CRISIL places PVR on ‘Rating Watch with Positive Implications'

5 Apr 2022 , 03:00 PM

CRISIL Ratings has placed its ratings on the long-term bank facilities and debt programmes of PVR Limited (PVR) on ‘Rating Watch with Positive Implications’.

“The rating action follows the announcement made by the company on March 27, 2022 regarding approval from the boards of PVR and INOX Leisure Ltd (INOX; rated CRISIL A+/CRISIL A1/Watch Positive’) for their merger. The amalgamation is subject to approval of the shareholders of PVR and INOX respectively, stock exchanges, SEBI and such other regulatory approvals,” company shared CRISIL’s rating rationale.

Upon obtaining all approvals, when the merger becomes effective, INOX will merge with PVR. As part of the transaction, INOX shareholders will receive 3 shares in PVR for 10 shares of INOX. Post the merger, the promoters of INOX will become co-promoters in the merged entity along with the existing promoters of PVR.

At around 3.02 pm, PVR Ltd was trading at Rs1,916.30 per piece up by Rs9.4 or 0.49% from its previous closing of Rs1,906.90 per piece on the BSE.

CRISIL Ratings believes that the amalgamation of these entities would help the merged entity to lead the cinema exhibition industry with a significant market share. Moreover, expected synergies post-merger should benefit operating efficiency. As a result, the business as well as financial risk profiles of the merged entity is expected to improve significantly. CRISIL Ratings will continue to closely monitor the said transaction and will remove the ratings from watch and take a final rating action once the transaction is concluded.

The rating continues to reflect a strong rebound in the operating performance of PVR during the third quarter of fiscal 2022. While the third wave of the Covid-19 pandemic did marginally impact operations in January 2022, recovery began from February onwards. Besides improvement in occupancy, average ticket prices (ATP) and spend per head (SPH) on food & beverages have sustained at levels higher that those prior to the pandemic.

Moreover, movies released last week of February reported strong performance at the box office. Business should continue to boost in the coming quarters, supported by uplifting of pandemic-related restrictions and strong content line up ready to be released over the next few months. The
operating margin may also benefit from some of the cost-control measures undertaken over the last two years, which are expected to sustain longer.

The company’s liquidity benefitted significantly from the various equity raises undertaken over the past two years. Cash and bank balance, undrawn committed bank lines and other liquid investments stood at above Rs740 crore as on December 31, 2021, which should sufficiently cover debt obligation and capital expenditure (capex) in fiscal 2023. Sustained improvement in revenue and operating margin, along with maintenance of healthy liquidity, will continue to be monitored. Impact of any further waves of the pandemic on occupancy will remain monitorable as well.

The ratings continue to consider the strong market position and established brand of PVR, improving operating efficiency, and healthy financial risk profile and liquidity. These strengths are partially offset by exposure to risks inherent in the film exhibition business.