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Initiating Coverage | 26 August 2013 Sector: Entertainment PVR

First Choice Niket Shah ([email protected]); +91 22 3982 5426 Investors are advised to refer through disclosures made at the end of the Research Report. PVR

PVR: First Choice

Page No.

Summary ...... 3-5

India’s largest and fastest growing multiplex chain ...... 5-11

Profitability higher than peers; to improve further ...... 12-19

Evolving into a lifestyle entertainment company...... 20-22

Expect earnings CAGR of 49% over FY13-15 ...... 23-24

Initiating coverage with a Buy rating...... 25-26

Annexure-I: Company background ...... 27-29

Annexure-II: Key industry trends ...... 30-36

Financials and valuation...... 37-38

26 August 2013 2 Initiating Coverage | 26 August 2013 Sector: Entertainment PVR BSE SENSEX S&P CNX 18,519 5,472 CMP: INR368 TP: INR470 Buy First choice; aggressive expansion extending leadership Initiating coverage with a Buy rating

 Post the acquisition of , PVR has become ’s largest multiplex chain with 89 Bloomberg PVR IN properties, 383 screens and 93k seats. Being the only player that is still expanding Equity Shares (m) 39.6 aggressively, it is further extending its leadership. M.Cap. (INR b)/(USD b) 14.4/0.3  With 55m footfalls annually, 23-25% box office share and 30-35% Hollywood 52-Week Range (INR) 375/179 box office share, we expect PVR to attract greater ad spends. Post amalgamation of 1,6,12 Rel. Perf. (%) 13/18/94 Cinemax, PVR will get the benefit of economies of scale, helping to reduce costs in the F&B segment, a 70% gross margin business. Financials & Valuation (INR b)  Besides film exhibition and distribution, it is expanding in lifestyle/entertainment Y/E March 2013 2014E 2015E businesses like restaurants, coffee shops, gaming zones and in-mall entertainment. Sales 8.1 14.3 17.3  We expect PVR’s revenues to grow at a CAGR of 47% and net profit at a CAGR of 49% EBITDA 1.2 2.3 2.9 over FY13-15. RoCE and RoE should improve from 7.6% and 7.8%, respectively, to NP 0.4 0.6 1.0 13.3% and 15% in FY15, aided by merger synergies and lower capex. EPS (INR) 11.2 15.4 24.2  We value PVR at 8.5x FY15E EV/EBITDA, in line with most global players. We initiate EPS Gr. (%) 14.7 36.6 57.5 coverage with a Buy rating and a target price of INR470. BV/Sh (INR) 162.2 171.2 191.9 RoE (%) 9.6 9.3 13.3 India’s largest and fastest growing multiplex chain RoCE (%) 7.8 12.2 15.1 Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain, Payout (%) 10.4 15.1 14.4 with 383 screens as against INOX+Fame’s 287 screens and Big Cinemas’ 254 Valuations screens. It is also the only player that is still expanding aggressively. It intends to P/E (x) 32.4 23.7 15.1 add 140-150 screens, taking its total number of screens to over 500 by the end of P/BV (x) 2.2 2.1 1.9 FY15. With zero content differentiation and little service differentiation, pace of EV/EBITDA (x) 17.6 8.9 6.9 execution and occupying the right catchment areas are the key success Div. Yield (%) 0.4 0.9 1.3 parameters in the multiplex business. PVR has prime retail space of 3.2msf across *Prices as on 23 August 2013 36 cities in India, likely to reach 3.9msf across 44 cities by the end of FY14. We believe this is a key entry barrier and will help PVR, which has already established Shareholding pattern (%) As on Jun-13 Mar-13 Jun-12 itself as the first choice for cinema viewers in India, to protect its turf. Promoter 31.0 31.0 44.7 Profitability higher than peers; to improve further Dom. Inst 19.6 25.2 16.8 Foreign 38.2 30.0 17.8 PVR’s average ticket price (ATP) is significantly higher than peers, primarily due Others 11.1 13.7 20.7 to its prime location strategy, impeccable interiors, design and consistent viewing experience. We expect its ATP (consolidated) to increase from INR163 in FY13 to INR180 in FY15. With 55m footfalls annually, 23-25% Bollywood box office share Stock performance (1 year) and 30-35% Hollywood box office share, we expect PVR to attract greater ad spends. Post amalgamation of Cinemax, PVR will get the benefit of economies of scale, helping to reduce costs in the F&B segment, a 70% gross margin business. We expect EBITDA margin to expand from 14.5% in FY13 to 17% in FY15, primarily driven by higher growth in advertisement and F&B revenues, and lower film hire cost owing to synergies from the Cinemax acquisition. Evolving into a lifestyle entertainment company Besides film exhibition, PVR is engaged in film distribution. It has reduced its focus on film production after huge losses in Khelein Hum Jee Jaan Sey. Also, it is

26 August 2013 3 PVR

expanding its lifestyle/entertainment businesses like restaurants, coffee shops, gaming zones and in-mall entertainment. It has five bowling centers so far, with a total of 110 lanes in four cities. It plans to add another 100 lanes by FY15 and expects annual revenues of INR1b from this business. It has opened its first full service restaurant, Mistral in New Delhi and expects to open another restaurant, Mr Hong in Bangalore in October 2013.

Expect earnings CAGR of 49% over FY13-15 We expect PAT to grow at a CAGR of 49% over FY13-15, driven by 47% sales CAGR and 270bp margin expansion. PVR is currently in investment phase and is likely to incur capex of INR3b over the next two years, as it plans to open 140-150 new screens and 100 new bowling lanes. However, in FY15, we expect PVR to report free cash flow of INR1.3b, which will increase going forward, as operating cash flow improves due to new screen additions.

Initiating coverage with a Buy rating We expect PVR’s revenues to grow at a CAGR of 47% and net profit at a CAGR of 49% over FY13-15, driven by synergies from the Cinemax acquisition and aggressive screen addition. Post the acquisition of Cinemax, PVR’s bargaining power has increased considerably. Aided by closure of the loss-making production business, merger synergies and lower capex, we expect RoCE and RoE to improve from 7.6% and 7.8%, respectively, to 13.3% and 15% in FY15. We value PVR at 8.5x FY15E EV/EBITDA, in line with most global players. We initiate coverage with a Buy rating and a target price of INR470.

Key operating matrics FY10 FY11 FY12 FY13 FY14E FY15E Number of properties 30 33 39 86 102 114 Number of screens 123 142 166 360 435 485 Number of seats 32,232 36,877 42,252 89,166 108,666 121,666 Occupancy (%) 30 27 31 34 32 32 Footfalls ('000) 16,200 19,600 24,700 54,860 63,563 73,239 ATP (INR) 152 162 156 163 172 180 SPH (INR) 39.1 40.5 43.3 47.0 51.7 55.3 Source: Company, MOSL

26 August 2013 4 PVR

India’s largest and fastest growing multiplex chain Prime retail space key entry barrier, to help protect turf

 Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain, with 383 screens (INOX+Fame’s 287 screens and Big Cinemas’ 254 screens) as on June 2013. PVR becomes leader with  It is also the fastest growing and the only player that is still expanding aggressively. It 383 screens, 93k seats intends to add 140-150 screens, taking its total number of screens to over 500 by the end and 3.2msf across 36 of FY15. cities post acquisition of  With zero content differentiation and little service differentiation, pace of execution and Cinemax occupying the right catchment areas are the key success parameters in the multiplex business.  PVR has prime retail space of 3.2msf across 36 cities in India, likely to reach 3.9msf across 44 cities by the end of FY14. We believe this is a key entry barrier.  Its location strategy, impeccable interiors, design and consistent viewing experience have enabled PVR to establish itself as the first choice for cinema viewers in India. Spearheading the multiplex revolution in India Starting out as a single screen location, PVR has spearheaded the multiplex revolution in India over the past decade. It is the fastest growing multiplex player in India, with 383 screens across 89 properties in 36 cities, ~93k seats and ~55m annual patrons (as on March 2013). Having gained dominance in North India by expanding organically for the last seven years, PVR acquired Cinemax, a rival multiplex chain for INR5.3b, establishing a strong foothold in West and South India.

PVR leading in terms of properties and number of screens

Number of screens

Revenue/screen for PVR highest amongst peers

Source: Company, MOSL

26 August 2013 5 PVR

Rapidly adding prime retail space – a key entry barrier With zero content differentiation and little service differentiation, pace of execution and occupying the right catchment areas are the key success parameters in the multiplex business. We believe that the acquisition of Cinemax not only provides PVR operating synergies and access to new geographies, but also helps it to add critical retail space, which we believe is a challenge for any new entrant.

Cinemax acquisition PVR has nearly tripled its retail space from 1.3msf in FY11 to 3.2msf post the acquisition helps PVR triple of Cinemax. We expect PVR’s overall retail space to reach 3.9msf by the end of FY14. its retail space Apart from its location strategy, its impeccable interiors, design and consistent viewing experience have enabled PVR to establish itself as the first choice for cinema viewers over the last 14 years.

PVR's retail space tripples in three years

Area msf

Source: Company, MOSL

World class cinema designs with luxurious experience

Source: Company, MOSL

26 August 2013 6 PVR

Only player with aggressive expansion plans Aggressive plans to add To enhance its presence in South India and strengthen its overall dominance further, 140-150 screens to reach PVR intends to add 89 screens in FY14 and another 50-60 screens in FY15, taking its over 500 screens by FY15 total number of screens to over 500 by the end of FY15. We have factored in 75 screen additions in FY14 and 50 screen additions in FY15, taking the total to 485 screens by the end of FY15.

RoCE and RoE for screens PVR plans to expand its presence from 36 cities to 44 cities by the end of FY14E and to over 12 months at 20-25% 50 cities by the end of FY15E. The capex per screen stands at INR20m, with breakeven in 12 months. However, it is important to note that screens over 12 months old generate an RoCE of 20-25%.

Typically, PVR signs agreements with mall owners 3-5 years before the mall becomes operational. Hence, it has fair visibility on the number of screen additions. It pays ~15% at the time of signing the agreement and the balance in installments, with major payment at occupation. We believe multiplexes are like anchor investors, as they are key to driving footfalls within the malls. Given PVR’s size and scale, and its premium positioning, we believe it has significant bargaining power to acquire prime locations.

Aggresive screen addition to drive growth S.No Location Screens Expected Opening Schedule 1 Lulu Mall, Cochin 9 Opened in April 2013 2 Orion Bangalore Gold Class 3 Opened in May 2013 3 Andheri, 5 Opened in May 2013 4 Market City, Bangalore 9 Opened in June 2013 5 Elante Mall, Chandigarh 8 Opened in June 2013 6 PVR 3Cs Lajpat Nagar, Delhi 1 Opened in July 2013 7 Diamond Mall , Kolkata 5 2QFY14 8 Koregaon Park, 7 2QFY14 9 Fun city Mall, Panipat 3 2QFY14 10 Novelty Mall, Pathankot 4 2QFY14 11 Garuda Mall, Mysore 4 2QFY14 12 Ripples Mall, Vijaywada 4 3QFY14 13 Pacific Mall, Dehradun 5 3QFY14 14 Auro Mall, Bhopal 3 4QFY14 15 Treasure Bazaar, Bhillai 4 4QFY14 Total PVR 74 16 Chennai 5 3QFY14 17 Pune 4 4QFY14 18 Milap, Mumbai 2 4QFY14 19 Motera, Gujarat 4 4QFY14 Total Cinemax 15 Grand Total 89 Source: Company, MOSL

26 August 2013 7 PVR

No longer a regional player – straddling the North, West and South Leader in North, South, PVR initially focused on the North India cluster, particularly Delhi/NCR. Post the West regions post acquisition of Cinemax, the contribution from West and South India has increased. Cinemax acquisition PVR now has an edge over competitors like Fame, Big Cinemas, etc, whose presence is restricted largely to West India. The management targets 25% contribution from the South by FY15, which will drive growth.

South India accounts for 60% of the 9,000-odd screens in India, making it a lucrative market to tap. Also, a multi-lingual movie audience helps to keep occupancy higher. Occupancy rates in the West (~30%) are lower than the North (~35%). In the South, PVR has occupancy of ~50%. We believe higher contribution from the South will help maintain occupancy at current levels.

Wide range of offerings; presence across price points Wide range of formats PVR typically rents 40-50ksf of space in retail malls, and depending on location and depending on location customer base, converts them into different brand formats such as PVR Directors’ Cut and customer base (Ultra-premium and Exclusive), PVR Gold (Premium), PVR (Regular) and PVR Talkies (Economy).

PVR forayed into the low-end theater concept, PVR Talkies, to venture into tier-2 and tier-3 cities. As against an average ticket price (ATP) of INR180-200 in the larger cities, tickets at PVR Talkies are priced at INR80-100. Despite lower ATP, RoCE is still expected to be ~25% due to lower capex (INR50,000 per seat as against INR80,000 per seat in tier-1 cities) and lower overheads.

Its wide range of offerings should help PVR to extract higher value from people belonging to varied socio-economic backgrounds and in optimizing costs. Such sub- segmentation has been successfully adopted by consumer discretionary companies in India, but has not been undertaken on such a scale by any other multiplex operator.

PVR has also partnered with IMAX to set up high-technology screens. It opened its first IMAX screen in Koramangla, Bangalore in November 2012, followed by a second IMAX screen in Phoenix Mills, Mumbai in June 2013. It plans to further add three more IMAX installations in the next 18-24 months.

Ruling the Bollywood and Hollywood box office in India Before it acquired Cinemax, PVR used to control 14-15% of Bollywood box office collections, while Cinemax controlled 10-11%. The combined entity now controls a commendable 23-25% of all India Bollywood box office collections and 30-35% of all India Hollywood box office collections. With PVR being the only player adding capacity in the multiplex industry, we believe it will further strengthen its dominance.

26 August 2013 8 PVR

Acclimatizing offerings to match demographic profile of cities and consumer preferences Directors Cut Four luxury movie screens One of a kind movie experience

PVR Gold Nine Gold class screens Luxurious comfortable reclining sets Dedicated food menu and memorable experience

PVR Imax Ceiling to floor and wall to wall - 2 screen 7.1 multi channel state of art surround sound Full panoramic view that fills peripheral vision

PVR Premiere 63 premiere screens Premium seating For upper middle class

PVR Cinemas and Cinemax 289 mainstream screens Comfortable regular seating, scheduling options For normal middle class

PVR Talkies 16 screens Tier-2 and Tier-3 markets Hygenic environment with basic facilities

Source: Company, MOSL

26 August 2013 9 PVR

Acquisition of Cinemax – a master stroke In November 2012, PVR announced the buyout of Cinemax India’s promoters’ 69.27% stake for INR3.95b, valuing Cinemax India at INR203.65 per share. To fund this, PVR raised INR2.6b through preferential issue of ~10.6m shares at INR245 per share. PVR’s promoters infused INR250m, L Capital INR823m, and Renuka Ramnath’s Multiples PE Fund INR1.53b. Post this, L Capital and Multiples PE own ~15.8% stake each, while the promoters hold ~32% stake in PVR. The purchase of promoter holding in Cinemax was followed by a 26% open offer, post which PVR owns 93.1% in Cinemax, the total acquisition cost of which works out to INR5.3b.

 Significant synergies; to drive profitability Controls 23-25% Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain, Bollywood and 30-35% with 387 screens (as against INOX+Fame’s 287 screens and Big Cinemas’ 254 screens). Hollywood box-office This has eased competitive pressure for PVR and restricts the entry of any other large global multiplex operator.

Before it acquired Cinemax, PVR used to control 14% of Bollywood box office collections, while Cinemax controlled 11%. The combined entity now controls a commendable 25% of all India Bollywood box office collections and 35% of all India Hollywood box office collections.

Reduction of F&B cost, Post the amalgamation of Cinemax, PVR will get the benefit of economies of scale, increase in ad revenue helping to reduce costs in the F&B segment and to improve margins. Also, with PVR per screen, better movie now being the industry leader, it will be able to garner large ad revenues/screen. scheduling and lower Cinemax’s ad revenues per screen were a third of PVR’s, providing significant flim hire charges - key opportunity to scale up. Also, the acquisition is likely to provide synergies in terms synergies of lower film hire charges, better movie scheduling and lower duplication of costs.

 Well diversified screen presence Before it acquired Cinemax, PVR had 50% of its screens in North India and Cinemax had 64% of its screens in West India. The combined entity has a well diversified screen presence, with 28% in the North and 49% in the West. Further, PVR is India’s only multiplex operator with aggressive expansion plans – it is looking to add 140 screens over the next two years.

Number of screens as at June 2013 PVR Cinemax PVR+Cinemax North 100 9 109 West 94 93 187 South 50 23 73 East 4 10 14 Total 248 135 383 Number of seats North 24,056 2,115 26,171 West 24,079 23,614 47,693 South 11,196 4,461 15,657 East 1,186 2,682 3,868 Total 60,517 32,872 93,389 Source: Company, MOSL

26 August 2013 10 PVR

Cinemax screen presence Region Particulars Location Type Screens Capacity West Mumbai Goregaon Multiple Screen 2 698 West Mumbai Kandivali Single Screen 1 287 West Mumbai Andheri E Single Screen 1 362 West Mumbai Sion Multiple Screen 5 827 West Mumbai Wonder Multiplex 4 1,136 West Mumbai Mira Road Multiplex 3 1,018 West (Ex Mumbai) Nashik Multiplex 3 1,002 West Mumbai Versova Multiplex 6 1,477 West Mumbai Kandivali E Multiplex 4 1,267 West Mumbai Thane Eternity Multiplex 4 1,035 East Assam Guwahati Mutiplex 2 500 West Mumbai Bandra Single Screen 1 195 West Mumbai Vashi Multiplex 3 914 West Maharashtra (Ex Mumbai) Nashik Multiplex 2 431 West Gujarat Gandhinagar Mutiplex 4 862 West Gujarat Ahmedabad - Dev Arc Mutiplex 4 1,013 West Maharashtra (Ex Mumbai) Nagpur Mall+Multiplex 3 1,007 West Gujarat Rajkot Mutiplex 3 777 East West Bengal Kolkata Mutiplex 4 1,208 West Mumbai Kalyan Multiplex 2 479 South Andra Pradesh Hyderabad Mutiplex 3 1,001 West Gujarat Ahmedabad - Red Carpet Mutiplex 4 991 West Mumbai Ghatkopar Multiplex 4 1,250 West Maharashtra (Ex Mumbai) Nashik Multiplex 5 1,016 North Uttar Pradesh Kanpur Mutiplex 3 999 East West Bengal Silliguri Mutiplex 4 974 South Kerala Cochin Mutiplex 4 634 West Gujarat Shiv Mutiplex 3 637 West Gujarat Baroda Mutiplex 2 330 West Maharashtra (Ex Mumbai) Malegaon Multiplex 3 1,033 East Chhattisgarh Raipur Mutiplex 5 1,055 North Delhi Delhi Mutiplex 6 1,116 South Karnataka Bengaluru Mutiplex 4 795 West Maharashtra (Ex Mumbai) Pune Multiplex 4 975 West Mumbai Malad Multiplex 5 824 West Gujarat Surat Mutiplex 3 716 South Karnataka Bengaluru Mutiplex 6 1,084 South Andra Pradesh Cyberabad Mutiplex 6 947 Source: Company, MOSL

26 August 2013 11 PVR

Profitability higher than peers; to improve further Increasing ATP, SPH and Ad/Screen coupled with scale economies to drive margins

 PVR’s average ticket price (ATP) is significantly higher than peers, primarily due to its prime location strategy, impeccable interiors, design, and consistent viewing experience. We expect PVR’s ATP (consolidated) to increase from INR163 in FY13 to INR180 in FY15.  With 55m footfalls annually (and expected to reach 73m in FY15), 23-25% Bollywood box office share and 30-35% Hollywood box office share, we expect PVR to attract greater ad spends.  Post amalgamation of Cinemax, PVR will get the benefit of economies of scale, helping to reduce costs in the F&B segment, a 70% gross margin business.  Also, with PVR now being industry leader, it will be able to garner large ad revenues/ screen. Cinemax's ad revenues per screen were 1/3 of PVR, is providing significant opportunity to scale up.  We expect EBITDA margin to expand from 14.5% in FY13 to 17% in FY15, primarily driven by higher growth in advertisement and F&B revenues.

ATP set to increase; 3D push an accelerator PVR’s consolidated average ticket price (ATP) as at the end of FY13 stood at INR163, significantly higher than other competitors, primarily due to its prime location strategy, impeccable interiors, design, and consistent viewing experience. The company plans to convert top seven Cinemax multiplexes into PVR multiplexes, thus reducing the ATP gap between PVR and Cinemax and pushing up consolidated ATP. Together with Cinemax, PVR derives 23% of its revenues from Hollywood movies as compared to just 8% for the industry. This not only enables it to achieve higher ATP, but also content risk diversification.

PVR derives larger share from Hollywood as compared to industry

Source: Company, MOSL

Higher Hollywood PVR has the highest 3D installations in India and is the market leader in Hollywood/ content, increasing 3D box office collections (30-35% market share). 3D/Hollywood movies contributed 3D movies, strong ~16% to India’s overall box office collections in FY13 for PVR. With increasing thrust movie pipeline to on 3D movies, PVR is in a sweet spot to increase its ATP and margins. 3D movie tickets keep ATP higher are typically priced at 15-20% premium. We expect PVR’s ATP (consolidated) to increase from INR163 in FY13 to INR180 in FY15.

26 August 2013 12 PVR

Cinemax and PVR ATP (INR) Consolidated ATP set to increase further (INR)

Source: Company, MOSL

Strong pipeline of 3D movies PVR signs a one-week agreement with every producer and the agreement for the Zambezia next week is renewed every Monday. It provides pricing details for every week to the The Smurfs 2 producer. Ticket pricing for a movie is determined well in advance and can be changed Warning 1D3D on Monday for the following week starting Friday. Battle of The Year: Occupancy to remain around 33% Dream Team Cloudy With A Chance PVR receives 55m footfalls annually, which is expected to reach 73m in FY15. With Of Meatballs 2 Indian movies becoming shorter in the recent years, multiplexes are able to 47 Ronin accommodate more shows per screen. For PVR, the number of shows has increased 300: Rise of an Empire to 5.7 per day from 4-4.3 per day 4-5 years ago. The management expects shows per Gravity 3D day to peak at 6. While Bollywood movies have become shorter in length from 3.5 Source: Company, MOSL hours to 2.5 hours, Hollywood movies have stretched from 1.5 hours to 2.5 hours.

Also, FY13 saw the release of ~300 movies, that is, 5.5-6 movies per week. The number of releases in South India (including other multi-lingual movies) was ~500, that is, 9.5- 10 movies per week. This coupled with increase in the number of screens led to an increase in footfalls.

PVR has also introduced promotional schemes to increase footfalls. It is currently running its ‘Super Thursday’ scheme, where every Thursday, ticket prices for all shows are dropped to INR75. Given its focus on South India, complemented by increase in shows per day and strong movie pipeline, we expect PVR’s occupancy rates to remain in the range of 32-33% for the next two years.

Occupancy rates to remain at elevated levels

26 August 2013 13 PVR

PVR occupancy (%)

Cinemax occupancy (%)

Source: Company, MOSL More INR1b movies to support occupancy rates, ATP In 2008, Ghajini became the first movie to cross INR1b at the box office, setting a new benchmark for Bollywood. However, its exclusivity seems to be fading, with an increasing number of films crossing the INR1b threshold. In 2012, nine Bollywood movies crossed the coveted INR1b mark, as compared with just five in 2011. Moreover, the box office collection of Ek Tha Tiger almost touched INR2b. Continued box office successes, driven by strong content and expansion of multiplexes, could establish INR2b as the new benchmark.

Bollywood – INR1b club

Source: KPMG in India Analysis

26 August 2013 14 PVR

Top-20 Bollywood movies by box office collections (INR b) Movies Production House Net Collection Vidhu Vinod Chopra 2.04 Ek Tha Tiger , Fantastic Films, Prime Focus 1.99 Yeh Jawani Hai Diwani Pvt. Ltd 1.90 Dabangg 2 Arbaaz Khan Productions, Shree Ashtavinayak Cine Vision 1.55 Bodyguard Reel Life Production 1.90 Dabangg 2 Arbaaz Khan Productions, Shree Ashtavinayak Cine Vision 1.40 UTV Motion Pictures, SLB Films Pvt. Ltd 1.31 Barfi UTV Motion Pictures 1.26 Agneepath Dharma Productions Pvt. Ltd 1.23 Jab Tak Hai Jaan Yash Raj Films 1.22 Ready Sohail Khan Productions 1.20 Agneepath Dharma Productions Pvt. Ltd 1.15 2 Eors International, Nadiadwala Grandson Entertainment 1.14 RAOne Red Chillies Production 1.14 Ghajini Aamir Khan Productions 1.14 Son of Sardaar Viacom 18 Motion Pictures 1.05 Bol Bachchan Shree Ashtavinayak Cine Vision Pvt. Ltd., Devgan Films 1.02 Khiladi 786 Eors International, H.R. Musik, Hari Om Entertainment Company 0.90 Talaash Aamir Khan Productions, Excel Entertainment 0.82 OMG (Oh My God!) Grazing Goat Pictures, Viacom 18 Motion Pictures, Playtime Creations 0.80 Cocktail , Illuminati Films, Prime Focus, Raj Films, Cocktail Film 0.71 Raaz 3 , 0.70 Dharma Productions Pvt. Ltd, Red Chillies Entertainment 0.70 Kahaani Boundscript Motion Pictures and Pen Movies 0.59 Ishqzaade Yash Raj Films 0.47 Agent Vinod Illuminati Films, Prime Focus 0.45 Kya Super Kool Hain Hum 0.44 Jannat 2 Fox STAR Studios, Vishesh Films 0.43 Source: Company, MOSL

Higher footfalls to help negotiate on film hire charges With 55m footfalls annually (and expected to reach 73m in FY15), 25% Bollywood box office market share and 35% Hollywood box office market share, we expect PVR to gain significant bargaining power in terms of film hire charges.We believe that the company has already started negotiations with small producers and expects to start negotiations with large producers, shortly.

26 August 2013 15 PVR

Strong movie pipeline for next six months Release Date Movie Title Language Cast 23-Aug-13 MADRAS CAFÉ HINDI , RASHI KHANNA, 23-Aug-13 AMAN KI AASHA HINDI ALI ZAFAR, YAAMI GAUTAM 23-Aug-13 ELYSIUM ENGLISH Matt Damon, Jodie Foster, Sharlto Copley, Alice Braga, Diego Luna, William Fichtner, Wagner Moura 23-Aug-13 THE MORTAL INSTRUMENT CITY ENGLISH LILY COLLINS, JAMIE CAMPBELL BOWER, ROBERT SHEEHAN OF BONES 30-Aug-13 SATYAGRAHA HINDI , , , MANOJ BAJPAYEE , 30-Aug-13 KAANCHI HINDI , 30-Aug-13 WAR CHHOD NA YAAR HINDI SHARMAN JOSHI, SOHA ALI KHAN, JAVED JAFERI 30-Aug-13 THE INTERNSHIP ENGLISH OWEN WILSON, VINCE VAUGHN, JOHN GOODMAN 30-Aug-13 2 GUNS ENGLISH DENZEL WASHINGTON, MARK WAHLBERG, PAULA PATTON 6-Sep-13 ZANJEER HINDI RAM CHARAN, PRIYANKA CHOPRA, MAHIE GILL, SANJAY DUTT 6-Sep-13 RIDDICK ENGLISH VIN DIESEL, KARL URBAN, KATEE SACKHOFF 13-Sep-13 SHUDDH DESI ROMANCE HINDI , VAANI KAPOOR, RISHI KAPOOR, 13-Sep-13 GRAND HINDI , , AFTAB SHIVDASANI 13-Sep-13 JOHN DAY HINDI , RANDEEP HOODA, SHARAT SAXENA 13-Sep-13 ESCAPE PLAN ENGLISH SYLVESTER STALLONE, ARNOLD SCHWARZENEGGER 13-Sep-13 GROWN UPS 2 ENGLISH ADAM SANDLER, KEVIN JAMES ,CHRIS ROCK 20-Sep-13 PHATA POSTER NIKLA HERO HINDI , ILEANA DCRUZ 20-Sep-13 HINDI SANJAY DUTT, IMRAAN HASHMI, KANGNA RANAUT, NEHA DHUPIA 20-Sep-13 THIS IS THE END ENGLISH JAMES FRANCO, JONAH HILL, SETH ROGEN, JAY BARUCHEL, DANNY MCBRIDE 20-Sep-13 PRISONERS ENGLISH HUGH JACKMAN, JAKE GYLLENHAAL, VIOLA DAVIS 20-Sep-13 RUNNER RUNNER ENGLISH GEMMA ARTERTON, BEN AFFLECK, JUSTIN TIMBERLAKE 27-Sep-13 WARNING (3D) HINDI SANTOSH BARMOLA, SUZANA RODRIGUS 27-Sep-13 2 GUNS ENGLISH DENZEL WASHINGTON, MARK WAHLBERG, PAULA PATTON 2-Oct-13 BESHARAM HINDI , PALLAVI SHARDA , RISHI KAPOOR ,NEETU SINGH 2-Oct-13 LAKSHMI HINDI MONALI THAKUR, SATISH KAUSHIK 11-Oct-13 RAGINI MMS 2 HINDI SUNNY LEONE 11-Oct-13 SINGH SAHAB THE GREAT HINDI , , JOHNY LEVER 11-Oct-13 QUEEN HINDI KANGNA RANAUT, RAJKUMAR YADAV 11-Oct-13 ABOUT TIME ENGLISH DOMHNALL GLEESON, RACHEL MCADAMS, BILL NIGHY 11-Oct-13 CAPTAIN PHILLIPS ENGLISH TOM HANKS, CATHERINE KEENER 18-Oct-13 BOSS HINDI , ADITI RAO HYDARI, SHIV PANDIT 25-Oct-13 HORROR STORY HINDI KARAN KUNDRA, RAVISH DESAI,HASAN ZAIDI 25-Oct-13 1D3D ENGLISH NIALL HORA, ZAYN MALIK, LIAM PAYNE, HARRY STYLES, 3-Nov-13 KRRISH 3 HINDI , PRIYANKA CHOPRA, VIVEK OBEROI 3-Nov-13 SANTA BANTA HINDI , , NEHA DHUPIA 15-Nov-13 RAM LEELA HINDI , 15-Nov-13 BATTLE OF THE YEAR: DREAM TEAM (3D) ENGLISH JOSH HOLLOWAY, LAZ ALONSO, JOSH PECK, CAITY LOTZ AND CHRIS BROWN AS ROOSTER 22-Nov-13 GORI TERE PYAR MEIN HINDI IMRAN KHAN, KAREENA KAPOOR 22-Nov-13 THE COUNSELOR ENGLISH BRAD PITT, JAVIER BARDEM, MICHAEL FASSBENDER 29-Nov-13 RAMBO RAJKUMAR HINDI SHAHID KAPOOR, SONAKSHI SINHA 29-Nov-13 BULLET RAJA HINDI , , JIMMY SHERGILL, SONAKSHI SINHA 6-Dec-13 SHAADI KE SIDE EFFECTS HINDI , , VIR DAS 6-Dec-13 CARRIE ENGLISH Chloe Moretz, Julianne Moore 13-Dec-13 DEDH HINDI , NASEERUDDIN SHAH, 13-Dec-13 HIGHWAY HINDI RANDEEP HOODA, ALIA BHATT

26 August 2013 16 PVR

Strong movie pipeline for next six months (Contd..) Release Date Movie Title Language Cast 20-Dec-13 (3D) CLOUDY WITH A CHANCE OF ENGLISH BILL HADER, ANNA FARIS, WILL FORTE MEATBALLS 2 25-Dec-13 47 RONIN (3D) ENGLISH KEANU REEVES, HIROYUKI SANADA , KO SHIBASAKI 25-Dec-13 THE SECRET LIFE OF WALTER MITTY ENGLISH BEN STILLER, ADAM SCOTT, KRISTEN WIIG DEC,13 HINDI AAMIR KHAN, , KATRINA KAIF, UDAY CHOPRA 10-Jan-14 HASEE TOH PHASEE HINDI , PARINEETI CHOPRA, 14-Feb-14 HINDI , KRITI SANON, SANDEEPA DHAR 14-Feb-14 HINDI RANVEER SINGH, , PRIYANKA CHOPRA 14-Feb-14 ENDLESS LOVE ENGLISH ALEX PETTYFER, ROBERT PATRICK,

PVR and Cinemax footfalls trend Patrons in '000s FY08 FY09 FY10 FY11 FY12 FY13 PVR 15,800 16,800 16,200 19,600 24,700 32,500 Cinemax 6,191 8,514 10,810 11,501 16,581 22,360 Total 21,991 25,314 27,010 31,101 41,281 54,860 Source: Company, MOSL

Expect ~16% growth in footfalls

Note: FY13 numbers consolidated for PVR and Cinemax Source: Company, MOSL Mobile/online ticketing a source of high-margin fee income PVR’s mobile applications for iPhone, iPod Touch, iPad and Android, which allow users to keep a tab on movies running currently or due for release in PVR multiplexes, have seen good traction, with over 200,000 downloads within five months of launch. The number of tickets booked through its portal has been increasing steadily and is currently at ~45,000 per month. The convenience fees that it levies on tickets booked through its portal have created a sustained, high margin revenue stream, which is likely to contribute meaningfully over the foreseeable future. Economies of scale to help reduce F&B costs, expand margins Economies of Post amalgamation of Cinemax, PVR will get the benefit of economies of scale, helping scale to help PVR bring to reduce costs in the F&B segment and to improve margins. F&B is a 70% gross margin down cost of F&B business, with growth partially related to footfalls. Over the last three years, the thereby aiding margins growth in F&B has been higher than the growth in footfalls. PVR has been continuously working to improve its F&B offerings and their packaging, and has taken liquor licenses at premium locations, which should increase spends per head (SPH). It has also introduced innovative pricing during weekdays and weekends to drive up SPH.

26 August 2013 17 PVR

Cinemax and PVR SPH (INR) Consolidated SPH set to increase further (INR)

Source: Company, MOSL F&B offerings

Source: Company, MOSL Ad revenues/screen to increase considerably Ad revenue per screen PVR consolidated had advertisement revenues of INR1b in FY13. National advertisers for Cinemax at 1/3rd of contribute 70-80% of its total ad revenues. While FMCG, Telecom, Consumer Electronics PVR, providing huge and Automobiles are the main advertisers, new sectors like BFSI have also started opportunities advertising through PVR. With 55m footfalls annually, which are expected to reach 73m in FY15, we believe advertisers will be enticed to spend more.

In FY13, ad revenues per screen for Cinemax were 1/3rd the ad revenues/screen for PVR. Post amalgamation, we expect the differential in ad spends/screen between PVR and Cinemax to narrow. The management plans to significantly increase consolidated ad revenues/screen over the next two years; it will have greater bargaining power, given the expanded size and increasing footfalls.

Cinemax and PVR ad revenues/screen (INR m)

Source: Company, MOSL 26 August 2013 18 PVR

Consolidated ad spends/screen set to improve, going forward

Sponsorship revenues (INR m) Sponsorship as percentage of net ticket sales, FY13 (%) Year PVR Inox Fame Cinemax FY13 753 324 240 FY12 618 178 114 201 FY11 509 137 139 139 FY10 371 125 106 112

Source: Company, MOSL Key advertisers

Source: Company, MOSL GST – a possible game changer GST peak rate @16% High entertainment tax is a major impediment to the growth of the exhibition industry. v/s average tax of The overall tax implication is as high as 40-50% in states like Maharashtra, Uttar Pradesh, 20% currently Bihar and Karnataka. UP and Maharashtra contribute to 50% of PVR and Cinemax circuit. However, post GST, the peak rate is likely to be ~16%, leading to significant cost reduction. Also, input tax credit will be available for set off against the output tax liability.(Service tax paid today on rent, Electricity,Security, Housekeepingetc is not available for set off against output liability of entertainment tax or VAT). The management expects GST implementation to result in 250-300bp margin expansion.

26 August 2013 19 PVR

Evolving into a lifestyle entertainment company Reducing focus on loss-making production business

 Besides film exhibition, PVR is engaged in film distribution. It has reduced its focus on film production after losses in ‘Khelein Hum Jee Jaan Sey’.  Also, it is increasingly expanding on lifestyle/entertainment businesses like restaurants, coffee shops, gaming zones and in-mall entertainment.  It has five bowling centers so far, with a total of 110 lanes in four cities. It plans to add another 100 lanes by FY15 and expects annual revenues of INR1b from this business.  It has opened its first full service restaurant, Mistral in New Delhi and expects to open another restaurant, Mr Hong in Bangalore in October 2013.

Film distribution – a strategic arm supporting exhibition business PVR Pictures, PVR’s film distribution arm, has distributed more than 100 international and Indian films in the last three years. It supports the exhibition business by bringing independent Hollywood movies to the Indian market. Having successfully distributed big Hollywood films like The Aviator, Chicago, Twilight series, Kill Bill 1 and Kill Bill 2, nationally, PVR Pictures has become the largest independent distributor of Hollywood films in India. It has distributed Bollywood movies like Omkara, Don and Honeymoon Travels in North India. PVR signs distribution agreements on commission and revenue sharing basis, which ensures that it does not lose money even if the film fails to do well. It buys 7-8 years’ rights, including satellite and home video rights, and enjoys 35% RoCE.

Closure of production business – a step in the right direction Closure of production PVR had entered the movie production business through PVR Pictures. Though two business to provide of its productions – Taare Zameen Par and Jaane Tu Ya Jaane Na did well, its Khelein better earnings visibility Hum Jee Jaan Sey was a flop at box office. Given the capital intensity and high risks involved, the management decided to reduce its focus on the production business. It has taken full control over PVR Pictures by buying out the 40% stake held by JP Morgan Mauritius Holdings and ICICI Venture’s India Advantage Fund for INR600m. PVR used PVR Pictures’ cash balance of INR400m to part-finance the deal. PVR Pictures has now become a wholly-owned subsidiary and is focusing on the distribution business.

PVR BluO – five bowling centers, two Playstation lounges operational To ramp up its presence across the lifestyle retail entertainment landscape, PVR entered into a joint venture with Major Cineplex Group, a Thailand-based film exhibition and retail entertainment company. PVR owns 51% in this JV, PVR BluO Entertainment, with the balance 49% owned by Major Cineplex Group. PVR BluO operates five bowling centers, with a total of 110 lanes across four cities. It has also started Playstation lounges in collaboration with Sony.

PVR BluO differentiates itself from conventional bowling centers by offering additional facilities such as sports bar, karaoke, food & beverages (including alcoholic beverages), etc. This concept is successful in Thailand and the company expects to replicate the success in India. Its first project, a 24-lane bowling center (India’s largest) at Ambience Mall, Gurgaon commenced operations in March 2009. It has five properties 26 August 2013 20 PVR

F&B accounts for 60% of operating so far, with a total of 110 lanes in four cities. It plans to add another 100 PVR BluO (bowling lanes by FY15 and expects annual revenues of INR1b. The capex per lane is INR5m- revenues) 8m. The EBITDA payback in this business is four years, with 15-17% EBITDA margins, as newer centers generally take around six months to stabilize. PVR BluO posted revenues of INR391m in FY13, of which F&B accounted for 60%.

PVR BluO has also started Playstation lounges in its bowling centres in collaboration with Sony. The company plans to open more such lounges, going forward.

PVR BluO pictures Expanding presence across key cities and destination malls Sl. No Projects Lanes Existing 1 Ambience Mall, Gurgaon 24 2 Ambience Mall, Vasant Kunj 26 3 Orion Mall, Bangalore 27 4 Market City, Pune 17 5 Market City, Bangalore 16 Total 110 FY 2013-14 6 Plaza Center, Pune 20 7 L&T Mall, Chandigarh 26 8 Bharti Mall, Ludhiana 16 Total 62 Grand Total 172 Source: Company, MOSL

Source: Company, MOSL

PVR Leisure – at nascent stage; breakeven some time away L Capital has invested INR501m in PVR Leisure (54% owned by PVR) to expand in other lifestyle/entertainment businesses like restaurants, coffee shops, gaming zones and in-mall entertainment. Through this JV, PVR and L Capital intend to open niche cafes and restaurants in the same malls where PVR has cinemas. This will enable PVR to convert its cinema footfalls into restaurant footfalls and earn additional income.

PVR Leisure has already opened its first full service restaurant, Mistral (average cover price of INR1,000) in New Delhi and is in advanced stages of opening another restaurant, Mr Hong (Chinese cuisine) in Bangalore in October 2013. The business has just begun and will take time to break even.

26 August 2013 21 PVR

Mistral opened in New Delhi in April, 2013 Hong (Chinese cuisine) to open in Bangalore in 2HFY14

Source: Company

26 August 2013 22 PVR

Expect earnings CAGR of 49% over FY13-15 Free cash flow to start in FY15

 We expect PAT to grow at a CAGR of 49% over FY13-15, driven by 47% sales CAGR and 270bp margin expansion.  PVR is currently in investment phase and is likely to incur capex of INR3b over the next two years, as it plans to open 140-150 new screens and 100 new bowling lanes.  However, in FY15, we expect PVR to report free cash flow of INR1.3b, which will increase going forward, as operating cash flow improves due to merger synergies and lower capex intensity. Consolidation, aggressive screen openings to drive growth We expect revenues to grow at a CAGR of 47% over FY13-15, primarily driven by consolidation of the Cinemax acquisition and aggressive opening of 75 screens in FY14 and 50 screens in FY15.

Sales growth trend (INR m)

Source: Company, MOSL

EBITDA margin to expand going forward We expect EBITDA margin to expand from 14.5% in FY13 to 17% in FY15, primarily driven by higher growth in advertisement and F&B revenues. Also, Cinemax has higher margins than PVR due to lower employee cost and other lower overhead costs; thus, margins for the consolidated entity would be higher.

EBITDA growth trend (INR m)

Source: Company, MOSL

26 August 2013 23 PVR

Cinemax acquisition, margin expansion to drive up PAT We expect PAT to grow at a CAGR of 49% over FY13-15, driven by 47% sales CAGR and margin expansion. PAT growth would be largely driven by margins expansion over next two years.

PAT growth trend

Source: Company, MOSL

Free cash flow to start in FY15 PVR is currently in investment phase. Post acquisition of Cinemax, consolidated net debt stands at INR6b. We expect capex of INR3b over the next two years, as PVR plans to open 140-150 new screens and 100 new bowling lanes. In FY15, we expect PVR to report free cash flow of INR1.3b, which will increase going forward, as operating cash flow improves due to merger synergies and lower capex intensity.

26 August 2013 24 PVR

Initiating coverage with a Buy rating Target price of INR470 implies 30% upside

 We expect PVR’s revenues to grow at a CAGR of 47% and net profit at a CAGR of 49% over FY13-15, driven by synergies from the Cinemax acquisition and aggressive screen addition.  Post the acquisition of Cinemax, PVR has 23-25% share of the Bollywood box office and 30-35% share of the Hollywood box office in India, giving it immense bargaining power. Also, PVR is only player adding new screens aggressively; this will further enhance its lead over competitors.  Post the closure of the loss-making production business, merger synergies and lower capex we expect RoCE and RoE to improve from 7.6% and 7.8% to 13.3% and 15% in FY15E respectively.  We value PVR at 8.5x FY15E EV/EBITDA, in line with most global players. We initiate coverage with a Buy rating and a target price of INR470.

Initiating coverage with a Buy rating; Valuations (INR m) target price EBITDA- FY15E 2,938 of INR470 Target Multiple- 8.5x 8.5 implies Target Enterprise Value 25,064 30% upside Less:- Debt 6,216 Add:- Cash 284 Target Mcap 19,131 No of shares 40.7 Value per share (INR) 470

Admission per screen hightest across the globe Name Admission Screens Admissions ('000) Per Screen (000) International Peers PVR + Cinemax 55,000 351 157 US & Mexico Market Regal 216,540 6,680 31 AMC 200,000 4,988 40 Cinenmark 263,700 5,240 50 Carmike 50,357 2,502 20 Cinepolis 116,900 3,000 39 Asia Market Major - Thailand 24,000 413 58 CGV. Korea 82,663 723 114 European Market Cineworld - UK 46,000 800 58 Odeon and UCI Cinemas - UK 82,300 2,179 38 Source: Company, MOSL Comparative valuation Company Name P/E (x) P/B (x) EV/EBITDA (x) CY13E CY14E CY15E CY13E CY14E CY15E CY13E CY14E CY15E Cinemark Holdings Inc 18.4 15.3 13.4 3.2 2.7 2.3 8.2 7.3 6.6 Cineworld Group Plc 16.9 15.3 13.9 2.8 2.6 2.1 9.3 8.7 8.0 Cj Cgv Co Ltd 16.7 13.2 12.0 2.5 2.1 1.8 9.8 8.5 7.9 Major Cineplex Group Pcl 18.1 16.6 14.5 3.0 2.9 2.8 9.7 9.0 8.7 Average 17.7 15.4 13.8 1.4 1.2 0.9 9.0 8.4 7.7 Source: Company, MOSL 26 August 2013 25 PVR

Key risks and concerns  Timely execution, given aggressive roll-out plan: PVR plans to increase its screen presence to 500 by FY15. It plans to take up space in various upcoming malls and any delays in the construction of these malls will impact the execution of its roll- out plan.  Quality of content: Good quality content is the key driver of footfalls in multiplexes. While the quality of content is improving, in any particular year, if the content released is commercially unsuccessful, it could impact revenues of multiplexes.  Escalating rental costs: Rental costs have seen an upward trend for most multiplexes. The escalation in rents is leading to pressure on margins and impacting profitability.  Continued price controls by state governments: Several states still control cinema ticket prices. While free-pricing prevails in West India, in some parts of North India, approvals are required to price tickets in a particular band. In South India, especially Andhra Pradesh and Tamil Nadu, there are strict restrictions on pricing. In Chennai, for instance, ticket prices are capped at INR120 and 10% of a show’s tickets have to be issued at INR10.  High entertainment tax on cinema tickets: High entertainment tax is a major impediment to the growth of the exhibition industry. The overall tax implication is as high as 40-50% in states like Maharashtra, Uttar Pradesh, Bihar and Karnataka. Though post GST, the peak rate is likely to be ~16%, leading to significant cost reduction, the visibility on GST implementation is still limited.

26 August 2013 26 PVR

Annexure-I

Company background PVR, a pioneer in multiplex development in India, is the largest cinema exhibition player in the country today. It came into existence following a joint venture between Priya Exhibitors and Village Roadshow, an Australian exhibition company, with more than 1,000 screens under operation. This 60:40 joint venture led to the formation of Priya Village Roadshow.

PVR launched India’s first multiplex, PVR Anupam in Saket, New Delhi in 1997. Since then it has had several other credible achievements, including among others the launch of an 11-screen multiplex in Bengaluru in 2004 and the introduction of Gold Class Cinema. In November 2002, Village Roadshow sold its entire stake in the joint venture to Priya Exhibitors, following which its name was changed to PVR.

By introducing the multiplex concept in India, PVR brought a paradigm to the cinema viewing experience: high class seating, and state-of-the-art screens and audio- visual systems. This enabled PVR to gain presence in New Delhi, National Capital Regions like Gurgaon and Noida, Bangalore, Hyderabad, Mumbai, Lucknow and Indore, making it the largest cinema exhibition chain in the country. Revenue streams Movie exhibition: This is PVR’s core business. It operates under various formats like PVR Gold Class, PVR Director’s Cut, PVR Premiere, PVR Imax and PVR Talkies, which allows it to straddle various price points and provide a good cinema experience to the audience. Post acquisition of Cinemax, the movie exhibition business constitutes 61% of total revenues. As at the end of FY13, its consolidated average ticket price (ATP) was INR163. Together with Cinemax, it enjoys 22-25% share of the Bollywood box office and 30-35% of the Hollywood box office in India.

Food and beverages (F&B): This segment constitutes 20% of PVR’s total business. The company has different value packages, which are continually revised. It also has liquor licenses in premium locations, which significantly increase customer spends and its revenues. In FY13, it enjoyed average spends per head (SPH) of INR47 (post consolidation with Cinemax) and margins of ~70%. The F&B business is likely to grow at a CAGR of ~30% over FY13-15 to INR4,095m.

Advertisement revenues: Advertisement revenues constitute 9% of consolidated revenues. PVR accounted for ~40% of the industry’s in-screen advertisement/ sponsorship revenue in FY13. With cumulative footfalls post acquisition likely to reach 73m in FY15E, we expect consolidated ad spends per screen to increase significantly, going forward. Subsidiaries PVR Pictures: It is an independent film distribution company, with a pan-India network. It has distributed more than 100 international and Indian films in the past three years. It had also ventured into film production but following huge losses in the business, decided to focus only on distribution. It is 100% owned by PVR.

26 August 2013 27 PVR

PVR Leisure: It focuses on F&B and retail entertainment concepts. L Capital has invested INR1.9b in PVR (15.8% stake); of this, INR1.4b is for movie screen additions, and the balance INR501m is for investment in PVR Leisure (54% owned by PVR) to expand in other lifestyle/entertainment businesses like restaurants, coffee shops, gaming zones and in-mall entertainment. The company has already opened its first full service restaurant, Mistral (~9,600sf; average cover price of INR1,150) in New Delhi and is at advanced stages of opening another restaurant, Mr Hong (Chinese cuisine) in Bangalore.

PVR BluO: To ramp up its presence across the lifestyle retail entertainment landscape, PVR entered into a joint venture with Major Cineplex Group, a Thailand-based film exhibition and retail entertainment company. PVR owns 51% in this JV, PVR BluO Entertainment, with the balance 49% owned by Major Cineplex Group. PVR BluO operates five bowling centers, with a total of 110 lanes across four cities. It has also started Playstation lounges in collaboration with Sony.

PVR - an entertainment company

Film Exhibition Bowling, Food Courts Karaoke & Ice Skating PVR Film Cine-Media Distribution

Food & Beverages

Source: Company, MOSL

26 August 2013 28 PVR

Corporate structure

The journey so far

2012

1. Reached milestone of 2008 200 screens Established PVR 2. L capital makes blu-O, a JV with strategic 2007 Thailand based investment in Major Cineplex PVR & PVR Forayed into 2006 Group, to setup leisure Film production 3. Acquired bowling centres Went Public business (the Cinemax to 2003 first movie become India’s ICICI Ventures “Taare Zameen largest Makes multiplex 2002 Par” accredited investment in with operator. Village Currently 1997 PVR commercial Roadshow exits; running 382 success and 5 Established PVR Ventured screens. Also Film- fare India’s first into distribution operating 110 awards multiplex in business bowling lanes collaboration 4. Multiples & L with Village capital invest in Roadshow PVR to fund Cinemax acquisition

Source: Company, MOSL

26 August 2013 29 PVR

Annexure-II

Key industry trends Indian M&E industry on a growth trajectory The size of the Indian M&E industry expanded from INR728b in 2011 to INR821b in 2012, registering an overall growth of 12.6%. Given the impetus provided by digitization, continued growth of regional media, upcoming elections, strength in the film sector and fast growing new media businesses, the industry is estimated to grow 11.8% in 2013 to INR917b. The government’s recent policy measures should pave the way for gradual recovery of the Indian economy and the Indian M&E industry should grow at a healthy CAGR of 15.2% to reach INR1.7t by 2017.

Industry size and projections (INR b) 2008 2009 2010 2011 2012 Gr. in 2013P 2014P 2015P 2016P 2017P CAGR 2012 (2012- over 17) 2011 (%) (%) TV 241.0 257.0 297.0 329.0 370.1 12.5 419.9 501.4 607.4 725.0 847.6 18.0 Print 172.0 175.2 192.9 208.8 224.1 7.3 241.1 261.4 285.4 311.2 340.2 8.7 Films 104.4 89.3 83.3 92.9 112.4 21.0 122.4 138.3 153.6 171.7 193.3 11.5 Radio 8.4 8.3 10.0 11.5 12.7 10.4 14.0 15.4 18.7 22.7 27.4 16.6 Music 7.4 7.8 8.6 9.0 10.6 18.1 11.6 13.1 15.3 18.3 22.5 16.2 OOH 16.1 13.7 16.5 17.8 18.2 2.4 19.3 21.1 23.0 25.0 27.3 8.4 and VFX 17.5 20.1 23.7 31.0 35.3 13.9 40.5 46.8 54.3 63.1 73.4 15.8 Gaming 7.0 8.0 10.0 13.0 15.3 17.7 20.1 23.8 30.9 36.2 42.1 22.4 Digital Advg. 6.0 8.0 10.0 15.4 21.7 40.9 28.3 37.1 48.9 65.1 87.2 32.1 Total 580 587 652 728 821 12.6 917 1,059 1,238 1,438 1,661 15.2 For Calendar Years* Source: KPMG FICCI Report 2013, MOSL Comeback in Films, with 21% growth in 2012 v/s 11% in 2011 Television continues to be the dominant segment. However, on the back of strong content and the benefits of digitization, there has been (a) strong growth in New Media sectors and Animation/VFX, and (b) a comeback in the Films (21% growth in 2012 v/s 11% in 2011) and Music sectors (18% growth in 2012 v/s 4.7% growth in 2011).

2012 was an exciting year for the Indian , with footfalls returning to the big screen. What was interesting about 2012 was that not only did ‘big budget, big star cast’ movies top the charts, but ‘small budget movies with unique stories’ also drew crowds. Films such as , Kahaani and Oh My God enjoyed box office success.

Industry performance - Revenues (INR b) 2008 2009 2010 2011 2012 2013P 2014P 2015P 2016P 2017P Gr. in CAGR 2012 over (2012-17) 2011(%) (%) Domestic Theatrical 80.2 68.5 62.0 68.8 85.2 92.4 104.7 115.3 127.6 142.2 23.8 10.8 Overseas Theatrical 9.8 6.8 6.6 6.9 7.5 8.3 9.0 9.8 10.8 11.9 9.0 9.5 Home Video 3.8 4.3 2.3 2.0 1.7 1.4 1.2 1.1 1.0 0.9 -15.0 -12.0 Cable & Satellite 7.1 6.3 8.3 10.5 12.6 14.1 16.2 19.1 22.8 27.3 20.0 16.8 Ancillary Revenue Streams 3.5 3.5 4.1 4.7 5.4 6.2 7.2 8.3 9.6 11.1 15.2 15.5 Total 104.4 89.3 83.3 92.9 112.4 122.4 138.3 153.6 171.7 193.3 21.0 11.5 KPMG FICCI Report 2013, MOSL

26 August 2013 30 PVR

Domestic theatrical channel to continue dominating film industry revenues Domestic theatrical revenues account for 76% of the film industry’s overall revenues and we expect the dominance of this channel to sustain. Though constrained by the recent slowdown in the commercial real estate market, the exhibition industry continues to expand capacity, given the huge opportunity. In 2012, the industry added 152 new screens.

The domestic theatrical segment witnessed 23.8% growth in 2012, against the consensus estimate of just 7%. The exponential growth in domestic theatrical revenues can be attributed to the growth in number of screens (increasing trend towards multiplexes), coupled with higher ticket prices and delivery of robust content appealing to both the multiplex and single screen audiences. Huge growth opportunity India has a population of 1.2b, growing at 1.3% per year. Demographics are favorable, with 35% of the population in working age. Movie going is the number-1 entertainment option for people in India, the world’s largest film entertainment market (1,000 movie releases and over 3b movie goers annually). The industry size is estimated at USD2b in 2012, projected to grow at a CAGR of 11.5% to reach USD3.5b by 2017.

India has a total of 9,100 screens, of which just 1,400 are multiplex screens. The average ticket price is ~USD1 for single screens and USD2.6 for multiplexes. The multiplex segment is highly organized and largely dominated by five key players (1,028 screens as on date). Bollywood (Hindi) movies account for ~45% of the film industry revenues, followed by Tamil (18%) and Telugu (16%). Hollywood movies contribute ~8% of the Indian film industry revenues.

Contribution to Indian box office

Market share by revenues (%) Market share by number of releases

26 August 2013 KPMG FICCI Report 2013, MOSL 31 PVR

While the industry is likely to see further consolidation, it needs at least 30,000 more screens. Given the low screen density in India (8 per million) as compared with Indonesia (141 per million), US (125 per million), China (31 per million) and Brazil (10 per million), the growth opportunity is huge.

Screen density per million population

Source: KPMG FICCI Report 2013, MOSL

Digitization a key growth enabler Industry estimates indicate that ~77% of the screens in India have been digitized. Digitization has enhanced the ability to simultaneously release a movie on a large number of screens. Big-budget movies are now released across as many as 3,500 screens as compared with just 1,000 three years ago. The main driver behind this is the huge price difference between digital and physical (analog) prints.

Over the last five years, there has been a rapid shift towards digital prints. Analog prints constituted 85-90% of film release prints till a few years ago. Currently, digital prints account for over 80% of all Hindi film releases. In addition to significant cost savings (~INR50,000 per analog print vis-à-vis INR10,000 per digital print), producers get the advantage to add or reduce screens according to their availability in real time. The analog print format is likely to fade away by 2016.

Data for top three films at box office Year 2008 2009 2010 2011 Average number of domestic prints 1,020 980 1,330 3,000 Share of first week collections (%) 54 54 58 78 Source: KPMG FICCI Report 2013, MOSL Multiplexes the way forward; focus shifting to smaller cities In 2012, the industry added 152 new screens, with most of the growth coming from expansion of multiplexes. While no new screens were added in Delhi and Mumbai, Gujarat and Bihar saw the highest additions. Gujarat added 21 new multiplex screens and a single screen. Bihar added 18 new multiplex screens and two new single screens.

The South Indian exhibition industry added 41 screens, 37 of which are multiplex screens. The multiplex screen additions were restricted to Kerala, Andhra Pradesh and Karnataka. Tamil Nadu added only one single screen. With near saturation in several metropolitan and tier-I markets, the focus is now shifting to the next 40 cities, which are experiencing rapid urbanization and greater economic growth.

26 August 2013 32 PVR

Single screens facing challenging times Single screens are facing challenging times. As many as 97 screens shut down in 2012. The year saw single screen theatres making efforts to reinvent themselves. They are focusing on upgrading their existing infrastructure to provide enhanced movie watching/ going experience. Several players have invested in (a) improving picture quality, (b) surround sound systems, (c) air conditioning, (d) creating/improving parking spaces, and (e) improving the quality of food and beverages. Some players have introduced online ticketing to enhance consumer convenience and curb black marketing.

Break-up of screen additions, 2012 Multiplex penetration on the rise

Source: Company, MOSL Region-wise split of screen additions, 2012

Multiplex 95% Multiplex 90% Single Screens 5% Single Screens 10%

Multiplex 90% Multiplex 83% Single Screens 10% Single Screens 17%

Source: KPMG FICCI Report 2013, MOSL

Tier-II and tier-III cities potential growth drivers Digitization has changed the face of the movie industry in a number of ways, one being simultaneous release on several screens, including those in tier-II and tier-III cities. Movie exhibitors now see tier-II and tier-III cities as potential growth drivers. Though Delhi and Mumbai contribute 55-60% of the revenues of a big budget film, multiplex expansion in these regions is rapidly drying out. In 2012, there were no new screen additions in Mumbai and Delhi.

With lower real estate prices in smaller towns and the leeway to launch a no frills cinema, exhibitors are able to bring down the cost per screen considerably. Keeping in mind demographics of these cities, ticket prices are lower than in the metros. For instance, while a regular PVR ticket is priced at INR100-275 in Delhi/NCR, it is priced at INR80-120 in Bilaspur.

26 August 2013 33 PVR

Hollywood also claims a share of the pie 2012 proved to be a blockbuster year not only for Bollywood films but also for Hollywood films in India. The share of Hollywood movies in gross box office collections increased to 8.5% in 2012, with total collections of INR9.5b. A wider distribution network due to digitization, growth in multiplexes and robust marketing has aided the growth of Hollywood content.

For a movie to garner revenues on a large scale, it is important to attain a pan India reach. The dubbing of Hollywood movies in regional languages such as Hindi, Tamil and Telugu has achieved that. Currently, English movies derive 35% of their revenues from dubbed formats. Revenue split of regional market for Hollywood films, 2012

Source: Company, MOSL Top overseas films in India (USD m) Movies Production House Indian Box Office Amazing Columbia Pictures, Marvel Studios, Spider Man Marvel Enterprises, Laura Ziskin 14.50 The Avengers Marvel Studios, 12.60 Skyfall Metro-Goldwyn-Mayer (MGM), Danjaq, Eon Productions 10.70 Life of Pi Fox 2000 Pictures, Haishang Films, Rhythm and Hues 10.30 The Dark Warner Bros. Pictures, DC Entertainment, Knight Rises Legendary Pictures, Syncopy 9.20 MIB 3 Amblin Entt., Hemisphere Media Capital, Imagenation Abu Dhabi FZ, Media Magik Entt., Parkes/Macdonald Productions 5.00 Ice Age 4 4.20 Titanic 3D Twentieth Century Fox Film Corporation, Paramount Pictures, Lightstorm Entt. 3.60 3 DreamWorks Animation, Pacific Data Images (PDI) 2.90 Resident Evil: Constantin Film International, Davis Films/Imapct Pictures Retribution (RE5), Davis-Films, Impact Pictures 2.10 Source: KPMG FICCI Report 2013, MOSL

The increase in the number of 3D screens is also a driving factor for the popularization of English films. In 2012, The Amazing Spiderman was released with 1,236 prints in four languages (English, Hindi, Tamil and Telugu) in 2D, 3D and IMAX formats. Box office collections are usually in favor of 3D movies. For movies released in 3D and 2D prints, box office collections are usually shared in the ratio of 6:4.

26 August 2013 34 PVR

Widening acceptance of 3D exhibition Indian audiences are getting acquainted with 3D technology but Indian film makers are yet to master the art of making 3D movies matching the quality levels of Hollywood movies. High quality content can be achieved only shooting the film completely in 3D. However, this is expensive, forcing filmmakers to convert 2D content to 3D. India has emerged as an outsourcing base for 3D-related conversion of Hollywood films and ample talent is being developed in the country for 2D to 3D conversion. Multiplex chains experimenting with pricing models to maximize revenue… First week business has increased, driven by wider release. The first week and weekend contribute 60-80% of a film’s total collection. Even within the first week, the trend is getting skewed towards the weekend. Considering this, multiplex chains are experimenting with pricing models to maximize revenue. By adopting a differential pricing strategy for weekdays and weekends, they are able to maximize footfalls across the week. …but several states regulate ticket pricing In several states, the respective state governments regulate ticket pricing. In Tamil Nadu, single screen theaters are allowed to charge a maximum of INR50 per ticket and multiplexes are allowed to charge a maximum of INR120 per ticket depending on facilities provided by them. In Andhra Pradesh, a proposal to hike cinema ticket rates from INR10 to INR25 for single screens and from INR60 to INR75 for multiplexes is currently on hold. The industry expects the state governments to relax regulations that limit the number of shows and cap ticket pricing, and to allow exhibitors to fix admission rates according to demand. Flexible pricing will also help to reduce black- marketing of tickets since theater owners will have the freedom to revise rates according to audience inflow.

Higher taxation restraining growth of the sector High entertainment tax acts as a major impediment to the growth of the exhibition industry. The overall tax implication is as high as 40-50% in states like Maharashtra, Uttar Pradesh, Bihar and Karnataka. Such regulations have also led to corrupt trade practices. To save entertainment tax, theater owners under-declare occupancy rates. Industry estimates indicate that theaters under-report 25-30% of ticket sales.

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Entertainment tax State Entertainment Tax Note (as percentage of ticket price) Maharashtra 45% for tickets uner INR250 49.5% for tickets priced at INR251-350 51.75% for tickets at INR351-500 54% for tickets INR501 and above Marathi Films are tax free Bihar 50% Karnataka 40% Kannada films are tax free Uttar Pradesh 30% for tickets up to INR10 35% for tickets between INR10-30 40% for tickets exceeding INR30 West Bengal 30% 2% for films in Bengali, Santhali and Nepali Language Haryana 30% Kerala 30% Orissa 25% Gujarat 20% Delhi 20% Madhya Pradesh 20% Andhra Pradesh 20% 15% for Telugu films Tamil Nadu 15% Tamil Language Films are tax free Assam 15% for tickets less than INR20 20% for tickets more than INR20 Jharkhand Entertainment Tax exempted for the Earlier it was 110% period April 2012 to March 2013 Punjab Tax Free Jammu & Kashmir Tax Free Rajasthan Tax Free Himachal Pradesh Tax Free Madhya Pradesh 20% Source: Company, MOSL

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Financials and Valuation

Income Statement (Consolidated) (INR Million) Y/E March 2010 2011 2012 2013 2014E 2015E Net Sales 3,341 4,593 5,171 8,053 14,274 17,314 Change (%) -5.1 37.5 12.6 55.7 77.2 21.3 Total Expenditure 2,997 3,706 4,410 6,884 11,937 14,376 EBITDA 344 886 761 1,169 2,337 2,938 Margin (%) 10.3 19.3 14.7 14.5 16.4 17.0 Depreciation 274 674 365 560 824 996 EBIT 70 212 396 609 1,514 1,943 Int. and Finance Charges 159 162 185 368 794 773 Other Income - Rec. 98 107 120 91 113 142 PBT bef. EO Exp. 9 157 331 332 833 1,312 EO Expense/(Income) 0 0 -22 -12 0 0 PBT after EO Exp. 9 157 310 320 833 1,312 Current Tax -3 7 -5 94 208 328 Deferred Tax 4 146 62 -218 0 0 Tax Rate (%) 11.3 97.9 18.5 -38.7 25.0 25.0 Reported PAT 8 3 253 443 625 984 PAT Adj for EO items 8 3 270 461 625 984 Change (%) -90.4 -59.6 8,247.3 70.4 35.6 57.5 Margin (%) 0.2 0.1 5.2 5.7 4.4 5.7 Less: Mionrity Interest 5 79 1 2 0 0 Net Profit 14 82 254 445 625 984

Balance Sheet (Consolidated) (INR Million) Y/E March 2010 2011 2012 2013 2014E 2015E Equity Share Capital 256 271 259 396 407 407 Total Reserves 2,834 3,142 2,571 6,031 6,562 7,404 Net Worth 3,090 3,414 2,830 6,427 6,969 7,811 Minority Interest 602 544 139 854 854 854 Deferred Liabilities 217 314 106 7 7 7 Total Loans 1,799 1,615 2,033 6,566 6,666 6,216 Capital Employed 5,709 5,886 5,109 13,854 14,495 14,888

Gross Block 4,134 5,489 4,271 7,955 9,955 11,455 Less: Accum. Deprn. 1,148 1,812 1,569 2,066 2,890 3,886 Intangible assets- Goodwill 27 4,072 4,072 4,072 Net Fixed Assets 2,986 3,677 2,728 9,960 11,136 11,641 Capital WIP 777 430 876 1,541 1,570 1,212 Total Investments 1,071 5 6 380 0 0

Curr. Assets, Loans&Adv. 1,414 2,444 2,516 3,970 5,061 5,999 Inventory 37 53 79 107 183 217 Account Receivables 144 300 270 425 587 664 Cash and Bank Balance 208 790 216 368 376 284 Loans and Advances 1,026 1,301 1,950 3,070 3,916 4,833 Curr. Liability & Prov. 590 670 1,017 2,014 3,289 3,980 Account Payables 541 614 918 1,888 3,132 3,786 Provisions 50 56 99 126 157 194 Net Current Assets 824 1,774 1,498 1,957 1,773 2,018 Appl. of Funds 5,709 5,886 5,108 13,854 14,495 14,887 E: MOSL Estimates; * Adjusted for treasury stocks

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Financials and Valuation

Ratios Y/E March 2010 2011 2012 2013 2014E 2015E Basic (INR)* EPS 0.5 3.0 9.8 11.2 15.4 24.2 Cash EPS 11.0 24.9 24.5 25.8 35.6 48.6 BV/Share 120.6 125.7 109.3 162.2 171.2 191.9 DPS 1.0 1.1 6.0 1.5 3.1 4.7 Payout (%) 373.6 1,028.6 71.0 10.4 15.1 14.4 Valuation (x) * P/E 32.4 23.7 15.1 Cash P/E 14.1 10.2 7.5 P/BV 2.2 2.1 1.9 EV/Sales 2.6 1.5 1.2 EV/EBITDA 17.6 8.9 6.9 Dividend Yield (%) 0.4 0.9 1.3 Return Ratios (%) RoE 0.5 2.5 8.1 9.6 9.3 13.3 RoCE 3.7 6.4 10.4 7.8 12.2 15.1 Working Capital Ratios Asset Turnover (x) 0.6 0.8 1.0 0.6 1.0 1.2 Inventory (Days) 4.0 4.2 5.5 4.9 4.7 4.6 Debtor (Days) 14 22 19 19 13 12 Leverage Ratio (x) Current Ratio 2.4 3.6 2.5 2.0 1.5 1.5 Debt/Equity 0.6 0.5 0.7 1.0 1.0 0.8 * Adjusted for treasury stocks Cash Flow Statement (Consolidated) (INR Million) Y/E March 2010 2011 2012 2013E 2014E 2015E NP / (Loss) Bef. Tax and EO Items 7 157 310 319 833 1,312 Depreciation 274 674 365 560 824 996 Interest & Finance Charges 159 138 159 326 794 773 Direct Taxes Paid -20 -9 -108 -233 -208 -328 (Inc)/Dec in WC -80 -254 -152 556 192 -338 CF from Operations 340 706 573 1,529 2,434 2,414

EO Expense -27 -54 -82 1 0 0 CF from Operating incl EO 313 653 491 1,530 2,434 2,414

(inc)/dec in FA -900 -806 -560 -2,372 -2,029 -1,142 (Pur)/Sale of Investments -19 1,195 -502 -5,684 380 0 Others 66 59 31 -18 0 0 CF from Investments -854 448 -1,031 -8,074 -1,649 -1,142

Issue of Shares 427 26 -66 3,820 0 0 (Inc)/Dec in Debt 337 -227 427 3,278 100 -450 Interest Paid -171 -179 -207 -425 -794 -773 Dividend Paid -27 -31 -150 -60 -94 -142 Others 97 -107 -38 82 11 0 CF from Fin. Activity 664 -518 -34 6,695 -777 -1,365

Inc/Dec of Cash 124 582 -574 151 8 -92 Add: Beginning Balance 84 208 790 216 368 376 Closing Balance 208 790 216 367 376 284 E: MOSL Estimates

26 August 2013 38 PVR

NOTES

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