CRISIL Ratings has upgraded its ratings on the long-term bank facilities and debt instruments of PVR Limited (PVR) to 'CRISIL AA-/CRISIL PPMLD AA-r' while the rating continues to be on 'Rating Watch with Positive Implications'.
Furthermore, the rating on the Rs 100 crore non-convertible debentures (NCDs) has been withdrawn as the instruments have been fully repaid. CRISIL Ratings has received confirmation of no dues pending against these NCDs. The withdrawal is in line with CRISIL Ratings' policy on withdrawal of NCDs.
The rating action follows the strong operating performance reported by the company during Q1FY23 and visibility of continued healthy operating performance in 2HFY23 (after a temporary blip seen over past 2 months because of weaker content and social media protests around some content). Strong content pipeline and festive season should support the healthy operating performance. This along with screen additions and sustained higher average ticket prices (ATP), spend per head (SPH) on food & beverages and recovery in advertising income should aid in revenue and operating profits surpassing pre-pandemic levels for the company during fiscal 2023. As a result, financial risk profile too is expected to see continued improvement, aided by strong cash accruals and maintenance of healthy liquidity.
The watch continuation factors in pending approvals for proposed merger of PVR and INOX Leisure Ltd. CRISIL Ratings believes that amalgamation of these entities would help the merged entity to lead the multiplex sector with a significant scale and market share. Moreover, expected revenue and cost synergies post-merger should benefit operating efficiencies in both operational as well as capital expenditure. 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 company's liquidity benefitted significantly from the various equity raises undertaken over the past two years. Cash and bank balance and other liquid investments stood at above Rs 570 crore as on August 31, 2022. Healthy cash accruals along with strong liquidity position 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.
The ratings continue to consider 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.