scorecardresearchPVR and Inox merger creates a ‘must-have consumption story’, says Nuvama

PVR and Inox merger creates a ‘must-have consumption story’, says Nuvama

Updated: 15 Mar 2023, 08:09 AM IST
TL;DR.

  • The merged company has established a 100-day action plan to finish integrating the two businesses. The combined company is anticipated to spend 8–8.5 billion to upgrade and install new movie screens. The cost of the additional screen expansion will be close to 7 billion.

According to the brokerage study, the three main sources of revenue synergies are box office, food and beverage, and advertising.

According to the brokerage study, the three main sources of revenue synergies are box office, food and beverage, and advertising.

PVR Ltd and Inox Leisure Ltd successfully merged on February 6. The combined business has 1,674 screens spread across 358 properties in 114 cities, making it the biggest film exhibition company in India.

The merged company has established a 100-day action plan to finish integrating the two businesses. The combined company is anticipated to spend 8–8.5 billion to upgrade and install new movie screens. The cost of the additional screen expansion will be close to 7 billion.

With the merger of PVR and Inox, a behemoth entered the scene, creating a 'must-have consumption story', claims brokerage Nuvama Research Management Ltd.

"With its primary focus on the movie exhibition business, the combined entity will continue to ramp up margin-accretive segments such as food and beverages (F&B) revenues and advertisement revenues, which in our view will drive the earnings before interest, taxes, depreciation, and amortisation (EBITDA) expansion for the business. Aggressive expansion and focus on innovation to deliver growth for the business over the longer term," said the brokerage.

Why is it referred to as 'a must-have consumption story' by the brokerage?

Revenue synergies

According to the brokerage study, the three main sources of revenue synergies are box office, food and beverage, and advertising.

"The F&B segment has huge room for growth. With 15 billion of F&B revenue in CY22, PVR-Inox is among the leading quick service restaurant (QSR) brands in India. Further, the spend per head (SPH) on average ticket price also provides significant potential for growth with International average of around 70%. F&B synergies from the merger shall plug product gaps, wherein the company would upgrade product offerings while also expanding and standardising the menu (including non-veg menu)," said Nuvama Research.

The brokerage anticipates PVR-Inox to obtain a larger portion of the advertising market due to its significantly higher screen count.

Accelerated screen rollout across key markets

To increase its footprint in remote areas, the combined company plans to add 200 screens every year. With >40% new screen additions in the area, southern India is definitely in the spotlight.

"PVR-INOX shall also derive capex synergies, and expects cost per screen to come down by 10–15%," said the brokerage.

Cost synergies

The brokerage estimates that over the next 12 to 24 months, the company will generate annual EBITDA synergies of 2.25 billion in addition to its 30% share of box office collections with strong pricing power.

According to the brokerage, supply chain integration, reduction of overlapping costs, economies of scale from volume discounts, and product standardisation will enhance operating expense structure and capex synergies—the merged entity's cost/screen will drop by 10-15%.

Outlook and valuation

Theaters and OTTs should coexist, according to the brokerage. The newly formed company will effectively consider how Indian movies are distributed abroad. A senior management team with a proven track record, seasoned promoters, and leadership across the key operating metrics will further add value.

"On balance, given improving dynamics for Hindi movies and a likely strong pipeline for Hollywood in 2023, we continue to be positive on multiplexes on a medium/long term-basis. We retain ‘buy’ with a revised target price of 2,125 from 2,110," said the brokerage.

Article
Multiplex operating firms PVR and INOX Leisure have announced their merger.
First Published: 14 Mar 2023, 05:07 PM IST