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PVR-INOX merger to take 6-9 months, to add 200 screens every year, say Ajay Bijli and Siddharth Jain

The impact of the COVID-19 on the film screening business and competition from streaming platforms were the key reasons for the merger between PVR and INOX, said top executives from both companies.

March 28, 2022 / 01:05 PM IST
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The impact of the COVID-19 on the film screening business and competition from streaming platforms were the key reasons for the merger between PVR and INOX, said top executives from both companies.

"Those two factors played a role for the two companies coming together. Business was booming pre-COVID. Our balance sheets were strong and we were earning money but in the past two years there was COVID impact and consumer interest was shifting to OTT (over the top) platforms. We realized that we need to reinvest in the cinematic experience and in order to do that there was no better than two iconic brands to come together," Siddharth Jain, Director, INOX Leisure, told Moneycontrol.

The national lockdown to combat COVID led to shutting down of cinema halls. It is estimated that at least 117 Hindi films released on streaming platforms in the last two years. For top multiplex players, Bollywood, or the Hindi film industry, contributes at least 60 percent of overall box office collections.

"Overall gross box office of India got impacted due to COVID-19. The idea was to give impetus to the sector which was languishing. The sector and we (theatre operators) can increase the revenue pie if we have more screens. Our focus is to increase screen count and put India on the global map in terms of screen count,” said Ajay Bijli, Chairman and Managing Director, PVR.

Expansion Plans

The merged entity will target adding 200 screens every year, said Jain. PVR and INOX were adding 60-80 screens annually before the pandemic.

"India has 9,500 screens compared to China at 70,000 screens. As a country we were adding 400 screens in a year and China was adding 6,000-7,000 screens a year. We are underpenetrated and we hope this merger enthuses the cinema exhibition industry for more investments," said Jain.

He added that the merged entity has around1,500 screens that are operational currently, and plans to add another 1,500-2,000 screens.

"In the last two years we have not been able to consume that pipeline and we are looking at executing this pipeline in markets which is a combination of tier II, III and top Indian 50 cities as many pockets there too are under-screened. As a combined entity we will be in 109 cities but there are 200-300 cities to go to," said Jain.

The executives also don’t see the need to shut down any screens in areas of overlap.

"We don't see any cannibalization happening. Cannibalization happens when there is market saturation. We don't think there is market saturation happening and there so many catchments, the entire hinterland where there are not many good quality cinemas," said Bijli.


According to analyst Karan Taurani, senior Vice-President, Elara Capital, the current valuation of the merged entity is Rs 18,000 crore and has the potential of reaching over Rs 22,000 crore by FY24. He estimates that the revenue of the combined entity will reach Rs 6,800 crore by FY24 as compared to PVR's revenue from operations of Rs 3,284 crore and Rs 1,887 crore of INOX in FY20, the last pre-pandemic year.

He added that there will be synergies on the ad revenue front and a boost will come from INOX’s performance yardsticks such as average ticket price (ATP) and spend per head (SPH) coming on par with PVR. Currently, INOX tickets are typically priced at a 5 - 25 percent discount versus that of PVR. In addition, INOX’s ad revenue per screen is at 33 percent to that of PVR as on FY20.

"Both entities getting merged will lead to better yields on advertising, wherein INOX will come on par with PVR and the combined entity may even command a further premium over medium term. In terms of convenience fee too, INOX derives a much lower convenience fee per screen, 50 percent lower than PVR) which too will be revised upwards," said Taurani.

Regulatory approvals

Bijli said that the merger process will take six-nine months. "We have to go through the process and there is stock exchange, SEBI (Securities and Exchange Board of India), NCLT (National Company Law Tribunal) approvals required."

He added that Competition Commission of India (CCI) approval may not be required.

Kritika Agarwal, Associate Partner, Corporate, M&A and Competition, Majmudar & Partners, a law firm said that the PVR-INOX merger may not require pre-merger clearance from the CCI as their combined revenues are well below the prescribed minimum threshold of Rs 1,000 crore.

"While PVR and INOX are set to create a dominant player with significant concentration in certain geographies, the deal has also been planned at an opportune time as revenues have taken a hit in the last two years and the deal will not have to pass CCI’s scrutiny," she said.

Anu Sura, Counsel, PSL Advocates & Solicitors also noted that all mergers, amalgamations and acquisitions in India are regulated by the CCI. CCI ascertains whether the combination is likely to adversely affect the competition the relevant market. However, CCI approval is required for only for combinations where the assets/turnover of the entities for the preceding financial year exceeds 1,000 crore.

PVR’s revenue from operations fell from Rs 3,284 crore in FY20 to Rs 225.72 crore in FY21. Similarly, INOX’s revenues fell from Rs 1,887 crore in FY20 to Rs 98.74 crore in FY21.

Ketan Mukhija, Partner at law firm Link Legal, said that taking a cue from CCI’s (earlier approval of 2016 in respect of acquisition by PVR of DLF Utilities’ film exhibition business, a combination of behavioural and structural remedies — in the form of price caps, no expansion in relevant areas, divestiture of screens in concentrated areas may be suggested for implementation.

"CCI has noted that behaviour remedies are ‘difficult to formulate, implement and monitor and run the risk of creating market distortions’. And in addition, given the post COVID scenario, it would be plausible to expect that CCI would allow the proposed merger with fewer structural modifications," he added.

Anushkaa Arora, Principal & Founder, ABA Law Office said that the merger will have to see combined revenues of its financial year immediately preceding the financial year where said merger was approved. "Considering the fact, that irrespective the combined revenues of both the entities may have been hit due to pandemic and may be currently less than Rs 1,000 crore, the said merger does cause an appreciable adverse effect on competition, and hence cannot dodge CCI approval," she added.

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Maryam Farooqui
first published: Mar 27, 2022 11:03 pm
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