India's largest Multiplex Operators to Merge, Creating Cinema Giant

PVR and INOX to be One

The boards of PVR Ltd and Inox Leisure Ltd, India’s top two multiplex chains, approved an all-stock merger of the companies on Sunday to create India’s largest film exhibition entity with a network of more than 1,500 screens.

While existing multiplex screens will retain their brands, new cinemas opened post the merger will be branded as PVR Inox, PVR told stock exchanges on Sunday. The merged entity will be named PVR Inox Ltd.

After the merger, Inox promoters will own a 16.66% stake in the combined entity, while PVR founders will own 10.62%. PVR’s chairman and managing director Ajay Bijli would serve as managing director of the merged entity, and Sanjeev Kumar Bijli would be executive director.

Pavan Kumar Jain, chairman of Inox, would be appointed non-executive chairman. The company’s director, Siddharth Jain, would be appointed non-executive non-independent director in the combined entity. The board of the merged company would have 10 directors, and both the promoter families will have equal representation with two board seats each.

The consolidation in the industry comes after pandemic-led closures of theatres and the rise in popularity of streaming platforms. The cash crunch caused by the prolonged closures has made it tough for cinema chains to invest in new properties and easier to partner with rivals to ramp up screen count, analysts said.

“There is no question that the (film exhibition) industry did get impacted by the pandemic, being one of the few businesses around the world that were down to zero revenues. However, we believe in the long-term story of the theatrical business, and mergers have always been on the table because this industry is about consolidation and scale,” Ajay Bijli, chairman and managing director of PVR, said in an interview.

The merger will give the industry the impetus to make up for losses of the past two years and build scale in the form of more cinema openings, Bijli added. However, challenges for the industry continue to exist in the form of deep-pocketed over-the-top (OTT) video streaming behemoths, Bijli said, and the consumer is now used to watching content at home.

The merged company will operate 1,546 screens across 341 properties and 109 cities. The merger is subject to approvals from the shareholders of Inox and PVR and other regulators, the two companies said in a statement.

Consulting firm EY was the exclusive financial adviser for the transaction.

Together, the two companies are looking at opening 180-200 new screens every year, especially in small towns and the hinterland, which are grossly under-screened, he added.

Siddharth Jain, director of Inox Leisure Ltd, said the purpose of the merger is to remain committed to the theatrical business and restart investments. He added that approval from the markets regulator and shareholders could take between six to nine months.

Inox Leisure Ltd is part of the Inox Group, an Indian conglomerate with interests in wind energy, renewables and speciality chemicals.

Karan Taurani, an analyst at Elara Capital Ltd, said the merged entity would have a share of 42% (Hindi and English content), which would be tough to rival, apart from a screen share of 50% within the Indian multiplex space and a broad presence across India.

“PVR is stronger in the north, west and south whereas Inox has more screens in the east. The combined entity may gain from smaller chains and single screens that have struggled due to the covid situation,” Taurani said.

A trade analyst who did not want to be named said while consolidation was on the cards for all multiplex chains, only a merger of the top three players—PVR, INOX and Cinepolis—made sense. Other players like Miraj either have limited presence or, as in the case of Carnival Cinemas, have accumulated much debt. However, the merger is likely to put filmmakers at a disadvantage. “The combined entity may dictate shows and screen timings to producers or may even ask for a higher share of box office revenue,” the person pointed out.

According to a recent report by media consulting firm Ormax, cumulative gross box office collections for 2020 and 2021 in India totalled just ?5,757 crore, almost 50% (and ?5,000 crore) lower than what the country’s film industry had grossed in 2019 alone. Earlier this month, media reports suggested PVR was looking at merging with the Indian arm of Mexican theatre chain Cinepolis. Mint, too, reported that INOX is in very early talks with Carnival and Miraj Cinemas to acquire their theatres.

Source: vccircle