Covid impact, rise of OTT caused PVR, Inox merger

The country's two biggest movie screen operators, PVR and Inox, have agreed on a merger that will create a monolith with a 50% screen share within Indian multiplexes and a share of 18% within overall screens. PVR has a stronger presence in the north, west and south, whereas Inox has more screens in the east.

It was the double whammy of Covid's impact for the past two years and the growing clout of over the top (OTT) platforms that prompted the two multiplex operators to join hands. As cinemas had to down shutters, it is estimated that close to 120 Hindi movies were released on streaming platforms over the past two years.

While PVR is Numero Uno with 860 screens, Inox is the second-largest multiplex player with 667 screens and the Mexico-based Cinepolis has 400 screens. The combined market cap of the new entity is around ₹16,000 crore. Out of this, PVR's market cap was over ₹11,100 crore at ₹1,804 per share and Inox Leisure's mcap was ₹5,700 crore at ₹470 per share, as of March 25.

As the pandemic-related curbs hit the economy, PVR's revenue plummeted from ₹3,452 crore in FY20 to ₹310 crore in FY21. As of 9MFY22, PVR had a gross debt of ₹1,536 crore with ₹678 crore in cash. Inox's revenues fell 92% from ₹1,915 crore in FY20 to ₹148 crore in FY21 with a loss of ₹257 crore. While Inox Leisure cash and bank balance, undrawn committed bank lines and other liquid investments stood at ₹281 crore as of January 2022, compared with a net debt of around ₹27 crore as on March 2021.

According to analysts, PVR Inox, as the new entity will be called, will have a combined box office share of 42%. Existing screens will continue as PVR and INOX respectively, while new screens post-merger will be branded as PVR Inox. The market share is expected to increase as smaller chains and single screens wind up owing to pandemic-related financial stress. According to a Ficci-EY report, of the 9,527 screens in the country, 6,327 are single-screen cinemas with multiplexes accounting for the remainder. In terms of regional mix, south and other languages contribute 35% to the Box Office, where PVR and Inox have a market share of mere 6% and 3% as regional content is largely dependent on single screens. According to Elara Securities, almost 60% of Box Office for regional content comes from single screens); overall, PVR and INOL have a Box Office market share of 34% including the regional genre.

PVR promoters will own 10.62% stake in the new entity, while Inox promoters will have 16.66% stake. Ajay Bijli would be appointed as the MD and Sanjeev Kumar would be appointed as the ED. Pavan Kumar Jain of Inox would be the non-executive chairman and Siddharth Jain would be the non-executive non-independent director in the combined entity.

The Competition Commission of India is likely to clear the deal given that the combined entity's revenue is below ₹1,000 crore as of FY21, Elara Securities feels the film trade and fraternity would expect an assurance against any hike in distributor share as the entities have a commanding box office position. "We believe some kind of assurance from the exhibitors for not increasing distributor share will augur well for the film trade and distributors," mentions the report.