Monday, Jul 04, 2022
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Motilal Oswal Expects 12% Downside In PVR After Merger Deal With Inox Leisure

Around 70 per cent of the market consists of single-screen cinemas, which are facing a shutdown, whereas multiplexes, with 30 per cent share and 2,700 screens, are seeing strong growth, Motilal Oswal said.

PVR and Inox Leisure had announced an all stock merger deal on Sunday.
PVR and Inox Leisure had announced an all stock merger deal on Sunday.

Brokerage firm Motilal Oswal expects PVR shares to decline by 12 per cent to Rs 1,600 from its Friday's closing price of Rs 1,828 after the company announced a merger deal with Inox Leisure on Sunday.

"PVR and Inox, the two major Multiplex players, announced a merger. The share swap ratio stands at three shares of PVR for 10 shares of Inox. Based on the swap ratio, Inox is valued at 17 times enterprise value to EBITDA and enterprise value to screen ratio of Rs 9 crore, which is 15 per cent higher than its current price, but 18 per cent below PVR’s valuation on a FY20 basis," Motilal Oswal said in a report.

In the last five years, the cinema industry has seen a decline in the number of screens. Around 70 per cent of the market consists of single-screen cinemas, which are facing a shutdown, whereas multiplexes, with 30 per cent share and 2,700 screens, are seeing strong growth, Motilal Oswal said.

“Given the large movie market (over 2,000), healthy box office collections, lower number of screens/cinemas, and a concentrated multiplex market (PVR/Inox command over 40 per cent market share), the multiplex market has healthy room to add new screens. The combined entity plans to deepen their network in Tier II and III markets,” Motilal Oswal said.

Despite the strong outlook for the merged entity Motilal Oswal has a neutral rating on the stock because of rih valuations the stock has commanded historically.

“The rich valuation it commanded historically was led by strong growth. The screen addition opportunity does provide an ability to continue its strong growth. However, OTT platforms pose a risk of shrinking the exclusive period, softening occupancies, and lower screen economics,” the Mumbai-based brokerage firm added.

Leading film exhibition players PVR Ltd and Inox Leisure on Sunday announced a merger deal to create the largest multiplex chain in the country with a network of more than 1,500 screens.

The respective board of directors of the two companies at their meetings held on Sunday approved an all-stock amalgamation of Inox with PVR, the two companies said in separate regulatory filings.

The combined entity will be named PVR Inox Ltd with the branding of existing screens to continue as PVR and Inox. New cinemas opened post the merger will be branded as PVR Inox, it added.

Following the deal announcement, PVR shares surged as much as 10 per cent to hit a fresh 52-week high of Rs 2,010.35 per share and Inox Leisure jumped 20 per cent to hit a new 52-week high of Rs 563.60 on the BSE.

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