Short Takes

GSK Consumer surges

On Monday, promoters of GSK Consumer Healthcare announced an open offer to buy 31.8 per cent of the public shareholding at Rs 3,900, a 28 per cent premium to the market price on Friday’s close. The resultant scrimmage to buy the stock sent it up 20 per cent to hit the upper circuit for the day.

Post the offer, promoter holding in the stock would reach 75 per cent, the maximum allowed by the SEBI. But the stock’s surge left limited gains for those investors who wished to buy the stock in order to participate in the open offer.

Further, investors would not be able to sell their entire holdings. The ratio between the shares likely to be mopped up in the offer and that held by the public is an approximate indicator of how much of holdings an investor would be able to offload. In the case of GSK Consumer, an investor would be able to sell about 56 shares in the open offer for every 100 held.

So once the offer closes, 44 per cent of their holdings would remain with the investors. Performance of this holding then depends on stock behaviour after the open offer. While consumer stocks are still in the limelight, slowing volumes, prices of agricultural inputs inching up, and high valuations may cap further huge gains in these stocks.

PVR-Cinemax deal

Multiplex operator PVR’s decision to buy a majority stake in another peer — Cinemax — has been welcomed by the markets in light of the scale and reach that the deal would provide for the former.

The stocks of both the companies, especially Cinemax, have skyrocketed over the past month.

Post-PVR’s acquisition of a 69.27 per cent stake in Cinemax for Rs 395 crore, the number of screens of both the companies put together would stand at 351 in 85 locations, making it the largest multiplex operator in the country. This puts it ahead of large peers such as Big Cinemas and Inox-Fame, by at least 90 screens, and is likely to strengthen PVR’s ticket collections. An enhanced presence aspect becomes very important as many Hindi movies have once again begun grossing Rs 100 crore plus at the box office.

Although PVR is a larger player compared to Cinemax, the latter operates at a higher EBITDA margin (23 per cent). This makes the acquisition lucrative and may justify the premium price paid for the deal.

Although PVR generates a higher ATP (average ticket price) of Rs 164, viewers in Cinemax spend almost the same amount on a per head basis (Rs 44) on food and beverages.

The deal has also been structured in such a way that PVR would not have to incur significant debt as L-Capital and Multiples — two existing investors in PVR — would fund a bulk of the amount required to fund the acquisition.

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