PVR eyes Cinemax promoters’ stake

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Talks on: PVR could shell out about Rs 480-500 crore for the promoter’s stake alone. A view of Cinemax at Hyderabad. — P.V. Sivakumar
Talks on: PVR could shell out about Rs 480-500 crore for the promoter’s stake alone. A view of Cinemax at Hyderabad. — P.V. Sivakumar

Deal will make PVR the largest multiplex player

Multiplex player PVR on Tuesday informed the Bombay Stock Exchange that it was in talks with the promoters of Cinemax India for a potential purchase of their shares in the company, but has not inked any definitive agreement yet.

The two have been in talks for sometime now. While Cinemax has been saying that it is in talks with various players, this is for the first time PVR has made an official statement. According to market estimates, PVR could shell out about Rs 480-500 crore for the promoter’s stake alone.

Cinemax’s Rs 5 shares ended up 1.83 per cent on the BSE to close at Rs 175.50, while PVR’s Rs 10 shares were down 3.42 per cent at Rs 236.90. Cinemax’s promoters hold a 69.27 per cent stake in the company.

Analysts believe the acquisition will help make PVR the leading player in the multiplex business. However, they also cautioned that PVR should ensure that it does not overpay for this deal. Cinemax India currently operates 140 screens across 40 locations, while PVR has about 213 screens.

Brand positioning

Amit Patel, analyst at Angel Broking, said, “PVR has had ambitious plans of setting 500 screens in the next few years. With their current screen footprint of about 213 screens, acquiring Cinemax will help them become the number one multiplex player if the acquisition deal goes through.”

He said that positioning of Cinemax’s multiplexes is similar to PVR’s positioning.

But added that the big question will be whether the company will operate Cinemax screens as a separate brand or rebrand those cinemas.

Smita Jha, Leader- Entertainment & Media Practice at PricewaterhouseCoopers India, said: “An inorganic opportunity for buying operating screens in prime locations is extremely attractive for any player in this business.

“To build new screens is a challenging task as location availability, assembling quality screens as well as securing distribution are daunting tasks and require long gestation period.”

Analysts also said that PVR has been strong in the Northern region and acquiring Cinemax will make it strong in the western region too.

However, another analyst who tracks the company, but did not wish to be identified, said that at the speculated price at which PVR is likely to acquire Cinemax could work out to be an expensive deal.

“Multiplex business is sensitive to occupancies and takes time to generate profits. Thus, acquiring Cinemax at such a high price could stretch PVR’s balance sheet.”

According to FICCI-KPMG estimates, the industry is expected to double the screen count to 2,200 by 2016.

(This article was published on November 27, 2012)
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