PVR Ltd delivered better-than-expected performance for the quarter ended September.

Consolidated operating revenue increased 46% over the same period last year to 135 crore. PVR derived almost four-fifth of this revenue from the movie exhibition business, which increased by 22% driven by an increase in average ticket prices and higher footfalls. The release of movies like Dabangg, Peepli [Live]and Once Upon a Time in Mumbaai also helped the exhibition business.

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But the main fillip came from the movie production and distribution business, which posted revenue of 29 crore compared with 1.2 crore last year. PVR is present in the movie distribution and production business through its 60% subsidiary, PVR Pictures Ltd, which released the movie Aishaduring the September quarter. PVR Pictures is slated to release one more film in the current quarter—Khelein Hum Jee Jaan Sey.

Operating profit margins widened 550 basis points to 25%, helped by rental costs remaining flat and a slower pace of growth in the consumption of food and beverages, employee costs, repairs and maintenance, and electricity and water. The company was able to save on rental costs on account of the acquisition of Leisure World, which was a rental property earlier. According to an analyst, the financials for Q2 FY11 include a six-month benefit of savings in rental cost.

The company maintains that costs on account of film distribution were higher during the quarter because of higher entertainment tax payment in certain movie halls that were exempted from paying the levy during corresponding period last year.

“Since most of PVR’s operational properties were based in Delhi, Haryana and Karnataka, they did not enjoy entertainment tax exemptions. This had an adverse impact on the company’s margins," wrote analysts at Edelweiss Securities Ltd in a note to clients on 2 November. “However, a majority of the new multiplexes are coming up in states that have announced entertainment tax exemptions. Therefore, the effective entertainment tax for PVR is expected to come down."

Improved margins boosted operating profit, which increased 88% to 34 crore. However, net profit grew at a slower pace of 39% to 9 crore, as depreciation costs and the tax outgo more than doubled.

PVR’s stock has underperformed the BSE smallcap index since the beginning of the fiscal. Some analysts revised their earnings estimates upwards after results on the back of an improved content pipeline, the cost-optimization focus and the Leisure World merger.

Graphic by Yogesh Kumar/Mint

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