Mega merger of India’s top two multiplexes gets statutory approval

Despite the pandemic’s severe impact on the film exhibition industry over the last two years, multiplex chains are expanding aggressively, fueled by the sector’s rapid recovery, strong demand for big-screen viewing, and long-term growth possibilities. A major development is that PVR, India’s largest multiplex operator, has announced a merger with Inox, the country’s second largest multiplex operator. This merger will result in the formation of India’s largest multiplex firm in terms of screen count and seating capacity. 

As the pandemic played havoc for the theatre business, business came to a halt, and the rise of OTT (over-the-top) did not help PVR & INOX either. Their revenue was slashed by 91% for PVR and 92% for INOX in FY21, and an uncertain future combined with a disruptive present created a marriage of compulsion. Earlier, these two players competed fiercely, although some regions were always their respective strongholds—north, south, and west India for PVR, and east and central for INOX. These two have now agreed to keep the differences aside and to create a robust organization.  

Now, with their combined strength, PVR-INOX will have 1,546 screens across 109 cities. It is a combination with substantial ability to derive significant cost and revenue synergies in addition to driving a serious bargain across all components of the multiplex business. Not surprisingly, analysts and industry trackers are enthusiastic and the stocks of both companies. Ever since the merger was announced on March 27, 2022, share prices of both entities surged to new highs. The share price of PVR and Inox surged 10% and 20%, intra-day respectively, after the merger was announced. 

The deal has a transaction value of $1.22 billion, which will create the largest entertainment company in the country. 

Revenue went below 1/10^th in FY21 of what they used to be in FY20

 

 

Both PVR & INOX have reported a more than 300% YoY increase in revenue in FY22, due to low base effect. Their operations have been completed halted in the initial quarters of FY21 due to the first wave of pandemic. As a result, their revenue was less than one-tenth of what it was in FY20. Even when the epidemic was under control, the government kept its restrictions in place and only permitted 50% sitting capacity for several months.

In FY22 as the economy began to open, situation improved with multiplexes allowed to operate at higher seating capacity. But the 2^nd wave of covid made its entry and this prevented the movie theatre industry from experiencing a strong comeback. To make a realistic comparison we should compare the revenue figures of FY22 with FY20 or before, from which it can be inferred that company is still operating at 1/4^th of its potential. This means that it will take at least 1-2 more years to make a complete comeback.

 

PVR & INOX both reporting losses for last two years

 

 

Profits of both PVR & INOX were badly hampered due to Covid and currently thy are reporting heavy losses which is much higher than their average profits of last 3 years.

Revenue Composition

 

 

PVR has consistently demonstrated growth in the F&B (food and beverage) segment. The company has consistently increased its F&B business revenue, which reached Rs 960 crore in FY 20 and is nearly twice as much as INOX’s F&B revenues.

The PVR and Inox merger will create a multiplex behemoth with a network of 1,500+ screens across India. Both the companies have expanded their screen base consistently over last 5 years and plans to follow the same in subsequent years as well.

 

 

Future Outlook

Commenting on the results and performance, Mr. Ajay Bijli, Chairman cum Managing Director, PVR Ltd said “Our belief in the ability of the industry to bounce back swiftly was vindicated with this quarter’s results. 90+ lac admissions in the month of March and a stellar content pipeline for the next few quarters tells us that the best is yet to come. I strongly feel that this year can be the best year this industry has ever seen. We are doubling down on our investments and if everything goes as planned, this year we will break our own record of the maximum number of screens opened in a year in India.”

On June 21, 2022, the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) approved a merger between the multiplex chains PVR and Inox Leisure. The combined firm would run 1,546 screens over 341 facilities in 109 cities, making it the largest cinema exhibition company in India. This will undoubtedly benefit these mammoth Multiplex titans.

Technical Analysis:

Both PVR and INOX touched their 52-week highs on the merger announcement in March. The stocks have seen a drop from those levels over the past two months along with the Nifty index which dropped 15% in last two months.

Currently both these stocks are trading above their 100- and 200-day moving averages. PVR is taking a firm support at 1672, while INOX at 447 on the charts.

 

 

INOX and PVR, both are moving sideways and have already trading higher than the low point in March 2020. Both these stocks are trading in price range and are continuing in an uptrend and are likely to move higher in the medium term.

 

 

Our view

PVR and other entertainment businesses have struggled a lot during the pandemic, but there is still room for these businesses to develop significantly in the coming years. PVR is the market leader and has sufficient liquidity to sustain its expansion. PVR has promising growth potential in the future now that the third wave has ended. With situation returning to normalcy, the count of people visiting multiplexes is only bound to get higher.

Even in the long term both the firms are expected to grow and outperform industry especially after the completion of merger which has already approved by the exchanges.