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Sunday, July 13, 2014

D-LINK INDIA LIMITED: BETTER PLACED IN THE SECTOR !!!


A TRADE TO TRADE SCRIP & FOR HIGH RISK TAKERS ONLY !!!
Scrip Code: 533146 DLINKINDIA
CMP:  Rs. 59.00; Buy at Rs. 56 to 59 and at every dips.

Short Term Target: Rs. 65.00; Medium to Long Term Target: Rs. 175.00; STOP LOSS – Rs. 50.00; Market Cap: Rs. 176.87 Cr; 52 Week High/Low: Rs. 65.20 / Rs. 22.50.

Total Shares: 3,00,04,850 shares; Promoters : 1,81,14,663 shares – 60.37 %; Total Public holding : 1,89,90,187 shares – 39.62 %; Book Value: Rs. 28.98; Face Value: Rs. 2.00; EPS: Rs. 3.83; Dividend: 25.00 %; P/E: 15.39 times; Ind. P/E: 85.41; EV/EBITDA: 7.73.
Total Debt: 1 Lakh; Enterprise Value: Rs. 176.82 Cr.

D-LINK INDIA LTD: D-Link India Ltd was founded in the year 2008 and is based in Mumbai. D-Link (India) Limited was formerly known as Smartlink Network Systems Limited. Company is a subsidiary of D-Link Holding Mauritius Inc. D-Link (India) Limited engages in the marketing and distribution of networking products in India and SAARC countries. It primarily offers digital home, easy portal, home servers, security box, Internet protocol (IP) device integration and wireless routers, as well as carrier switches, broadband digital subscriber lines (DSL) and DSL access multiplexers, integrated access devices, cable modems, voice over IP, passive optical network, rural connective platform outdoor wireless bridges, digital home appliances, network storage, and IP surveillance and multimedia devices for customers and service providers. The company also provides metro network, access network, premises network and home entertainment focusing on the provision of backend infrastructure services to customers at various levels, such as service distribution, aggregation, and access and premise networks. The company sells its networking products to distributors, original equipment manufacturers and system integrators, as well as for the enterprise and small and medium business segments in the government, hospitability and education sectors. It also exports its products. D-LINK INDIA LTD can be locally compared Salora International Limited, Computech Intl. Ltd, Redington India Ltd, Vintron Informatics Ltd, Zenith Computers Ltd, Encore Software Ltd and globally with Emulex Corp of USA, Emcore Corp of USA, Digi International Inc of USA, Cisco Systems Inc of USA, Intel Corporation of USA, Qualcomm Inc of USA, United Technologies Corp of USA, Netgear Inc of USA, Novatel Wireless Inc of USA, Netas Telekomunikasyon A.S. of Turkey, Transmode AB of Sweden, Pace Plc of London, Alpha Networks Inc of Taiwan, Hitachi Kokusai Electric Inc of South Korea, Humax Co, Ltd of South Korea, Wave Electronics Co, Ltd of South Korea, Wistron NeWeb Corporation of Taiwan, Ceragon Networks Ltd of Isreal, Inter Far East Engineering Public Company Limited of Thailand, Marco Holdings Berhad of Malaysia, Startia Inc of Japan, Gremz, Inc of Japan, Aiko Corporation of Japan.

Investment Rationale: 
D-Link India is the business of marketing and distribution of networking, broadband, digital, voice, and data communications products of its parent D-Link Corporation, Taiwan in India. D-Link Corporation, Taiwan is globally renowned for its networking products and solutions and has a presence in 67 countries with a wide range of products. D-Link India distributes switches, routers, modems, voice over Internet protocol products, surveillance equipment, print servers, Ethernet cards, and broadband equipment. India is expected to witness a data boom similar to the voice boom in 2008. The total number of internet connections is expected to reach 46.3 Cr by FY18E, as per the FICCI KPMG report. The national optic fibre network as proposed by the new government will facilitate the New Telecom Policy (NTP 2012) which targets 60 Cr broadband users by 2020. Currently, we have about 5.5 Cr fixed and mobile broadband users. D-Link has a vast product portfolio, with such a product portfolio of active products such as switches, wireless & digital home products, passive products such as copper and fibre products and certain IT and enterprise based solutions and modems and routers, D-Link is expected to emerge as the direct beneficiary of the internet revolution. With more and more people availing internet connections, the increase in popularity and usage of mobile devices like laptops, smart-phones and gaming consoles has also resulted in an increased demand for networking products in the consumer space. India adds more than 1.50 Cr wireless subscribers every month and is the second-largest market after China for wireless services. The numbers of wireless subscribers has increased from 26 crore at the end of FY08 to 90 crore at the end of FY14, a CAGR of 23 % while wired broadband penetration has increased from 0.4 crore at the end of FY08 to 1.5 crore at the end of FY14, at a CAGR of 25 %. In addition to these there are currently 4.6 crore users accessing broadband internet through mobile devices such as smart-phones and dongles. The robust growth in wireless as well as broadband subscribers is pushing the demand for PCs, tablets, smart phones and consequently, pushing the demands for networking, especially, Wi-Fi networking products such as wireless routers, dongles, wi-fi adopters. The emergence of an affluent middle class is triggering the demand for mobile and internet segments. A young and growing population is aiding this trend, especially the demand for smart phones. This will fuel an increase in 3G/4G subscribers and broadband users, thus, creating further demand for networking products from individual users. Enterprises have been investing towards setting up a strong networking infrastructure that can deliver reliable and efficient end-to-end solutions to aid in their business operations. The roll out of 3G services and the significant government initiatives in aggressively promoting broadband usage in the country are driving the demand of networking products like routers, switches and access points to storage and surveillance products across all verticals. The fast growth in networking infrastructure is evident across a string of verticals such as telecom, retail, aviation, hospitality, government, manufacturing and education which are increasingly deploying sophisticated networking infrastructure. D-Link being a market leader in providing networking and IT products and solutions naturally benefits from any increased spending in networking infrastructure. During this budget of 2014-15, the Finance Minister of India allocated Rs. 100 Crs fund to set up virtual classrooms, and Rs. 500 Cr for National Rural Internet and Technology Mission, which include providing broadband and information Technology (IT) skills to villages. There is a direct c0-relation between increasing broadband & mobile penetration and GDPof a country. According to a study by Deloitte LLP & Cisco, a 10 % increase in mobile penetration increases total factor productivity in the long run by 4.2 %. The Government has also proposed to integrating all the services of central government departments and ministries on its e-Biz platform, aimed at making all business and investment related clearances and compliances available on single website with an integrated payment gateway by 31 Dec 2014. And D-Link has sustained its growth momentum in various categories. In the switches segment, D-Link’s market share continues to grow and has reached the leadership position at nearly 37 % in FY13 against the backdrop of a virtually flat market. In the routers segment, D-Link ranks second with a 31 % market share in FY13. In the wireless domain, D-Link retained its Numero Uno position with 40 % of the market while in the emerging domain of IP surveillance, D-Link was at 4th position in FY13. Historically, whenever the cycle turns up, it is always the leaders who benefits foremost from the growth trajectory. And, D-Link by virtue of its leadership position is fitted in the best placed to benefit from this. The new government aims to set up a National Optic Fibre network up to the village level and also establish Wi-Fi in public zones. D-Link is very well placed to zero in on the upcoming internet boom in India with its portfolio of innovative product offerings. The total broadband subscribers in India have grown at a stellar rate of 58 % CAGR in FY10-14 to 5.5 Cr from a mere 9o lakh in FY10. This growth in broadband subscribers is also visible in D-Link’s financials. Nonetheless, the scope for further growth remains humongous as broadband penetration is still quite low. Going ahead, if the current momentum continues, the industry would reach closer to NTP 2012’s target of 60 Cr broadband subscribers, which would directly benefit players like D-Link.

Outlook and Valuation: 
D-Link (India) Limited is a part of D-Link Corporation and is one of the largest networking company in India. The Company is engaged in Marketing and Distribution of Networking products in India and SAARC Countries. D-Link Holding Mauritius Inc., which is 100 % subsidiary of D-Link Corporation, is holding 60.37 % in D-Link (India) Ltd. Today, D-Link (India) Limited is a key market player with a nationwide reach, robust product portfolio and a provider of the superior services in India. The Company is firmly committed towards delivering high quality, efficiency and reliability to Networking products, solutions and services. The management has expressed confidence that the networking industry will continue to grow at a robust pace on the back of higher enterprise spending, further roll out of 3G/4G networks and increasing broadband penetration will also help. With strong parental support from D-Link Taiwan, in terms of a pipeline of the latest and innovative products, D-Link India is ideally placed to take advantage of the impending boom in networking and internet products. D-Link is a market leader in important product categories such as Switches where it holds 37 % market share; in Wireless it holds 40 % market share; and in Routers it holds 31 % market share. Recently, in Union Budget of 2014-15, the Finance Minister proposed to build smart cities, increasing high-speed Internet connectivity, providing online delivery services through integration of government departments and also the long standing issue of inverted duty for electronic goods has been addressed & Special additional duty of 4 % is removed and educational cess put on imported electronic products will encourage domestic manufacturing. India is among the world's youngest nations with a median age of 26 years. 65 % of Indian population is estimated to be below 35 years of age and India will have 7 Cr new entrants to its work force over the next 5 years. India currently has about 21.4 Cr internet users, the third largest in the world and is likely to have 33 Cr to 37 Cr internet users in 2015 which would then be the second largest in terms of incremental growth. Due to declining costs of Internet access and mobile devices, nearly 55 % of aggregate user base in 2015 is expected to have an access to the internet from a mobile or tablet device in India. Economic contribution from Internet in India can be potentially doubled from current 1.6 % of India’s GDP to 2.8 % to 3.3 % by 2015. Internet-related economy is expected to grow bigger than education and as bigger as healthcare sector in terms of current GDP share. Internet’s effect on the Indian economy goes well beyond iGDP. The Current levels of internet-related expenditure are estimated to create about 60 lakhs direct and indirect jobs. As the direct impact of the internet on India’s GDP has the potential to treble by 2015, an additional 1.6 Cr jobs could be created. In India, Enterprise IT spending is expected to grow at a CAGR of 12 % and reach $50 billion by the end of CY15 from $38 billion in CY13. With the spending on IT on the rise, networking products and services will continue to be in great demand in the foreseeable future. Wireless subscribers have grown at a CAGR of 23 % while wired broadband penetration has increased at a CAGR of 25 % through FY08-14. The emergence of an affluent middle class is triggering demand for the mobile and internet segments This will fuel an increase in 3G/4G subscribers and broadband users, thus, creating further demand for networking products from individual users. D-Link has a strong backing from its parent company and D-Link India enjoys flexibility when it comes to procurement and pricing and can manage its working capital cycle better than other companies in difficult times. For the last 3 years, D-Link has maintained a debtor day’s cycle that is in the range of 70 to 85 days and it has a creditor day’s cycle in the range of 70 to 90 days. As per the management, the company receives a credit period of 45 days from its parent company which can be flexible depending on the working cycle requirement and 60 days from its local supplier. It will continue to maintain an inventory of products for two months. D-Link India along with its parent entity D-Link Holding Mauritius is acquiring TeamF1 Networks, a company which specializes in providing networking and security software for embedded devices. The acquisition, which is aimed at 100% shareholding in the TeamF1 Networks, will be partially funded through stock swap and partially through cash. Accordingly, D-Link India has issued 55 lakh shares on a preferential basis to the promoters and other shareholders of TeamF1 Networks. Post the demerger; the company had reported flat revenues in FY09-11. However, D-Link India’s performance has been quite impressive over the past two years as it posted 47.6 % and 40.5 % CAGR in its revenue and EBITDA, respectively, over FY12-14. D-Link distributes its products in India largely through two pan-India distributors, Redington and Ingram Micro. The company has of a strong distribution network with 17 branch offices in India, 22 RMA centres, 85 business distributors and over 200 SI partners. It has further enhanced its distribution network by adding one other distributor (Cadence) in FY14. D-Link continually engages with its channel partners through various training and technology up-gradation programmes to ensure that they are better equipped to meet customer needs relating to technology. D-Link sales have grown at a CAGR of nearly 56 % during the period FY11 to FY14 on the back of aggressive marketing strategies. At a Current Market Price of Rs. 59.00, the D-Link stock is trading at a P/E of 9.21x FY15E and 7.65x FY16E. The company can post EPS of Rs. 6.40 for FY15E and Rs. 7.70 for FY16E. One can buy D-LINK LIMITED with a target price of Rs. 65.00 for Short term and for Medium to Long term investment it should be Rs. 175.00.

KEY FINANCIALSFY13FY14FY15EFY16E
SALES ( Crs)353.70486.00586.40671.00
NET PROFIT (₹ Cr)12.3013.6019.2023.00
EPS ()4.104.506.407.70
PE (x)12.3011.207.906.60
P/BV (x)1.701.501.301.10
EV/EBITDA (x)7.706.904.403.10
ROE (%)14.0013.6016.0016.30
ROCE (%)20.2020.1023.5024.00

I would buy D-LINK LTD for Rs. 65.00 in short term and for Medium to Long term target of Rs. 175.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 50.00 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

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Friday, July 11, 2014

UNION BUDGET 2014-15 : HIGHLIGHTS !!!

GROSS DOMESTIC PRODUCT ESTIMATED TO GROW AT FY15 at 5.4 % - 5.90 %

AT CURRENT PRICES THE ADVANCE GDP ESTIMATE OF 2013 - 14 IS ₹ Rs. 105,39,605 LAKHS CR AND AT 2004-05 PRICES ITS AT Rs. 57,48,564 LAKHS CR.

FY15 FISCAL DEFICIT AT Rs. 5,31,177 CR.
FY15 TOTAL SUBSIDES AT Rs. 2,51,397 CR.
FY15 FERTILIZER SUBSIDIES AT  Rs. 72,970 CR,
FY15 FOOD SUBSIDIES AT  Rs. 1,15,000 CR
FY15 OIL & PETROLUEM SUBSIDIES AT  Rs. 63,427 CR.
FY15 NET MARKET LOANS = Rs. 4,61,205 CR
FY15 STATE PF = Rs. 12,000 CR.
FY15 EXTERNAL AID = Rs. 5,734 CR.
FY15 LESS OTHERS = Rs. 7,704 CR.
THE CENTER'S EXPENDITURE 2014-15 IS PROJECTED AT Rs. 17,94,892 Cr.

IN FLOW (Rs. in Cr)
TAX RECEIPTS9,77,258
CORPORATE TAX4,51,005
INCOME TAX2,84,266
CUSTOMS DUTY2,01,819
EXCISE DUTY2,07,110
SERVICE TAX2,15,973
TAX OF UNION TERRITORY3,401

NON TAX RECEIPTSAMOUNT
INTEREST RECEIPTS19,751
DIVIDENDS & PROFITS90,229
EXTERNAL GRANTS2,405
OTHER NON TAX RECEIPTS99,009
RECEIPTS OF UNION TERRITORY1,111
           TOTAL2,12,505

NON DEBT CAPITAL RECEIPTS73,952
RECOVERY OF LOANS & ADVANCES10,527
MISC. CAPITAL RECEIPTS63,425

* Out of the Tax Receipts the Center has to keep aside States share of Rs. 3,82,216 cr & for Calamity & Contingency Fund of Rs. 5,050 crs.

OUT FLOW (Rs. in Cr)
PLAN EXPENDITURE5,75,000
NON PLAN EXPENDITURE12,19,892
OR
REVENUE EXPENDITURE15,68,111
CAPITAL EXPENDITURE2,26,781
DEFENCE2,29,000
SUBSIDIES2,51,397
GRANTS TO STATES & UTs69,084
PENSIONS81,963
INTEREST PAYMENTS4,27,011
LOANS TO PSUs653
OTHER GENERAL SERVICES36,569
Subsidity to Railway towards Dividend4,059
CENTRAL PLAN2,36,592
POSTAL DEFICIT6,908
EXPENSES of UTs with out Legislature4,402
NON PLAN CAPITAL OUTLAY10,039
ECONOMIC SERVICES22,075
GRANTS TO FOREIGN GOVT.4,478
CENTRAL PLAN AID TO STATES3,38,408
SOCIAL SERVICES25,324
POLICE SERVICE46,930

SOME MORE POINTS FROM BUDGET

®  Tax to GDP ratio to be at 10.60 % in FY15, and must be improved & Non-tax revenues should be increased.
®  Govt. committed to achieve Fiscal deficit target of 4.1 % of GDP followed by fiscal deficit of 3.6 % for 2015-16 and 3.00 % for 2016-17.  
®    Rs. 2,29,000 Cr allocated to Defence sector.
®    PSU Banks to be capitalized Rs. 2,40,000 Cr by 2018.
®    No Changes in Tax Rates for Individuals.
®   Personal Income Tax exemption limit raised by Rs. 50,000 from Rs.2,00,000 to Rs. 2,50,000 for people below 60 years.
®    Investment limit Under Section 80C raised from Rs. 1 lakh to Rs. 1,50,000.
®   Annual PPF ceiling to be raised to Rs. 1,50,000 from Rs. 1,00,000.
®    Housing Loan Rebate to raise from Rs. 1,50,000 to Rs. 2,00,000.
®    PSUs will invest through Capital Investment a total sum of Rs. 2,47,941 Cr in current financial year. 
®    Provided Rs. 7,060 Cr in the current fiscal for the project of developing "One Hundred Smart Cities".
®    E- Visas to be introduced at 9 airports and to facilitate visas on arrivals.
®   New Airports to be developed through PPP mode in tier -II and tier-III , 16 new          ports to be set up and Rs. 11,000 Cr to be allocated to that.
®    Retrospective Tax Amendment to be undertaken with extreme caution.
®  Incentives for Real Estate Investment Trusts (REITS) and will be given complete pass through for the purpose of taxation. A modified REITS type of structure for infrastructure projects as Infrastructure Investment Trusts (INVITS), the REITS & INVITS will attract long term finance from foreign and domestic sources including NRIs.
®    Govt. to provide investment allowance at 15 % for 3 years to manufacturing company which invest more than Rs. 25 Cr in plant and machinery.
®  A sum of Rs. 100 Cr provided to transform Employment exchanges into Career Centres.
®  The composite cap of Foreign Investment to be raised to 49 % with full Indian management & Control through the FIPB route this includes Insurance sector where the limit is raised from 26 % to 49 %. And the requirement of the built up area and capital conditions for FDI to be reduce from 50,000 Sq. meters to 20,000 Sq. meters and from $10 million to $5 million respectively for development of smart cities.
®    The Manufacturing Units to be allowed to sell its products through retail including E- Commerce platforms.
®   PSUs will invest through capital investment to a tune of Rs. 2,47,941 Cr in current  financial year.    
®    FY15 disinvestment target Rs. 63,425 Crs and 43,425 Cr through disinvestments in  PSUs.
®   For assured irrigation a sum of Rs. 1000 Cr provided for 'Pradhan Mantri Krishi  Sinchayee Yojna".
®     To provide Rs. 14,389 Cr for Pradhan Mantri Gram Sadak Yojna.
®      Bank loans for women Self Help Groups at 4% to be extended to another 100 districts   under Ajeevika scheme. 
®   Initial sum of Rs. 100 Cr for Start-up Village Entrepreneurship Programme for     encouragement of rural youth to take up local entrepreneurship programmes.
®  EPFO to launch the Uniform Account Number service for contributing members.  Government notified a minimum pension of Rs. 1000 per month to all subscribers’  members of EP Scheme for that initial provision of Rs. 250 Cr is made. Also another  Rs. 250 Cr provision is made for the increase in mandatory wage ceiling of  subscription to Rs. 15,000 Cr.
®   A sum of Rs. 500 Cr to be allotted to Pan India programme "Digital India" and a       programme for promoting Good Governance to be launched with a sum of Rs. 100 Cr.
®  A tune of Rs. 100 Cr to be allocated for 600 new and existing Community Radio Stations. Rs. 100 Cr is provided for Kisan TV to disseminate real time information to farmers on issues like farming techniques, water conservation, organic farming etc.
®   Allocation of Rs. 8000 Cr to National Housing Bank to support Rural Housing. And slum development to be included in the list of Corporate Social Responsibility activates to encourage the private sector to contribute more.
®   A sustainable growth of 4 % in Agriculture will be achieved, to mitigate the risk of Price volatility in the agri produce a sum of Rs. 500 Cr is provided for establishing a Price Stabilization Fund. A target of Rs. 8 lakh Cr has been set for agriculture credit during 2014-15. Allocation of Rs. 5,000 Cr provided for the Warehouse Infrastructure Fund.
®   Allocation of Rs. 100 Cr to be provided for setting up National Industrial Corridor  Authority.
®    Fund of Funds with a corpus of Rs. 10,000 Cr for providing equity through venture  capital funds, quasi equity, soft loans and other risk capital specially to encourage new  start-ups by youth to be set up. Entrepreneur friendly legal bankruptcy framework  will be developed for SMEs to enable easy exit.
®    A sum of Rs. 500 Cr for developing a textile mega cluster at Varanasi and six more at Bareilly, Lucknow, Surat, Kutch, Bhagalpur and Mysore.
®    A sum of Rs. 11,653 Cr will be allocated for the development of outer harbour Project  in Tuticorin for Phase I. SEZs will be developed in Kandla and JNPT.
®    An investment of an amount of Rs. 37,880 Cr in NHAI and State Roads is proposed  which includes Rs. 3,000 Cr of North East.
®  Allocation of Rs. 100 Cr for new scheme Ultra-Modern Super Critical Coal Based Thermal Power Technology.
®   Ultra-modern power project to be taken up in Rajasthan, Tamil Nadu, Ladakh with Rs. 500 Cr.
®  Rs. 3600 Cr set aside for National Rural Drinking Water. Rs. 2,037 Cr set aside for integration of Ganga Development Project under name Namami Ganga.
® Uniform KYC across the financial sector with single Demat for all the financial transactions.
®  Banks to be permitted to raise long term funds for lending to infrastructure sector with minimum regulatory pre-emption such as CRR, SLR and priority sector lending (PSL).
®    Service Tax exempt on loading, unloading, storage, warehousing and transportation of cotton, whether ginned or baled.
®    To promote tourism, services provided by Indian tour operators to foreign tourists in relation to a tour wholly conducted outside India to be taken out of tax net and Cenvat credit for services of rent-a-cab and tour operators to be allowed.
®  Sale of space or time for advertisement in broadcast media, extended to cover such sales on other segments like Online and Mobile advertising will now come under service tax, Sale of space in Print media however remains excluded. Services provided by Radio-Taxis brought under service tax.
®   Net effect of Direct Tax proposals is Revenue Loss of Rs. 22,200 Cr.  
®  Personal Computers, Electronic goods to be Cheaper, CRT TVs to be cheaper. Basic custom duty on LED panel below 19 inch made NIL.
® Excise duty on footwear reduced from 12 % to 6 %. Footwear below Rs. 500 is exempt, 6 % duty on footwear above Rs. 500 but below Rs. 1000.
®    Duty on packaging Machinery to be at 4 %; Specified Food Processing machinery to 6 %, Cigarettes at 22 %.
®    Clean Energy cess increased from Rs.0.50/ tonne to Re. 1/tonne. 
®    Tax proposals on Indirect tax front would yield Rs. 7,525 Cr.


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Thursday, July 3, 2014

PVR LIMITED : LEADER IN ITS INDUSTRY !!!

Scrip Code: 532689PVR

CMP:  Rs. 664.45; Buy at current levels & Accumulate at every dips.

Medium to Long term Target – Rs. 730; STOP LOSS – Rs. 611.30; Market Cap: Rs. 2,731.30 Cr; 52 Week High/Low: Rs. 705.00 / Rs. 317.05
Total Shares: 4,11,06,220 shares; Promoters : 1,18,95,970 shares – 28.94 %; Total Public holding : 2,92,10,250 shares – 71.06 %; Book Value: Rs. 156.52; Face Value: Rs. 10.00; EPS: Rs. 14.05; Dividend: 10.00% ; P/E: 47.30 times; Ind P/E: 41.05; EV/EBITDA: 14.72.
Total Debt: 601.44 Cr; Enterprise Value: Rs. 3,299.70 Cr.

PVR LIMITED : PVR Limited was incorporated in 1995 and is based in Gurgaon, India. PVR LTD was incorporated in April 1995 pursuant to a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow Limited, one of the largest exhibition companies in the world. PVR Limited is an India-based company that operates movie houses in India. PVR Ltd came with an IPO on December 08, 2005 with an issue price of Rs. 225 per share and raise about Rs. 173.25 Cr with an objective to utilize the proceeds to finance the then new cinema projects in various cities across the country, to expand the film distribution business, technological up gradation and renovation of cinemas. The Company also generates revenue from in-cinema advertisements and products displays and in-cinema sale of food and beverages. It also produces and co-produces movies; and distributes movies, as well as operates 24 lane bowling centers. PVR, Currently controls 434 screens including 135 screens with Cinemax India Ltd at 92 locations across 37 cities in 13 states and 1 Union Territory. PVR's subsidiaries include CR Retail Malls India Ltd (CRR), Cine Hospitality Private Ltd, PVR Pictures Ltd (PVR Pictures) and PVR bluO Entertainment Ltd (PVR bluO). The Company has diverse cinema circuit in India consisting of 35 Cinemas with 154 screens spread over 20 different cities: Delhi, Faridabad, Gurgaon, Ludhiana, Ghaziabad, Mumbai, Bangalore, Hyderabad, Chennai, Lucknow, Indore, Aurangabad, Baroda, Allahabad, Ahmedabad, Udaipur, Chandigarh, Surat, Latur and Raipur. On January 8, 2013, PVR through its wholly owned subsidiary Cine Hospitality Private Ltd purchased a controlling stake of over 69 %  followed by the open offer for another 26 % in the Cinemax India Limited for Rs. 395 Cr or Rs. 203.65 per sgare from the Rashesh Kanakia and family. PVR Ltd is locally compared with Prime Focus ltd, Reliance Broadcast Network Ltd, Balaji Telefilms ltd, Media Matrix Worldwide Ltd, Shree Ashtavinayak Cine Vision Ltd, Tips Industries Ltd, Fame India Limited, Cinemax Properties Ltd, Era E Zone (India) Ltd, Pyramid Saimira Theatre Limited and Inox Leisure Ltd and globally compared with Walt Disney Co of US California, Time Warner Inc of USA, IG Port Incorporated of Japan, Twenty First Century Fox, Inc of New York, Lions Gate Entertainment Corp of California,  UTV Media PLC of UK, Dreamworks Animation Skg Inc of California, Orange Sky Golden Har. Ente. Holdings Ltd of Hong Kong, Kinepolis Group NV of Belgium, Cinemax X AG of Germany, Digital Cinema Destination Corp of United States and Reading International Inc of United states, Geo Dinos Company Ltd of Japan, Nakanihon Kogyo Company Ltd of Japan.

Investment Rationale:
Priya Village Roadshow (PVR) Cinemas is a leading cinema chains in India. The company began as a joint venture agreement between Priya Exhibitors Private Limited and Village Roadshow limited in 1995 with 60:40 ratios. PVR pioneered the multiplex revolution in the country by establishing the first multiplex cinema in 1997 at Saket, New Delhi. This opening of the first multiplex opened up a new era in the Indian cinema viewing experience, which also set a role model for others to follow suit. In 2002, the Village Road Show exited the JV and company changed its name to PVR Limited and in 2003, ICICI Ventures made an investment in PVR and from there on it was no looking back. PVR has set new benchmarks in the cinema exhibition business including establishment of the first largest 11 screen multiplex in the country, Gold Class Cinema, luxury cinema, IMAX theatres and ECX (Enhanced Cinema Experience). PVR, Currently controls 434 including 135 Screens with Cinemax India Ltd at 92 locations across 37 cities in 13 States and 1 Union Territory. It also plans to open another 500 screens by 2015. PVR commands a significant presence in New Delhi and NCR with 55 screens in 16 multiplexes. PVR also has its strong presence in major Indian cities. The Cinemax acquisition makes PVR a leader in the exhibition space and gives a strong bargaining power. PVR has an impressive market share of of around 28 % including Cinemax in the total 1600 multiplex screens in the country. After the Cinemax acquisition, the company has a combined revenue share of 20 % to 22 % in Bollywood and 30 % to 35 % in (Hollywood) of multiplex revenues. The company has about 434 screens as on date and plans to augment its market share by rolling out 60 to 70 screens each year. This leadership position gives PVR the leverage to negotiate better deals with movie producers. It is expected that the total tally at PVR to reach 481 screens with 109 properties in FY15E and 537 screens with 119 properties in FY16E. PVR also plans to approach the next government for a minimum window norm before movie releases are available on other platforms. Management is planning to “re-brand” all the Cinemax screens to PVR which will take 24 months. So far only 2 Cinemax screen is rebranded to PVR and company has seen 25 % increases in revenue. Thus management believes that re-branding is encouraging. As an innovation in marketing strategy, company has tied up with Unilever for marketing on “pay per eye ball” basis. Company is planning to focus on corporate & bulk bookings as a part of new marketing initiative. Currently corporate booking revenue is miniscule at around Rs. 12.5 Cr. However company sees a big potential in this segment. Two marketing employees are allocated at every screen who will market to corporate and colleges in the vicinity of 8 to 10kms. About 8 to 9 % of the all shows were “housefull” shows. The timing of the movies are allotted in such a way that 70 to 75 % occupancy is reached and balance 20 to 25 % are kept as a buffer to handle unexpected increase in demand. The Annual maintenance capex comes at 1-2 % of revenue. Every screen requires refurbishment after 6-8 years to keep the cinema maintained and fresh. This amounts to 20-30 % of original capex. Capex required is on an average of Rs. 2.5 Cr per screen. Of the total 434 screens, 2/3rd screens are older than 2 years. The Company's growth is slow in East and is still not able to find right malls and location for expansion in East. But management continues to look for good opportunity in East. PVR’s occupancy rate for FY14 was around 34 %. PVR is evolving itself into a lifestyle entertainment company and the acquisition of Cinemax proved to be a master stroke which helped PVR to become industry leader. PVR’s has good prospects with improvement in RoCE and RoE with free cash flow visibility and with the timely execution of the given aggressive roll-out plan it will maintain its leadership position.

Outlook and Valuation:
PVR, a pioneer in multiplex in India and is the largest cinema exhibition player in the country today. Post the acquisition of Cinemax, PVR has become India’s largest multiplex chain with 97 properties, 434 screens and 101k seats. PVR is India’s largest and fastest growing multiplex chain with market share of about 23-25 % in Bollywood market and with 33-35 % of market share in Hollywood market. Being the only large player and the way it is expanding itself aggressively will definitely makes PVR an undisputed leader and will further extend its leadership to higher scales. The recent KPMG report anticipates the market size of Indian Music & Entertainment sector to touch Rs 1,45,700 Cr (US$ 25.51 billion) by 2016. There is increased penetration in Indian markets, which is expected to even intensify further, owing to a revolution brought in by digital technology. Wireless broadband, growing internet usage, cable digitisation and higher DTH adoption would further drive Indian M&E industry to new heights. The report also noted that smart phones, tablets, gaming devices have laid the foundation of a new wave in the industry. Also, the Investments inflows in the movie production space are set to multiply, several movie studios such as Virgin Produced India, Fox Star Studio plans to step up investments in Bollywood. Along with the higher investments and with higher quality content driven by heavy investments would lead to higher demand for movie related entertainment. PVR would be benefited from the increased occupancies and rising Average Ticket Price (ATPs). PVR has offerings across the consumer segments like in Luxury Cinema Viewing it has Directors Cut with ticket prices ranging from Rs. 1,044 to Rs. 1276; in Comfortable Reclining Seats it has Gold Class with ticket prices ranging from Rs. 696 to Rs. 928; in Catering to Upper Middle Class it has PVR Premiere with ticket prices ranging from Rs. 174 to Rs. 348; in Comfortable Regular Seatings it has PVR Mainstream with ticket prices ranging from Rs. 116 to Rs. 174; in Low cost Multi-screen cinemas it has PVR Talkies with ticket prices ranging from Rs. 58 to Rs. 116. It is expected that PVR’s Average Ticket Prices to register a growth of 7 % at Rs. 177 by the end of FY15E and a growth of 3 % to Rs. 182 by the end of FY16E. Moreover, as disposable incomes increase, Foods & Beverages (F&B) spends are also expected to rise to Rs. 60 in FY15E and to Rs. 62 by the end of FY16E, from Rs. 53 currently. PVR is strategizing to augment its advertising revenues by about 25 to 30 % YoY by providing advertisers various deals such as pay per eyeballs and other innovative deals. The company has earned about Rs. 141.9 crore in FY14. PVR has about 59.9 million footfalls segregated on various counts, which gives advertisers unmatched opportunity to reach the target audience. It is expected that PVR can see a growth rate of 15 % and 13 % to reach or Rs. 163 and Rs. 184 crore of advertisement revenues by FY15E and FY16E, respectively and thus Advertisement revenue would be PVR’s new noticeable revenue stream. Moreover, a gradual recovery in economic activity will increase disposable incomes to keep growth buoyant. Company is expected to benefit immensely with implantation of GST as the entertainment tax will be offsetted against GST. Average entertainment tax is believed to reduce from 23 % currently to 16 % post the implementation of GST. Also, company will be able to avail tax credit of tax paid on input cost if the act is implemented which will reduce its tax liability. PVR reported sales of Rs. 314 Cr in 4QFY14, compared to Rs. 335 Cr in 4QFY14, marking a YoY growth of 28 %. On result front, PVR poseted a revenue growth in 4QFY14 was primarily due to delivery of low budget films like Queen and 2 States. EBITDA margin for 4QFY14 stood at 10.5 % as against 6.7 % in 4QFY13, primarily due to higher operating leverage. Company reported PAT at Rs. 80 lakhs in 4QFY14, against Rs. 11.7 Cr in 4QFY13, de-growing by 93 %. This was primarily due to higher tax credit of Rs. 29.4 Cr in 4QFY13 as against Rs. 4 Cr in 4FY14. There was an exceptional gain of Rs. 8.5 Cr during the quarter on account of profit from sale of Anupam Multiplex property; common area maintenance, rent expense, property tax relating to earlier year and assets written off during the period. PVR at the end of FY14 has net debt of Rs. 580 Cr, with given strong operating performance and debt repayment over next 2 years, the balance sheet is expected to improve in meaningful way and it is assumed that there would be an debt reduction of Rs. 30 Cr and Rs. 50 Cr in FY15 and FY16 respectively. Going forward, the cash generation would support capex requirement as well as debt repayment. In past, the company has been aggressively expanding its screens presence, and this has resulted in capex in excess of Operating Cash Flow and that lead to an increase in debt. But now, the capex would be lower than the OCF generation and hence would lead to surplus cash to re-pay its debts and this improving balance sheet will command premium multiple. PVR Management has guided to add 60-70 screens in FY15. They target to add 300-450 screens in next 3-4 years. Management has no plans for equity dilution and signals that PVR is adequately funded for the future growth. A 50-bp drop in the average occupancy ratio erodes could affect the price of the stock by 5 %. At the current market price of Rs. 664.45, the stock P/E ratio is at 38.63 x FY15E and 23.81 x FY16E respectively. PVR can post EPS of Rs. 17.20 and Rs. 27.16 respectively. The content pipeline of the company is exciting and would propel the further growth of PVR. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also. PVR can touch Rs. 875 in near future. 

KEY FINANCIALSFY13FY14FY15EFY16E
SALES ( Crs)805.001,351.201,640.102,022.50
NET PROFIT (₹ Cr)45.0050.4070.90113.10
EPS ()11.2013.6017.2027.50
PE (x)51.5042.4033.5021.00
P/BV (x)3.606.005.204.30
EV/EBITDA (x)24.2012.109.406.90
ROE (%)6.9010.8016.5022.30
ROCE (%)4.6011.1015.5022.30

I would buy PVR LTD for Medium to Long term for target of Rs. 730.00 and may touch Rs. 875.00. As I always say, I am a long term believer in markets & I do respect the markets and will keep a strict stop loss of ₹ 611.30 on every purchase(Why Strict stop loss of 8 % ?) - Click Here

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