Potential for PVR-INOX valuation to move up by 25% to 30% from current levels: Karan Taurani
I just want to understand how this fuels the process for further approvals coming in for the merger and what potential valuations you are expecting now for the merged entity?
I think this NCLT approval was much awaited and it is a breather for the exhibition industry which has gone through a lot of strain in the last 12 months in terms of footfall loss. I think in terms of timelines we could see the merged entity financials coming as early as Q1 FY24. What will happen now is that is getting merged with PVR so INOX will eventually get delisted so there might be a blackout period sometime for about a couple of weeks wherein INOX is delisted and PVR is the merged entity. As far as valuations are concerned I think the valuations remain the same as it is a share swap deal wherein somebody who has got 10 shares of INOX rather will get three shares of PVR. So it is a share swap deal and I think if you look at the overall valuations in terms of the combined entity I think there is a potential for the combined entity valuations to move up by 25% to 30% from current levels. So I think just to give you some perspective, the current market cap of both PVR and INOX as on today is somewhere around Rs 17000 crore and our valuation or our target valuation for the combined entity market cap is somewhere closer to about Rs 22000-23000 crore.
What is the outlook in terms of the merged entity’s combined profitability and revenue potential?
Yes, so I think the revenue potential assuming all the synergies what we have assumed right now is a revenue base of almost about Rs 7200 to Rs 7500 crore and in terms of the EBITDA margin rather or in terms of base profitability we have assumed an EBITDA margin of at least about 20% odd.
So broadly your absolute EBITDA number is coming somewhere closer to Rs 1500 crore for FY25 after factoring in the synergies and the combined entity put together. As far as valuation muliples are concerned, the cinema business in the pre-COVID times, a company like PVR which was so large in terms of size and always be the market leader were trading at a valuation of multiple of somewhere close to 14 times EV/EBITDA given both the merged both the companies coming together and the merged entity being so large and so much of synergies right from revenue to a higher profitability.
We believe there is a potential for rerating in the valuation multiples as well so we believe the valuation multiples will probably move up in the range of 13 to 14 times to in the range of 15 to 16 times and if you multiply 1500 crore roughly by 15-16 times kind of multiple I think the combined entity valuation is somewhere close to Rs 23000 crore.
Is the deal going to make money from day one?
The EPS accretive broadly in terms of PVR. If you look at the market cap today of PVR and INOX merged both put together the number is around Rs 17500 crore and after putting in the synergies, after punching in the revenue numbers and the EBITDA margin estimates your valuation going forward is somewhere close to about Rs 23000 crore. So broadly the EPS or the earnings impact or rather if you look at the overall valuation impact it is somewhere close to 30-35% odd out of which 25% is because of the upgrade in terms of earnings and 10% is the division in the multiples.
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