Mr. Jinesh Joshi, Research Analyst at Prabhudas Lilladher
- PVR and Inox merger will create a multiplex behemoth with a network of 1,500+ screens across India. Swap ratio is 3:10 (3 shares of PVR for 10 shares of Inox).
- Post-merger, board will be reconstituted and will have 10 members. Both promoter families will have equal representation on board with 2 seats each.
We believe PVR and Inox merger is a win-win situation as it would lend invincible size advantage to the combined entity (pre-COVID screen/BO market share of ~46%/30% respectively) and result in material revenue & cost synergies by improving bargaining power with film distributors, real estate developers, ad-networks and ticket aggregators. Merger will relegate competition to backyard (Carnival & Cinepolis have ~400 screens each) and would further strengthen the size advantage as combined entity plans to add ~200 screens each year. For merged entity we expect revenues, pre Ind-AS EBITDA and pre Ind-AS PAT of Rs72.6bn/Rs14.6bn/Rs6.6bn in FY24E. Given the impending synergy benefits we assign EV/EBITDA multiple of 15.5x to our proforma FY24 EBITDA of merged entity and arrive at a TP of Rs2,224 per share. Implicit TP of Inox from the given swap ratio turns out to be Rs667 per share. Possible challenge in seeking CCI approval is a key risk to merger.