Multiplex chains PVR and Cinepolis India are reportedly in talks for a merger, which could change the dynamics of India’s exhibition sector. According to media reports, Cinepolis will hold a 20 percent stake in the merged company while PVR promoters will own between 10 percent and 14 percent. Ajay Bijli, the chairman and MD of PVR, will have management control for the first three years in the combined entity.
PVR merging with the third largest multiplex player Cinepolis India, a subsidiary of the Mexican theatre chain, will lead to the combined entity have a commanding position in the film business as its market share will move closer to 35-37 percent, said analyst Karan Taurani, senior vice-president, Elara Capital.
He added that Cinepolis India may be valued at an estimated value per screen of Rs 9 crore, which is a 25 percent discount versus PVR.
PVR operates 846 screens in India while Cinepolis has around 417 screens giving the combined entity 1,263 screens, making it the country’s biggest player in the multiplex space.
Moneycontrol reached out to PVR and Cinepolis but the companies declined to comment.
The big picture
“A merger will enable the combined entity to have a screen share of 42 percent within the multiplex segment and a screen share of 15 percent in the overall India screen ecosystem. A bigger market share in the multiplex ecosystem may lead to a duopoly as PVR/Cinepolis and INOX Leisure will command around 50 percent box office revenue share together,” said Taurani.
According to analyst Nitin Menon of NV Capital, a credit fund for the media and entertainment sector, the market is buoyant and everybody wants to expand. “Plus, Cinepolis has a mandate to expand and India is a big market where they can do it. They have around 6,000-plus screens globally. In the US and Canada, they are adding screens but not to that level,” he said.
He pointed out that in 2018 there had been talk of a merger between INOX, the second largest multiplex player in India with a current screen count of 675, and Cinepolis India. In the same year, the management of Cinepolis India had said it would pump in around Rs 1,500 crore to add 500 screens, and in 2019 said that it intended to increase its footprint in India by having 600 screens by 2022.
Menon added that India is under-penetrated in terms of screen count. While China has the highest number of cinema screens with over 80,000 screens, the US had over 44,000 screens as of 2020. India is still under 10,000 with the majority being single-screen theatres.
“In the southern market, especially in the Telugu industry, there are four to five superstars who want to be pan-India stars. So demand for the number of screens will increase (as producers aim for wider screen release),” said Menon.
Utkarsh Sinha, managing director, Bexley Advisors, a tech and media advisory firm, also noted that deeper screen penetration over time into tier 2 and 3 towns will be a positive outcome of this merger. “There’s still a lot of exhibition money to be made there and reduced competition will allow for an investment in screens,” he said.
Taurani pointed out that PVR has a big edge in the north and through SPI Cinemas it has a competitive advantage in the southern market. On its part, Cinepolis it has a higher exposure in non-metro towns, which will augment the pan-India presence of a merged PVR-Cinepolis entity.
Concerns over merger
However, he added that Cinepolis has lagged peers in terms of organic screen addition and this may mean that there may not be a high incremental screen addition impact on PVR due to this merger.
Another concern that Taurani raised was that there is no clarity on who will retain control of the combined entity.
An industry source said that for the first three years, PVR will have management control and after that Cinepolis would take over, but added that the merger deal may not go through.
Menon noted that Cinepolis is the bigger chain globally and PVR bigger in India. “So we will have to see how the dynamics will work out,” he said.
“In the case of the control moving away from PVR to Cinepolis, there may be challenges for coordination with the parent company for the combined entity, which will impact the pace of overall strategy execution.
Also, Cinepolis India has been a zero-debt company since inception. The cinema business is capital-intensive and may require debt funding for healthy expansion plans. Hence, a no-debt policy may limit new screen growth prospects,” said Taurani.
The analyst also said that PVR shares a much stronger relationship with key mall developers as it has a huge first-mover advantage on key strategic locations. Hence, if Cinepolis takes control, relationships with mall developers may see a negative impact due. Taurani added that if PVR retains control, the merged entity will be able to make the most of the synergies around ad and convenience fees revenues.
Merger matters
Bexley Advisors’ Sinha said that when there is a big buyer, it always changes the equation for the seller. “We are essentially going to enter a duopoly for exhibition with PVR-Cinemax and INOX controlling close to 2,000 screens and they can change the pricing dynamics for content acquisition or revenue sharing,” he said.
Taurani too said the merger will enhance bargaining power on distributor share which became a concern due to COVID-19 when producers demanded higher revenue share. One of the biggest films of 2021, Sooryavanshi, had seen delay in advance booking due to distributor share concerns.
Shares of PVR ended 4.3 percent lower at Rs 1,499.10 a piece on the BSE on March 7.
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