PVR-Inox a done deal: Share prices of multiplex players PVR and Inox Leisure rose 5 and 16 per cent respectively in early trade, after leading movie exhibition players PVR and INOX Leisure announced a merger deal to create the largest multiplex chain on Sunday. The new entity which will be named ‘PVR INOX Limited’ will have a network of 1,546 screens in India. Inox investors will receive PVR shares in exchange for shares in INOX at the approved swap ratio. INOX Leisure touched a 52-week high as much as 20 per cent to hit a record high of Rs 563.60 and PVR hit a 52-week high of Rs 2,010.35.
As the boards of both the companies met on Sunday, an all-stock amalgamation deal was hashed with INOX shareholders receiving 3 shares of PVR for 10 shares of INOX. Pavan Kumar Jain, chairman of Inox Group, will become the non-executive chairman of the board of the combined entity while Ajay Bijli will be appointed as the Managing Director of the merged entity and Siddharth Jain as the Non-Executive Non-Independent Director of the entity. The Board of Directors of the merged company will have a total board strength of 10 members.
PVR and INOX said the merger, which was subject to regulatory approvals, would help both companies improve efficiency, reach newer markets and optimise costs. Richa Agarwal, Senior Research Analyst at Equitymaster, said: “After real estate, the multiplex is one industry ripe for consolidation, with pandemic effect and threat from booming OTT platforms accelerating the development. We do believe that together, PVR and INOX will be a bigger force to reckon with, and it’s in the best interests of both the business to come together to command almost half of market share and better pricing power. However, whether the deal meets the approval is yet to be seen.”
Jinesh Joshi, Research Analyst at Prabhudas Lilladher, said that the mrger will have an invincible size advantage with 1,500+ screens over its direct competitors. Both Carnival and Cinepolis have 400 odd screens. Further, the merger also gives better bargaining power with film distributors.”
Abhay Agarwal, Founder, and Fund Manager, Piper Serica, said: “Multiplex businesses is a very tough business with high Capex and high fixed opex. Even in a fast-growing market like India, the multiplexes have been struggling to generate free cash flows. The business model in its current form is that of a glorified QSR since more than 80 per cent of the profits come from the sale of high-priced food and beverages. The movie screening business is breakeven at best. Advertising revenues are limited to local area advertisers and some standard government ads. Footfalls are completely dependent on the quality of new releases, and the multiplexes have no control over that. Most importantly, they have been losing out to international OTT behemoths in terms of the release of new content.”
“Therefore, this merger of PVR and INOX should be seen as a last resort defensive step to drive cost efficiencies. It would also give them some might to push the studios to go in for theatre releases. However, it would be interesting to see how the merged entity creates a compatible culture,” said Agarwal.
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