PVR and INOX are going to get merged
The merger of two companies is often referred to as a “heart encounter.” For all accounts, it’s a complex issue, involving numerous issues ranging from financial indicators to cultural fit, and perhaps most importantly, ignoring the difference in benefits of creating a robust organization. .. Much of this applies to two well-known multiplexing companies, PVR Ltd and INOX Leisure Ltd. They competed fiercely, but some areas were always their homes. North India, South India, West India for PVR, East India and Central India for INOX.
Two men at the heart of this new entity, called PVR-INOX, Ajay Bijli and Siddharth Jain, are frank when talking about how the pandemic had a devastating effect. The business has stopped and the emergence of over-the-top (OTT) has helped them nothing. Revenues have been hit hard-PVR revenues have fallen 91%, INOX has fallen 92% in 2009-and the uncertain future of forced marriages creating devastating gifts. Together they are more powerful-PVR-INOX has 1,546 screens in 109 cities.
This is a combination of significant cost and revenue synergies and the key ability to negotiate seriously across all components of a multiplex business. Not surprisingly, analysts and industry experts are excited, and their shares have skyrocketed to new highs since the merger was announced on Sunday, March 27. PVR closed at `1,883.50 on March 28, up 3% from the previous closing price and INOX closed at 522.90, up 11%. PVR and our process But there are challenges ahead. The proposed merger should focus on areas related to fighting OTT, identifying new sources of income, and ensuring an appropriate response to dissent from the Competition Commission of India (CCI).
The backgrounds of PVR and INOX couldn’t have been any different. Bijli founded PVR in the mid-1990s. His family owned a theatre in Delhi. The Jain family ran a large industrial gas business before launching the first multiplex in Pune. By March 2020, history was on both sides and the story of the merger would have been laughed at. Both were growing through M & A routes.
INOX purchased Satyam, Fame and Calcutta Cine, and PVR acquired Cinemax Cinemas, DT Cinemas and SPI Cinemas. Then a pandemic broke out and the industry saw a twist in fate. OTT has begun to rise tremendously, except that the cinema has been completely closed for a long time. Affordable at OTT (starting at just Rs 50 a month), viewers can enjoy the movie experience in the living room. Jain points out how habits changed during the pandemic.
” We cannot deny the fact that things have changed when they return to normal. The problem is how to counter this in the future and protect the cinema’s operations. Yes, the pandemic is with PVR and us. We accelerated the process of becoming, “he says. Bijli adds: “Two iconic brands have come together to create a stronger balance sheet.” Looking at the 2009 annual report, we can see that the cash balances of PVR and INOX are 732 rupees and 78 rupees, respectively increase.
And their debt was Rs 1,352 Crore and Rs 67 Crore, respectively. Pavan Kumar Jain (Siddharth’s father) will be appointed as non-executive chairman and Bijli will be appointed as managing director of PVR-INOX. Siddhars will be a part-time, independent director. INOX founders account for 16.66 per cent and PVR founders account for 10.62 per cent. The remaining participants will be distributed to investment trusts, FII, etc.
Earlier this year, PVR was actively working with Mexico-based Cinepolis on the possibility of a merger. Cinepolis has about 400 screens in India. Development savvy says Cinepolis changed its mind at a later stage (partly because of global sales issues), leaving the door open for a quick deal with INOX. .. ” We took advantage of a lot of opportunities because we thought integration was the name of the game,” Bijli said. From Jain’s point of view, the strength of the numbers was needed: “We need to maintain the habit of coming to the big screen, which can only be done if we improve the cinematic experience. “
You need to get into the habit of coming to a large mega release for big screens. If the current recovery continues, he is confident that a major release will come back. “This will only bring great benefits to the merged company in the medium term,” he said.
And what about IHK? Bijli states that each sale is less than Rs 1,000 chores, which is outside the scope of the regulation. In fiscal 2009, PVR revenue was Rs.310 chlore and INOX revenue was Rs.148.19 chlore.
BIG IS BEAUTIFUL
Given the scope of the merger, there are many things that two players can do as one big entity. Devang Bhatt, Lead Analyst (IT & Media) at IDBI Capital, states that overall strength accounts for about 50% of multiplex screens. If you include the individual screens, this number is 16 per cent. According to management, the plan is to add a screen of 200 rupees a year and output 500 rupees (in industry rule of thumb, an investment of 2.5 rupees per new screen).
The current property will retain the brand, but the new property introduced will be co-branded. The two companies haven’t quantified how much synergy is created yet, but Bat believes they will be able to save money with scale, rent, and other operating costs, he said. Interestingly, if there are a big difference in per capita F & B (food and beverage) sales between the two brands, sales should increase. According to the IDBI Capital report, there is a difference of Rs93 for PVR and Rs75.2 for INOX or 24%.
“This helps to generate 45 rupees with higher profits. Similarly, higher convenience fees and advertising revenue can result in a synergistic effect of revenue of 60 rupees. In terms of costs, the synergies can be as high as 100 rupees in terms of labour costs, operational efficiency and F & B procurement, “the report said.
For Bijli, he challenged his own belief that a pandemic is a business specialist. ” Despite its core business of being an exhibition, we can expect to see many tentacles and verticals springing from it as well. We’ve already distributed it, but it’s a hassle to produce. You can see, “he says. The multiplex landscape contains Carnival and Cinepolis, each with about 400 screens, followed by Miraji with about 150 screens. Sinha of Bexley Advisors points out that PVR and INOX are geographically complementary to each other. “That is, there will be little cannibalism on the screen,” he explains.
The scenario for the next period will be a duopoly in which PVR-INOX controls about 2,000 screens (including pipeline screens). It will surely lead to an increase in purchasing power for producers if this changes the dynamics of content purchases and revenue-sharing pricing, says Sinha. Not surprisingly, the news of the merger didn’t go well with the film producers. What she is worried about is her ability to negotiate hard from an exhibition perspective and ultimately leave it to others.
Today, most major manufacturers also manage distribution chains, especially in more profitable markets. According to Vishesh Films owner and veteran producer Mukes Bhatt, this monopoly situation is a big challenge. “Producers are worried and expect territories to tighten. There is a good chance that the combine will try to dominate, and there is no choice. After all, we’re dealing with strength, “he says.
In the first week of release, money will be evenly distributed between producers and exhibitors. From the second week, the equation changes – 42.5% for manufacturers and 57.5% for exhibitors. In the third week, they are 37.5 per cent and 62.5 per cent, respectively. By the time the movie enters the fourth week (most releases aren’t too far away), only 30% will be sent to the producer and 70% will be in the exhibitor’s pocket by the time it’s shown in the theatre.
A prominent producer explained that even if the merged company increases its stake by 2% in the first week when collections are typically highest, it will not matter, he said. According to Bijli, the PVR-INOX company should not be understood as a monopoly. “India has 9,500 screens and we are only 1,500. He emphasizes that the film and exhibition business coexists.” If you don’t get the film, the cinema is It doesn’t work.
There’s nothing to be afraid of. There is a belief among members that more money will be invested to raise their income. “Thanks to the investment from the film industry, we have seen a growing number of films with sales exceeding Rs 100 billion.”
A serious transition to OTT in India, the truth is that most studios still prefer to book mega. Rasesh Kanakia, chairman of the real estate giant Kanakia Group, has returned to the multiplex industry after selling the 138-screen Cinemax to PVR in 2012. The deal has a 10-year non-compete obligation and Kanakia is back under the MovieMax brand. “With PVR, we had an agreement for the rental of 23 screens. We managed to do a good business and it’s a good time to come back,” he says.
The brand has nine properties throughout Maharashtra before moving to other states. “There are some untapped markets in small centres and metropolitan areas. The industry continues to integrate and there is no more time to be there,” said IDBI Capital’s Bhatt. I agree. “There are many screens that can be opened in Tier II and Tier III cities. Tushar Dhingra, Founding CEO of Dishoom Cinemas, a multiplex chain in North India, believes that the oligopoly between the two players is in the early stages. The situation was similar to telecommunications and banks 10 years ago, he says.
Dhingra gives an example of a small town like Modinagar. The town used to have five cinemas, but now it doesn’t. “The small town remains unaddressed,” he says. We are building our film portfolio to address this need.”
For several years, especially in the pre-pandemic stage, there was talk of the PVR organizer (the group holding 17.02%) leaving – the story is said to have taken place with South Korean multiplex chain CJ CGV. Today, both Jain and Bijli reveal that they have been there for a long time. Bijli compares a pandemic to mountain climbing.
“Suddenly we are enjoying the scenery. Someone asks: apne aap ko kab phenk rahe ho neeche (when do you throw yourself off the cliff),” he says with a laugh. Not in a hurry, Bijli says goodbye with the words “Let’s enjoy the scenery”. For the time being, it’s showtime at PVR-INOX.
Multiplex operators PVR and INOX Leisure announced on Tuesday that they have received approval for the merger from the NSE and BSE stock exchanges. In March, PVR and Inox Leisure announced a merger to build the country’s largest multiplex chain.
“We have issued a” No Unfavorable Observation “Observation Letter dated June 20, 2022, from BSE Ltd and a” No Objection “Observation Letter dated June 21, 2022, to India regarding the proposed merger. I received it from the National Stock Exchange.
” PVR for submission to the stock exchange. This was also confirmed by INOX using the same approval application. Permitting the exchange is an essential step in obtaining approval from national corporate courts and other regulatory agencies for the merger scheme. On March 27, this year, PVR and INOX Leisure will be the largest multiplayer in the country with a network of over 1,500 screens to expand opportunities in Tier III, IV and V cities and develop in developed markets. Announced a merger agreement to create a plex chain.
The merged company will be called PVR INOX Ltd and the existing screens will continue to be branded as PVR and INOX respectively. The new cinema, which opened after the merger, will be branded as PVRINOX announced on March 27th. The merger of PVR and Inox will create an omnichannel giant with a network of more than 1,500 screens across India.
According to the agreement, the exchange ratio is 3:10. H. 3PVR strains against 10Inox strains. After the merger, the Board of Directors will be newly established and will consist of 10 members. Both promoter families are evenly represented on board with two seats each. After fusion, the INOX promoter will be a co-promoter of the fused entity, along with the existing promoter of PVR.
He added that the PVR promoter will hold a 10.62% stake and the INOX promoter will hold a 16.66% stake in the merged company. The merger of Inox and PVR is a win-win situation for both companies, but the merger must ultimately be approved by CCI. PVR is a larger player and has diverse regions to help Inox continue to grow.
According to analysts, the merged company will have significant revenue and cost synergies by improving its bargaining power with movie distributors, real estate developers, advertising networks and ticket aggregators. These companies made the most profits on March 28, 2022.
Shares of PVR and Inox rose 10% and 20%, respectively.
You may know this, but you may not know a public company that is closely related to this merger and is likely to benefit from it.
It was GFL Ltd that did not issue the news.
GFL (formerly Gujarat Fluorochemicals) is part of the Inox Group. Inox Leisure is a holding company.
GFL is Inox Leisure’s largest single shareholder and owns 43.1% of the company as of December 2021. After the merger with PVR, GFL will hold a 16.6% stake in the merged entity.
The GFL should not be confused with Gujarat Fluorochemicals (GFCL), the chemistry division of the Inox Group.
The company’s chemical business was spun off in 2020. The resulting entity was GFCL (Gujarat Fluorochemicals). The existing company has been renamed GFL. If you look closely at the market capitalization of GFL and its subsidiary Inox Leisure, you’ll notice something unusual.
The market capitalization of Inox Leisure is 6,460 crores as of March 31, 2022. GFL owns 43.1% of Inox Leisure, so its market capitalization should be around £ 2.75 billion.
However, the holding company has a market capitalization of only Rs 88 billion. This means that you are trading below the total amount of assets owned by GFL.
This is the problem.
GFL seems to be trading at a big discount. In addition, the company will be an important shareholder of India’s largest multiplex chain.
After considering all of the above, does GFL look like a good investment? Is it the right time to invest in a company now?
Before answering these questions, we need to understand some points that may explain why GFL is trading at a discounted price.
As you can see, GFL does not have its own business. In addition, it does not interfere with the daily operations of the subsidiary. As a result, the company has no control over its investment. Lack of scrutiny could be one of the reasons why GFL is trading at a discounted price.
Other reasons are uneasy. GFL is a holding company. Dividends make up the majority of revenue. This means that the performance of GFL depends on the performance of its subsidiary.
For this reason, there is a lot of uncertainty surrounding cash flow. And the market doesn’t like uncertainty about profits. The market reflects this in the stock price.
Here’s why we think GFL is a great investment …
India’s film business is a fast-growing business. Indians love movies. On the supply side, India produces more movies a year than any other country in the world.
This is why so many analysts give high quotes to the industry. According to some estimates, the Indian film industry will see double-digit growth over the next decade.
Another interesting fact is that the industry has been integrated in recent years. Single-screen cinemas are losing market share to multiplex cinemas. And the pandemic only accelerated this trend.
The integrated entity, which is the largest chain of multiplex with a network of over 1,500 screens, could be the largest beneficiary of this trend.
Another thing investors should be aware of is the PVR premiumization effort. PVR focuses on providing customers with a luxurious experience.
The PVR’s premium services account for 10-11% of total revenue, and the company aims to increase its market share to 20% by 2025. It turned out that the efforts for premiumization will continue even after the merger.
India lags behind other countries in the number of screens. Compared to 40,000 screens in the United States and 70,000 screens in China, this country has about 9,500 screens.
According to management comments, the merged company will focus on adding screens over the next few years. This move will certainly boost its growth.
Many analysts believe that the merged company will have greater revenue-determining power and greater bargaining power in terms of cost. The synergies provide solid free cash flow, which is a good precursor to GFL.
Speaking of PVR and Inox, research analysts at Equitymaster Aditya Vora recently recorded a video about multiplex strains. In the tug of war between the theatre and OTT, Aditya believes that the theatre will win and create long-term wealth for investors.
How did producers have considered the merger idea
With the recent announcement of the merger of PVR Cinemas and competitor INOX Leisure Ltd, producers and filmmakers are expected to occupy almost 50% of India’s total multiplex screens. I became worried about the bargaining power. .. The producer said the merged company could determine the terms of the show schedule, revenue sharing, and even the window between the theatrical release of the movie and the OTT release.
The two might also put consumers on the hook for higher tickets and food prices if they decide to open luxury cinemas, thus essentially turning theatres into premium out-of-home experiences. Seeing that these two companies were feeling the pinch in a post-pandemic world, this merger reflects the times the market is in right now when erstwhile competitors are coming together to survive,” a film producer and trade expert explained on condition of anonymity.
The person who spoke about this said that monopolistic behaviour is not good for any business, and while small-budget films and their makers have already been given a raw deal in terms of shows and screens, things could still get worse for them. “Filmmakers who are not as well known or get much money from OTT platforms will be at a disadvantage here, particularly since theatrical releases have significant repercussions for their reputations and pride. The sense is that multiplexes may start by dictating terms with them first, asking them to pay high rates for their trailers to be shown or for in-cinema advertising,” the person added.
The twist of the arm can extend to larger movies and is required to let go of a higher share of box office revenue from the first week of the movie release itself, or between the theatrical release of the movie and the digital premiere.
You may choose a longer window. PVR did not answer Mint’s question about the impact of the merger, but INOX declined to comment. Arjun Singh Baran and Kartik D. Nishandar, founders of Mumbai-based film and web content production company GSEAMS, have increased the number of screens in domestic cinemas and produced or produced films due to the merger (PVR and INOX). Can contact a single source to request a presentation.
“On the other hand, the distribution business is already monopolistic, so if you plan to raise prices (from the booking screen), rising distribution costs will put a heavy burden on producers,” said Balan and Nishander. Marathi film producer Akshay Bardapurkar said the merger was a direct result of increased OTT viewing, providing a platform for some filmmakers to screen their films, even when writing screenplays. He said it was the result of the fact that he was considering.
” It is evident that some of the best movies are being screened in the theatres, and those good signs come from people who attend the movies after Covid, even if they have some concern that attending the theatre might blow their minds. Even come back. The two chains allow you to check out the state-of-the-art luxury theatres together, where the £ 1,500 ticket goes to the new regular, except for food and drink. From the audience’s point of view, the price will only go up and there will be few options. “
To be sure, mergers are not without challenges. Both PVR and INOX, which have established a presence in North India, have quietly expanded into the South, but continue to be a market dominated by independent single-screen cinemas.
” Bollywood and the multiplex chain have had a long and close relationship for too long. The top elite films in Bollywood were their bread and butter. Currently, these films are not working well and North India The invasion of South Indian films in the mass market is irreversible. These companies see the situation changing and try to maintain supremacy, but the problem is that they do not influence the South. ” Independent exhibitor Vishek Chauhan said.
edited and proofread by nikita sharma
