 1.5 1.4 Cash and equivalents 368 81 33 115 Debt/EBITDA 5.6 3.4 3.0 2.2 Inventories 107 268 150 338 Debt/Equity 1.0 1.1 1.1 1.0 Sundry debtors 425 911 710 1,070 Adjusted debt/equity 1.0 1.1 1.1 1.0 Loans and advances 2,551 2,551 2,551 2,551 Interest coverage 1.7 1.6 2.0 2.7 Other current assets 607 607 607 607

Total current assets (ex cash) 4,071 4,554 4,784 5,333 Operating ratios Trade payable 1,021 1,284 1,370 1,828 Year to March FY13 FY14 FY15E FY16E Others current liabilities 992 1,532 1,772 2,079 Total asset turnover 0.9 0.9 1.0 1.1 Total CL & provisions 2,014 2,816 3,142 3,907 Fixed asset turnover 1.3 1.2 1.3 1.4 Net current assets (ex cash) 2,057 1,737 1,642 1,426 Equity turnover 1.7 2.1 2.3 2.5 Uses of funds 13,838 14,897 16,200 17,045

Book value per share (INR) 162.2 168.8 180.9 201.2 Valuation parameters Year to March FY13 FY14 FY15E FY16E

Free cash flow (INR mn) Diluted EPS (INR) 11.5 11.1 17.5 29.2 Year to March FY13 FY14 FY15E FY16E Y-o-Y growth (%) 8.5 (4.2) 58.5 66.7 Net profit 445 447 700 1,167 CEPS (INR) 25.7 31.6 41.9 57.6 Depreciation 560 819 973 1,131 Diluted PE (x) 46.4 48.5 30.6 18.3 Others (31) 777 789 810 Price/BV (x) 3.3 3.2 3.0 2.7 Gross cash flow 974 2,044 2,462 3,107 EV/Sales (x) 3.5 2.2 1.9 1.5 Less: Changes in WC (556) (156) (645) (216) EV/EBITDA (x) 23.9 13.7 11.0 8.2 Operating cash flow 1,530 2,200 3,107 3,323 Dividend yield (%) 0.2 0.6 1.0 1.6 Less: Capex 4,343 2,485 2,420 2,110 FCFPS (INR) (71.0) (7.1) 17.2 30.4

Free cash flow (2,813) (285) 687 1,213

Peer comparison valuation Market cap Diluted PE (X) EV/EBITDA (X) ROAE (%) Name (USD mn) FY15E FY16E FY15E FY16E FY15E FY16E PVR 358 30. 6 18.3 11.0 8.2 10.0 15.3 DEN Networks 580 35.0 26.9 7.8 7.3 5.1 6.2 Dish TV India 885 - - 7.7 6.0 - - Hathway Cable & Datacom 614 - - 12.6 11.3 (9.3) (7.4) Sun TV Network 2,635 17.3 14.9 8.0 6.7 27.6 28.5 Zee Entertainment Enterprises 4,397 23.7 18.3 16.3 12.1 22.4 24.5 Median - 20.5 16.6 9.5 7.7 7.6 10.8 AVERAGE - 17.7 13.1 10.6 8.6 9.3 11.2 Source: Edelweiss research

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Additional Data

Directors Data Ajay Bijli Promoter, Executive Director Sanjeev Kumar Executive Director Vicha Poolvaraluk Non Executive, Non Independent Vikram Bakshi Non Executive, Independent Sanjai Vohra Non Executive, Independent Sanjay Khanna Non Executive, Independent Renuka Ramnath Non Executive, Non Independent Ravinder Singh Thakran Non Executive, Non Independent Amit Burman Non Executive, Non Independent

Auditors - S.R. Batliboi & Co. *as per last annual report

Holding – Top10 Perc. Holding Perc. Holding L Capital Eco Ltd 15.61 Multiples Pvt Eqy Fii I 11.62 Major Cineplex Group Pcl 6.39 India Advantage Fund Vi 5.05 Multiples Pvt Eqy Fund 3.99 Sbi Funds Mgmt Ltd 3.30 Morgan Stanley Asia/Singapore 3.02 Macquarie Bank Limited 2.25 Idfc Mutual Fund 2.13 Tree Line Asia Master Fund 1.9 *as per last available data

Bulk Deals Data Acquired / Seller B/S Qty Traded Price 09 May 2013 Macquarie Bank Ltd Buy 268576 352.72

*in last one year

Insider Trades Reporting Data Acquired / Seller B/S Qty Traded

*in last one year

11 Edelweiss Securities Limited RATING & INTERPRETATION

Company Absolute Relative Relative Company Absolute Relative Relative reco reco risk reco reco Risk DEN Networks BUY SP M Dish TV India BUY SP M Hathway Cable & Datacom BUY SO M PVR BUY SP M Sun TV Network BUY SP M Zee Entertainment Enterprises BUY SO M

ABSOLUTE RATING

Ratings Expected absolute returns over 12 months

Buy More than 15%

Hold Between 15% and - 5%

Reduce Less than -5%

RELATIVE RETURNS RATING

Ratings Criteria Sector Outperformer (SO) Stock return > 1.25 x Sector return

Sector Performer (SP) Stock return > 0.75 x Sector return

Stock return < 1.25 x Sector return

Sector Underperformer (SU) Stock return < 0.75 x Sector return

Sector return is market cap weighted average return for the coverage universe within the sector

RELATIVE RISK RATING

Ratings Criteria

Low (L) Bottom 1/3rd percentile in the sector

Medium (M) Middle 1/3rd percentile in the sector

High (H) Top 1/3rd percentile in the sector

Risk ratings are based on Edelweiss risk model

SECTOR RATING

Ratings Criteria Overweight (OW) Sector return > 1.25 x Nifty return

Equalweight (EW) Sector return > 0.75 x Nifty return

Sector return < 1.25 x Nifty return

Underweight (UW) Sector return < 0.75 x Nifty return

12 Edelweiss Securities Limited PVR

Edelweiss Securities Limited, Edelweiss House, off C.S.T. Road, Kalina, Mumbai – 400 098. Board: (91-22) 4009 4400 , Email : [email protected] Vikas Khemani Head Institutional Equities vikas.khemani@edel weissfin .com +91 22 2286 4206

Nischal Maheshwari Co-Head Institutional Equities & Head Research [email protected] +91 22 4063 5476

Nirav Sheth Head Sales [email protected] +91 22 4040 7499

Coverage group(s) of stocks by primary analyst(s): Media DEN Networks, Dish TV India, Hathway Cable & Datacom, PVR, Sun TV Network, Zee Entertainment Enterprises

Recent Research

Date Company Title Price (INR) Recos

01 -Apr -14 Media Tariff hike a distinct positive for broadcasters; EdelFlash 26 -Mar -14 Sun TV Ad growth, subscription 391 Buy Network revenue potential aces; Visit Note 20 -Mar -14 Media Makeover to usher in better times; Sector Update

Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation

Buy Hold Reduce Total Rating Expected to

Rating Distribution* 133 40 16 190 Buy appreciate more than 15% over a 12-month period * 1 stocks under review Hold appreciate up to 15% over a 12-month period > 50bn Between 10bn and 50 bn < 10bn

Reduce depreciate more than 5% over a 12 -month period Market Cap (INR) 126 55 9

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