PVR-Inox merger proposal gets Sebi, stock exchange nods. What’s ahead?

The next step for the two multiplex owners is to get clearance from the National Company Law Tribunal (NCLT), which as per Nirmal Bang Institutional Equities, could take another six months.

The Competition Commission of India (CCI) has not raised any objections over the merger in the last three months, something the Street had feared.

As time progresses, said, the probability of CCI raising an issue reduces. However, CCI remains a key monitorable until the merger ends, given its power to step in at any time during the merger, the brokerage added.

“Our understanding is that CCI could potentially get involved post-merger, if the merged entity is seen to be abusing its considerable clout within the film exhibition ecosystem. This would mean that business practices, especially price increases in its various business segments and landlord-tenant and buyer-supplier relationships cannot be seen to be abused,” Nirmal Bang said.

Sector outlook

Emkay Global said the performance of Bollywood movies recently has clearly been underwhelming, with several mid- to high-budget films failing to leave a mark at the box office. Bollywood accounted for 60 per cent of the overall collections for the film exhibition industry in the 16 quarters prior to the pandemic.

On the other hand, regional (south) movies have managed to attract audiences to the theatres. This, it said, raises a few key questions: Is Bollywood struggling with weak content? Are anti-Bollywood social media campaigns influencing the performance, or is it just cyclicality as seen in the past?

“In our view, the success of films like The Kashmir Files and Bhool Bhulaiyaa 2 indicates that there is no aversion to the industry, and audiences are willing to back quality content, which has been missing so far. Given the strong content line-up, we do expect Bollywood to bounce back, leading to an improvement in overall box-office collections,” Emkay Global said while suggesting a target of Rs 2,165 on PVR and Rs 640 on Inox.

The key risks include an exacerbation of the recent resurgence in Covid cases and the continued dismal box-office show of Bollywood movies, Emkay said.

“We believe that a turnaround in Bollywood’s fortunes is critical for sustaining box-office collection growth, as performance of regional movies (south and non-south) beyond their core markets is generally sporadic in nature,” the brokerage added.

Nirmal Bang said the gross average ticket price (ATP), F&B spend per head (SPH) and the advertising revenue per screen have seen a CAGR of 3.3 per cent, 10 per cent and 15 per cent, respectively in the FY14-FY20 for PVR.

It said the ATP increase has been below CPI inflation during this timeframe despite premiumisation. SPH has shown higher-than-CPI growth, it said, because of a low base, a richer mix of F&B products and premiumisation of screens.

Advertising revenue per screen CAGR, it said, seems higher because of a very low base, premiumisation of screens and increase in advertising minutes.

“We expect ATP growth to probably accelerate a tad in the FY20-FY24 timeframe to catch up a bit with inflation, but we think both SPH and advertising rates will probably compound at slower rates than in the past. We believe that ad rates can increase the fastest among the three,” Nirmal Bang said.

What lies ahead for PVR, stocks?

Nirmal Bang has a target of Rs 1,788 on PVR and Rs 482 on Inox Leisure.

Edelweiss said the merged entity would have a dominating presence of 1,546 screens within the multiplex industry. The number three and four players – Cinepolis and Carnival – are much smaller in terms of screens (420 to 450 each) and have weaker markets, it noted.

“With renewed demand for cinemas, regional films gaining pan-India attention and a vacuum created by shutting down of 1000-odd single screens, the merged entity will come at the right time to take advantage of the positives in the industry. Recent poor performance of Hindi films is a concern. Maintain ‘buy’ with a target of Rs 2,106,” it noted.

The average price target for PVR at Rs 2,008 suggests a potential 11 per cent upside. Inox’s average target of Rs 611.50, on the other hand, suggests a potential 25 per cent upside, as per data available with Trendlyne.

(Disclaimer: Recommendations, suggestions, views, and opinions given by the experts are their own. These do not represent the views of Economic Times)