PVR, Inox Shares Surge As Analysts See Merger Plan Aiding Bargaining Power

Shares of PVR Ltd. and Inox Leisure Ltd. surged as analysts expect their proposed merger to offer a competitive advantage over other multiplex operators, as well as drive pricing and bargaining power in terms of newer technologies, rentals and marketing spends, among others.

The boards of India’s two largest multiplex operators have approved an all-stock amalgamation to create a threatre chain with a network of more than 1,500 screens, according to exchange filings on Sunday.

PVR promoters will hold a 10.62% stake in the combined entity, while Inox promoters will have a 16.66% stake. The existing properties will continue to use their respective brands, but the new screens will be branded as PVR Inox.

The deal comes at a time their revenue has taken a hit in the last two years as the Covid-19 pandemic forced movie halls to suspend operations, and amid challenges from online streaming platforms.

Their combined revenue is well below the prescribed minimum threshold of Rs 1,000 crore. PVR’s revenue from operations fell from Rs 3,284 crore in FY20 to Rs 225.7 crore in FY21. Inox’s revenue declined to Rs 98.74 crore in FY21 from Rs 1,887 crore in FY20.

The Indian multiplex industry had largely been a four-player market pre-pandemic (65% of multiplex screens) with PVR, Inox, Carnival and Cinepolis having the largest number of screens. If the merger deal goes through, the combined entity would have a 50% share of the total multiplex screens in the country at the end of FY22. This share may rise as the merged entity may gain from smaller chains and single screens that have struggled due to the pandemic.

The deal is subject to regulatory approvals.

Shares of PVR rose 10%, while Inox Leisure surged 20% in early trade on Monday. The stocks, however, some gains to trade 4.77% and 13.26%, respectively, as of 11:25 am

Of the 31 analysts tracking PVR, 26 maintain a ‘buy’, three suggest a ‘hold’ and two recommend a ‘sell’, according to Bloomberg data. The 12-month consensus price target implies an upside of 1%.

Of the 22 analysts tracking Inox, 20 maintain a ‘buy’ and two suggest ‘hold’. The consensus price target implies a downside of 2.7%.


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