Harsh impact of COVID-19 leads two big multiplexes PVR and INOX to come together to save their castles

• Two big multiplexes PVR and INOX Leisure have decided to merge and thereby create the largest film exhibition company in India.
• The combined entity will operate 1,546 screens across 341 properties and 109 cities.
• Analysts say this merger was the last resort for multiplexes to continue doing this business at a time when they have been losing out to OTT behemoths.

COVID-19 had left multiplexes with very little business alongside the growing popularity of over-the-top (OTT) platforms, which has now led to old competitors becoming partners.

Two big multiplex chains, PVR and INOX Leisure, have decided to merge and thereby create the largest film exhibition company in India.

The combined entity will be named as PVR INOX with branding of existing screens to continue as PVR and INOX respectively. New cinemas opened post the merger will be branded as PVR INOX.

The combined entity will become the largest film exhibition company in India operating 1,546 screens across 341 properties and 109 cities.
(Source: BSE statements)

“The partnership of these two brands will put consumer at the centre of its vision and deliver an unparalleled movie going experience to them. 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,” Ajay Bijli, chairman and managing director of PVR said in a BSE statement.

Further, Ajay Bijli would be appointed as the managing director and Sanjeev Kumar, director of INOX Leisure would be appointed as the executive director.

Analysts say this merger was the last resort for multiplexes to continue doing this business at a time when they have been losing out to OTT behemoths.

“Multiplex business is [a] very tough business with high capex [capital expenditure] and high fixed opex [operating expense]. Even in a fast-growing market like India, the multiplexes have been struggling to generate free cash flows. The business model in its current form is that of a glorified QSR [quick service restaurant] since more than 80% of the profits come from the sale of high-priced food and beverages. The movie screening business is break-even at best. Advertising revenues are limited to local area advertisers and some standard government ads,” said Abhay Agarwal, founder and fund manager at Piper Serica, a portfolio management service (PMS) provider.

Agarwal added, “Footfalls are completely dependent on the quality of new releases, and the multiplexes have no control over that. Most importantly, they have been losing out to international OTT behemoths in terms of the release of new content. Therefore, this merger of PVR and INOX should be seen as a last resort defensive step to drive cost efficiencies.”

You can disagree with me but can’t deny this. Multiplexes will create huge wealth for investors. My explanation : 1. Industry moving to Duopoly, many mergers on cards.2. Single screens are shutting & the ones left are struggling3. Movie remains the largest source of entertainment for Indians4.Covid lead to better rental negotiation with malls.5.F&B contributes 50% of the revenue, reducing topline risks. One may say viewership will move to OTT, which I won’t deny. Movies only for OTT will be carved out for sure. Stocks have plunged upper circuit in pre market today, more upside possible in $PVR if closed above 2085 and $INOXLEISUR.NSE trading at 52 week high now.

— (@Swapnilkommawar) March 28, 2022

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