PVR-INOX merger could be done in 3-4 months after CCI rejects anti-trust body’s complaint

It’s good news in deal land. The Competition Commission of India (CCI) has dismissed a complaint made against the PVR-INOX merger by non-profit group Consumer Unity & Trust Society (CUTS). The merger, which will create India’s largest film exhibition company with a network of 1,500+ screens, came under the scanner last month, when CUTS filed a complaint alleging that the joint entity (with a market cap of Rs 16,000 crore) would indulge in anti-competitive practices that can adversely impact the film exhibition industry. 

While consolidation is the way forward in any industry, CUTS claimed that the merger could result in higher ticket prices and limited consumer choice, thus depleting the overall movie-going experience. 

CCI rejected the claims stating that the apprehension of such trade practices cannot be a part of its probe. Following the announcement, both PVR and INOX shares gained on the BSE on Wednesday. PVR was up 2.25 per cent to Rs 1,951, while INOX was trading 5.08 per cent higher at Rs 543.

Karan Taurani, SVP, Elara Capital, told Business Today, “Now there are no big roadblocks. The potential CCI threat is gone. So, post shareholder approval, it [the merger] will move swiftly, but timeliness will be subject to NCLT order.”

PVR and INOX Leisure had received clearances from bourses NSE and BSE on June 20, and approvals from their respective boards in March. 

“Both stocks have corrected 20 per cent over the last one month due to Hindi content issues. We expect some respite and upside movement based on this news. If all goes well, we expect the merged entity to form by the end of FY23 (3-4 months from now),” Taurani explained.

What the merger means

The union of two of India’s largest multiplex operators will create synergies in the form of advertising revenues and convenience fee for the merged entity, which would have a direct impact on their profitability. PVR-INOX is projected to operate 1,546 screens across 341 properties in 109 cities. “Other synergies like reduced rental costs, corporate overheads etc. may also ensue, in the medium-to-long term,” said an analyst. 

In the last decade, the number of pan-India multiplex operators has halved from 11 in 2009-10 to about 5 now. These include PVR, INOX, Cinepolis India, Carnival Cinemas, and Miraj Cinemas. 

Post the merger, the number would come down further, giving PVR-INOX over a 50 per cent market share in most territories. 

However, this may not be a bad thing, say analysts. 

According to a report by Elara Capital, “The merged entity has the potential to gain Box-Office market share on: 1) widespread geographical exposure and 2) stronger screen addition. The regional genre is a huge untapped prospect for multiplexes that have a mere 30 per cent BO share in the genre. PVR and INOX enjoy 53 per cent screen share in multiplexes, which will give them an edge over competition.”

Brokerages estimate the consolidated entity to post revenues of Rs 7,100 crore by FY24, with an EBITDA margin of 20.8 per cent.

Also Read: Will launch 150 screens, invest Rs 500 crore every year from now: PVR's Ajay Bijli

Also Read: PVR, Inox shares rebound as Brahmastra's box office collections cross Rs 100 crore