 "PVR, Cinemas")
Shares of PVR and Inox Leisure zoomed up to 20 per cent on the BSE in Monday's intra-day trade after they announced merger between the two major multiplex owners, in an all stock amalgamation of Inox with PVR. Shareholders of Inox will receive three shares of PVR in exchange for 10 shares in Inox.
In trades so far, Inox Leisure hit a record high of Rs 563.60, zooming 20 per cent in intra-day trade. The stock surpassed its previous high of Rs 510.80 touched on February 25, 2020. As of 09:17 am, the stock traded 15 per cent higher at Rs 540, as compared to 0.06 per cent decline on the S&P BSE Sensex.
PVR, meanwhile, surged 10 per cent to Rs 2,010, also its 52-week high on the BSE. The stock trimmed gains mildly and was up 5 per cent at Rs 1,925.25 later. It had hit a record high of Rs 2,081 on February 20, 2020.
Post merger, PVR promoters will own 10.62 per cent stake while Inox promoters will have a 16.66 per cent stake in the combined entity with equal representation in the board with two seats each for promoter entities in a 10-member board. The combined entity will be named as PVR INOX Limited with branding of existing screens to continue as PVR and INOX respectively. The new cinemas opened post the merger will be branded as PVR INOX.
The combined entity will become the largest film exhibition company in India with 1,546 screens, at around 50 per cent multiplex screen market share and around 42 per cent box office collection market share.
Key synergy of both companies will be bargaining power in costs (especially rental) wherein they compete for premium space as well revenues such as advertisement [wherein Inox whose normalised (pre-covid) ad/screen/annum was at Rs 29 lakh vs. Rs 44 lakh for PVR ~36 per cent discount] or ATP discount of 6-7 per cent between Inox and PVR, which could catch up, ICICI Securities said in a note.
Furthermore, they would have higher leverage in convenience fee deals (with Bookmyshow and Paytm) and distribution revenues. Some administrative cost rationalisation on overlaps is also possible. Even the combined entity target multiple and subsequent market value could be rerated given superior market share and reach and synergy mentioned above.
While given the target company’s (Inox) turnover is less than Rs 1,000 crore, the merger may get "de-minimus exemption from CCI approval", roadblocks would be CCI clearance, if assessed on screen market share (as they have more than 50 per cent share in multiplex screen in most states) or normalised situation revenues, the brokerage firm said.
The valuation on a standalone basis is largely fair, however the combined entity valuation can be higher by 25-30 per cent basis 1) synergies on various metrics as mentioned above and 2) re-rating due to the large size of the entity, analyst at Elara Capital said.
In terms of management control , we believe it will augur well if PVR has a control in the initial years as latter has a better brand equity vs that of Inox; we need to monitor in terms of who gets the control over medium to long term . As indicated by exchanges, currently both promoters will have equal board seats in the entity, the brokerage firm said.
In trades so far, Inox Leisure hit a record high of Rs 563.60, zooming 20 per cent in intra-day trade. The stock surpassed its previous high of Rs 510.80 touched on February 25, 2020. As of 09:17 am, the stock traded 15 per cent higher at Rs 540, as compared to 0.06 per cent decline on the S&P BSE Sensex.
PVR, meanwhile, surged 10 per cent to Rs 2,010, also its 52-week high on the BSE. The stock trimmed gains mildly and was up 5 per cent at Rs 1,925.25 later. It had hit a record high of Rs 2,081 on February 20, 2020.
Post merger, PVR promoters will own 10.62 per cent stake while Inox promoters will have a 16.66 per cent stake in the combined entity with equal representation in the board with two seats each for promoter entities in a 10-member board. The combined entity will be named as PVR INOX Limited with branding of existing screens to continue as PVR and INOX respectively. The new cinemas opened post the merger will be branded as PVR INOX.
The combined entity will become the largest film exhibition company in India with 1,546 screens, at around 50 per cent multiplex screen market share and around 42 per cent box office collection market share.
Key synergy of both companies will be bargaining power in costs (especially rental) wherein they compete for premium space as well revenues such as advertisement [wherein Inox whose normalised (pre-covid) ad/screen/annum was at Rs 29 lakh vs. Rs 44 lakh for PVR ~36 per cent discount] or ATP discount of 6-7 per cent between Inox and PVR, which could catch up, ICICI Securities said in a note.
Furthermore, they would have higher leverage in convenience fee deals (with Bookmyshow and Paytm) and distribution revenues. Some administrative cost rationalisation on overlaps is also possible. Even the combined entity target multiple and subsequent market value could be rerated given superior market share and reach and synergy mentioned above.
While given the target company’s (Inox) turnover is less than Rs 1,000 crore, the merger may get "de-minimus exemption from CCI approval", roadblocks would be CCI clearance, if assessed on screen market share (as they have more than 50 per cent share in multiplex screen in most states) or normalised situation revenues, the brokerage firm said.
The valuation on a standalone basis is largely fair, however the combined entity valuation can be higher by 25-30 per cent basis 1) synergies on various metrics as mentioned above and 2) re-rating due to the large size of the entity, analyst at Elara Capital said.
In terms of management control , we believe it will augur well if PVR has a control in the initial years as latter has a better brand equity vs that of Inox; we need to monitor in terms of who gets the control over medium to long term . As indicated by exchanges, currently both promoters will have equal board seats in the entity, the brokerage firm said.
Technical View - Inox Leisure
