PVR: Going cheap

Company’s assets are worth more than the current market capitalisation

Foraying into film production may seem like a great backward integration plan for a multiplex player, but PVR’s experience shows that such good ideas don’t always work. Having burnt its fingers with a Rs 40-crore debacle called Khelein Hum Jee Jaan Se, PVR has decided to moderate investments in film production business. This has come as good news for analysts tracking the stock, as it indicates the company is back to focusing on its core business of exhibiting films.

This year has been rather tough, as the company had to not only contend with a major flop, but also be struck by the tsunami called cricket. The company expects the fourth-quarter occupancy to be 23 per cent with movie releases slowing down due to the ongoing Cricket World Cup. In contrast, occupancy levels for the nine month-ended December stood at 30 per cent. While PVR expects the movie pipeline to revive, it is more excited about the 25-30 3D films to be released in financial year 2011-12, which will benefit it through higher ticket prices. Despite a slowdown in the movie production business, the company will release two small-budget films next year — Rakeysh Omprakash Mehra’s Teen They Bhai and Emran Hashmi-starrer Shanghai.

All this may sound good, but if the stock has to move, the company will have to deliver decent profits every quarter before any re-rating happens. For now, analysts are looking at the stock only because the price currently does not factor in the its assets. Says Edelweiss Capital’s Abneesh Roy, “PVR’s assets are valued at Rs 340 crore (cost of 142 screens is Rs 250 crore plus sale) and lease back of Phoenix Mills property to yield Rs 90 crore, while the current market capitalisation stands at Rs 260 crore.”