PVR currently operates 871 screens in 73 cities while INOX operates around 675 screens in 72 cities. Post CCI nod the combined entity will become the largest film exhibition company in India operating 1546 screens across 341 properties across 109 cities, the company said in a press release on Sunday. Both these companies currently command over 40% market share & the combined entity would deepen their network in tier-II & III markets.
Inox investors will receive PVR shares in exchange for shares in INOX at the approved swap ratio. The share swap ratio stands at three shares of PVR for 10 shares of INOX.
Brokerage firm Nirmal Bang Institutional Equities in a note to clients said that it sees this merger as ‘significantly shareholder value accretive.’ On the revenue front, it believes that the biggest synergy benefit will be in the form of higher pricing power in advertising for INOX whose advertising revenue per screen was 35% below PVR’s in FY20. It sees the gap with PVR narrowing far quicker than it had baked in its earlier estimates.
It also sees this merger as incrementally FCF positive. The firm wrote that the two players can deliver at least 5-10% volume/footfall growth per year in the next 10 years, respectively, with a rise in realisation of 4-5%. “This will result in revenue CAGR of 10-15% with EBITDA/PAT growing a tad faster as the revenue mix turns margin rich,” it said.
In an interview with ET Now, Sandip Sabharwal of
asksandipsabharwal.com said that the deal is ‘extraordinarily positive’.
“In my view, this is a very positive development because it further consolidates an already consolidated industry. I would not be surprised for the next two-three years the returns from the combined entity will be multifold,” said Sabharwal.
Nirmal Bang has given a ‘buy’ rating for PVR & INOX post merger, with a target price of ₹2,383 (upside of 30%) & ₹594 (upside of 26%) respectively.
Motilal Oswal has maintained its ‘neutral’ rating on PVR and has a target of ₹1,600/share. “The rich valuation it commanded historically was led by strong growth. The screen addition opportunity does provide an ability to continue its strong growth. However, OTT platforms pose a risk of shrinking the exclusive period, softening occupancies, and lower screen economics,” it wrote in a note on Monday.
While saying that this merger is a positive for PVR and INOX, Abneesh Roy of Edelweiss Securities has pointed out that a CCI nod may not be needed for this merger, as the combined revenue of PVR and Inox is less than ₹1,000 crore.
“On paper, I do not think there is any requirement of that but if there is an issue from the content producers or the consumer body or by any other stakeholder, then only this risk is there. But yes, on paper, I do not think that risk is there,” said Roy.
However, Nirmal Bang has pointed out that a CCI nod may still be the biggest risk to the deal.
“In a much smaller deal between PVR and DT Cinemas in 2016, some screens had to be divested for the deal to be cleared by CCI. We believe that PVR INOX may need to shed screens in key metros like Delhi, Mumbai, etc if this rule is applied again by CCI. We also gather that deal may benefit from ‘exemption available to transactions involving small targets from notification to CCI’. INOX’s total revenue in FY22 will be below Rs 1,000 crore (due to Covid-19), the threshold, and hence CCI rules may not come into play. But, we think this is a grey area and is subject to interpretation,” it said.
As of 11 am, INOX Leisure was trading with gains of 12.5% at around ₹528 per share while PVR was trading up 4% at around ₹1,896 per share. At the same time, the benchmark indices were trading in the red, with cuts of roughly 0.70%.
