PVR Inox: Here's How Mega This Merger Will Be

The proposed merger between PVR Ltd. and Inox Leisure Ltd. is seen as a “blockbuster deal” by analysts.

<div class="paragraphs"><p>PVR ICON, Lower Parel. (Source: BloombergQuint)</p></div>
PVR ICON, Lower Parel. (Source: BloombergQuint)

The proposed merger between PVR Ltd. and Inox Leisure Ltd. is seen as a “blockbuster deal” by analysts even as film producers fear a hike in distributor share as the combined entity will have a commanding box office position.

The merged company will have a near 50% share of total multiplexes in the country on completion of the deal, followed by Cinepolis at 13%, Miraj Cinema at 5.4% and the rest at 32.5%, said Girish Pai, head of research at Nirmal Bang Institutional Equities. This estimate excludes financially weak Carnival Cinemas, which has not been able to pay landlords, lenders and vendors after Covid-19 disrupted operations.

By box office revenue, the two companies together will have a 42% market share. “This becomes irreplaceable,” said Karan Taurani, senior vice-president at Elara Capital. The market share, he said, may trend up as the combined entity may gain from smaller chains and single screens that have struggled due to the pandemic.

The Big Picture

The new entity will have a network of more than 1,546 of the 3,000-odd multiplex screens in the country, accounting for half of the market. But, according to industry data sourced by BloombergQuint, the share would stand at 22% if single screens are included.

The total screen count in India fell 1% over 2019 to 9,423 in 2021, according to FICCI-EY Media and Entertainment Report. Around 1,000 screens that were open intermittently last year may not reopen again, it said. According to latest industry data, there are nearly 6,850 screens across India that are listed online on movie-booking apps.

PVR and Inox have a market share of 6% and 3%, respectively, by regional genre (southern and other languages contribute 35% of box office collection), according to Elara Capital. That’s because regional content is heavily dependent on single screens that contribute 60% to net box office.

How The PVR-Inox Merger Could Reshape India’s Film Sector

The PVR-Inox combine will have a market share of over 40% in Goa and National Capital Region, while that will be above 30% in Punjab, Maharashtra and Rajasthan, according to industry data. The market share may get further diluted if single screens that are not online in these five markets are included.

According to industry data, the top seven cities—Mumbai, NCR, Hyderabad, Chennai, Bengaluru, Kolkata and Pune—account for 1,954 screens or 28.5% of the total screens that are on online booking apps, generating more than half of the industry revenue.

PVR and Inox together have 51.3% of their screens in these seven cities, giving the combined entity a bigger leverage in negotiation with film producers.

The new entity would also have a better pricing power over rivals in terms of ticket and food on account of good formats or prime locations. Currently, Inox offers ad rates and convenience fee at a 30% and 50% discount to PVR’s, Elara Capital said. But the merged entity, according to the brokerage, would be able to charge rates at PVR’s current levels, or even higher.

Expansion Plans

The market consolidation will gain traction as PVR and Inox are expected to more than double their existing capacity.

Both the companies have very strong screen pipeline with each having agreed to add 1,000 screens over next five-seven years, said Ajay Bijli, chairman and managing director at PVR, during an analyst call after the merger announcement on March 27.

According to Siddarth Jain, director at Inox Leisure, immediate screen openings will be higher as large properties that were on hold amid the pandemic are being delivered. While PVR alone is planning 120-130 openings, Inox is looking at 100. About 10-15% of the new screens will be in premium category. There would not be many overlaps as PVR and Inox would usually not set up screens too close to each other, Jain said on a separate analyst call.

The merged entity would aim to expand its presence in small cities in the coming years. A capex of Rs 4,000 crore is needed to tap the potential in India for multiplexes, said Jain. PVR, according to him, has many best practices in food and beverages offerings and location selection, and that will be an added advantage.

The total film entertainment business, according to FICCI-EY media report, is estimated to be around Rs 21,200 crore in FY24. Though revenue projection was impacted by the pandemic, the film entertainment business was at Rs 19,100 crore for 2019, with gross revenue from domestic theatricals standing around Rs 11,500 crore, the report said. It expects the film entertainment business to be 15,000 crore in 2022 with domestic theatrical revenue at Rs 7,500 crore.

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