Multiplex chains PVR, INOX to merge. All you want to know

India’s two biggest multiplex chains, PVR and INOX Leisure, have decided to merge the companies and their operations in a move that will create a cinema exhibition giant far greater than the next peer.

The board of directors of PVR Ltd and INOX Leisure Ltd at their respective meetings on Sunday approved an all-stock amalgamation of the two companies.

The merger is subject to the approval of the shareholders of PVR and INOX, stock exchanges, stock market regulator SEBI, and other regulators. Upon obtaining all approvals, INOX will merge with PVR. This means shareholders of INOX will receive shares of PVR in exchange for shares in INOX.

So, will INOX theatres convert into PVR?

No, they won’t. While the combined entity will be named PVR INOX Ltd, the branding of existing screens will continue as PVR and INOX. But the new cinemas opened after the merger will be branded as PVR INOX.

How big the combined company will really be?

PVR currently operates 871 screens across 181 properties in 73 cities. On the other hadn, INOX operates 675 screens across 160 properties in 72 cities. The combined entity will have 1,546 screens across 341 properties in 109 cities.

Needless to say, the combined company will become the largest film exhibition company in India. Its closest rival will be Cinepolis India. The local arm of Mexican chain Cinepolis operates about 380 screens in India. This means the combined PVR-INOX will be almost four times bigger. This is not all. According to analysts, the merged entity will have a screen share of 50% and a combined box office revenue share of 42% for Hindi and English content.

But won’t it raise competition concerns?

Well, it could. Given that this deal will make the multiplex industry effectively a two-player market in India, the Competition Commission of India could raise anti-competitive concerns.

The combined entity will have higher bargaining power for everything from rentals and content cost to marketing spends, advertising rates, and food and beverage sourcing. Eventually, it could even raise ticket prices since many consumers—especially in urban markets—will have little choice left.

The CCI may raise concerns about the overlap between PVR and INOX in certain given micro-markets and may even ask them to dispose of some assets.

On their part, the companies may argue that their competition is not just with other multiplex chains but also with standalone theatres as well as other forms of entertainment and even over-the-top streaming platforms such as Netflix, Amazon Prime and Hotstar, where many film producers are choosing to release their movies of late.

But why are the No.1 and No.2 multiplex chains merging in the first place?

The main reason for the merger is that multiplex chains have been the worst affected due to the Covid-19 pandemic over the past two years, as lockdowns and stay-at-home restrictions dragged their revenue and pushed them deep into losses.

In FY21, for instance, INOX clocked a loss of Rs 337 crore on revenue of Rs 106 crore while PVR suffered a loss of Rs 723 crore on revenue of Rs 225 crore. The situation in FY22 has improved but both companies are still in losses.

The fast growth in over-the-top streaming platforms such as Netflix, Amazon Prime and Hotstar makes matters even more difficult for multiplex chains. Indeed, they pointed out that the merger will strongly counter the adversities posed by the advent of various OTT platforms and the after-effects of the pandemic.

“The film exhibition sector has been one of the worst impacted sectors on account of the pandemic and creating scale to achieve efficiencies is critical for the long-term survival of the business and fight the onslaught of digital OTT platforms,” said Ajay Bijli, Chairman and Managing Director of PVR.

Siddharth Jain, Director at INOX Leisure, said: “As we head into the industry’s revival amidst headwinds, this decisive partnership would bring in enhanced productivity through scale, a deeper reach in newer markets and numerous cost optimization opportunities, and continue to delight cinema fans with world-class experiences and landmark innovations.”

What is the deal value?

Details of the transaction haven’t been announced yet. But the companies said that after the merger, PVR promoters will have a 10.62% stake and INOX promoters will have a 16.66% stake in the combined entity.

Currently, the promoter shareholding in PVR is about 17% and around 43.6% in INOX.

Who will lead the combined entity?

PVR chief Ajay Bijli will be the Managing Director of the combined entity and Sanjeev Kumar would be appointed as the Executive Director.

INOX Group Chairman Pavan Kumar Jain will be the Non-Executive Chairman of the combined company’s board. Siddharth Jain will be appointed as Non-Executive Non-Independent Director in the combined entity.