Leading multiplex players PVR Ltd and INOX Leisure Ltd on Sunday announced a merger deal that will create the largest multiplex chain in the country with a network of more than 1,500 screens.
While the merged entity will be named PVR INOX Limited, the branding of existing screens will continue as INOX and PVR respectively. The new cinemas opened post the merger will be branded as PVR INOX.
In an official statement, INOX said that the merger would focus on using the strengths of both organizations to provide exceptional customer service and cinema experience to Indian moviegoers.
“While strongly countering the adversities posed by the advent of various OTT platforms and the after-effects of the pandemic, the combined entity would also work towards taking world-class cinema experience closer to the consumers in Tier 2 and 3 markets,” the statement added.
According to an analysis by Karan Taurani of Elara Capital on synergy on ad revenue and convenience fee, Inox’s ad revenue per screen is at a 33% discount vs that of PVR as of FY20.
“We believe both entities getting merged will lead to better yields on advertising, wherein INOX will come on par with PVR and the combined entity may even command a further premium over the medium term. In terms of convenience fee too, INOX derives a much lower convenience fee per screen (50% lower than PVR on a per-screen basis), which too will be revised upwards. We believe there is a synergy benefit of Rs 1.5bn on EBITDA of INOX due to above two metrics (about Rs 0.9bn/0.6bn benefit on ad/convenience fee respectively)),” Taurani said.
The merged entity will have a screen share of 50% within India multiplexes and a share of 18% within overall screens, it will lead to a broader presence on a pan India basis.
“PVR is stronger in the north, west and south, whereas INOX has more screens in the East. We believe this will be a huge competitive advantage over other multiplex operators, in terms of brand recall and brand equity,” he added.
“We believe the above acquisition is a big win-win for the cinema industry and will benefit both the players with a higher positive bias towards INOX; based on the share swap arrangement, INOX valuation has been pegged at Rs 64bn (EV per screen of Rs 0.1bn) whereas PVR is currently trading at a valuation of Rs 110bn (EV per screen of Rs 0.12bn). The valuation on a standalone basis is largely fair, however, the combined entity valuation can be higher by 30%-45% basis 1) synergies on various metrics (ad revenue and convenience fee) as mentioned above and 2) re-rating due to the large size of the entity,” he added.
