PVR-Inox: OTT threat, post-COVID dynamics stimulate multiplex consolidation

The PVR-Inox merger, which had been necessitated by the looming threat of OTT and changing consumer dynamics, will lead to a presence of more than 50% for the combined entity, meaning that over two screens, it will have a

Analysts have pointed out that the merger between the two multiplexes is a little too early for the industry but the pandemic has accelerated several decisions

The big merger announcement between multiplex chains Inox and PVR, which will result in a combined screen power of more than 1,500 in 110 cities and towns, is a strategic decision to protect its territory due to increasing competition from OTT players and the changing dynamics of entertainment. the post-COVID industry.

The story of multiplex consolidation had started much earlier with newspaper stories about a possible merger between PVR (over 900 screens) and another multiplex Cinepolis (over 400 screens), but that seems to have fallen through at the last minute. . This could have forced PVR to look for other actors for a possible merger.

While analysts have argued that streaming and exposure will not cannibalize each other, the higher cost of watching a movie in a theater could be a deterrent as post-pandemic tastes among moviegoers have changed significantly. This fact has not been lost on the management of the multiplex, which finds that attendance has declined over time and that it must increasingly rely on non-cinema revenue such as food and drink to maintain its operations. This was recognized at the investor meeting when management admitted that OTT posed a significant risk to their business.

During this time, the merger will lead to over 50% presence for the combined entity, which means that across two screens it will own one. This move has good potential as the increase in capital expenditure and fixed operating expenditure was proving to be an albatross around their necks and they can now generate cost savings together. In addition, such a large presence could allow them to push studios to opt for theatrical releases. It could also help the merged entity negotiate lower interest costs while increasing debt.


As for the contours of the new combined management, it plans to open more than 200 screens per year, with expansion into Tier 2 and Tier 3 cities remaining the priority. The two partners have agreed to add 1,000 screens each over a period of five to six years. (China, according to various reports, has about 80,000 screens).

Once the merger is in place, the PVR management team will manage day-to-day operations and the new screens will be rolled out under the PVR-Inox brand. The older individual brands will, however, continue to co-exist. The management of Inox will be represented on two seats on the board of directors, like the promoters of PVR.

Read also : The COVID pandemic could give a boost to drive-in cinema in India

Management ruled out screen rationalization as they managed to avoid the same catchment areas. The merger leaves out the Cinepolis and Carnival multiplexes (with around 400 screens each) unless the Competition Commission of India (ICC) comes to their aid. According to ICICI Securities, under a much smaller deal between PVR and DT Cinemas in 2016, some screens had to be divested for the deal to go through. The merged entity had 39 screens and the CCI asked the management to get rid of seven screens for the agreement to be valid.

However, if the exemption clause is applied for this deal, as the total FY22 revenue will be less than ₹1,000 crore and since this is the outer limit to attract CCI’s attention, the merger will go off without a hitch. (Government waived CCI approval for merging entities that have less than ₹1,000 crore in revenue). “But, the ICC has the right to raise questions and, if it does, the company or companies will have to respond appropriately. Therefore, CCI’s view of the merger is the only possible impediment we see,” ICICI Securities wrote in a note to investors.

Other benefits of the merger could be greater pricing power in advertising. Inox’s advertising revenue in FY20 was ₹179 crore, while PVR’s was ₹376 crore. F&B revenue for Inox was ₹497 crore and PVR revenue was ₹949 crore.

The merger is expected to lead to better bargaining power and cost synergies resulting in increased revenues for both of these compartments. Second, since multiplexes are traditionally housed in shopping malls, management will now be better able to reduce rents, again leading to cost savings.

Analysts have pointed out that the merger between the two multiplexes is a bit too early for the industry. But the pandemic has accelerated several decisions as companies seek to better control their operations and reduce similar types of shocks resulting from the COVID situation.

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