DLF sells multiplex chain to PVR

Leading theatre chain PVR Ltd announced a cash-and-stock deal to buy out realtor DLF group's national multiplex chain, DT Cinemas.

Under the deal, PVR (with an annual turnover of Rs 387 crore) will issue 2.5 million  shares to DT Cinemas representing 10 per cent of PVR's fully diluted paid-up capital. This values the shareholding at Rs 32.2 crore (Rs 322 million), given its current market capitalisation of Rs 322 crore (Rs 3.22 billion).

PVR will also pay Rs 20.2 crore (Rs 202 million) for the acquisition, putting the deal value at roughly Rs 50 crore (Rs 500 million).

Meanwhile, PVR is also selling 10 per cent to a Thailand-based entertainment company Major Cineplex Group (which runs 350 multiplex screens) for around Rs 42 crore (Rs 420 million) by subscribing to 2.5 million new PVR shares.

The investment by Major Cineplex Group will be made at Rs 165 per share, a 19 per cent premium over PVR's closing stock price of Rs 139 on the National Stock Exchange on November 12. PVR's share went up 1.12 per cent closing at Rs 138.25 on the Bombay Stock Exchange.

The company is also planning to raise Rs 50 crore (Rs 500 million) to Rs 60 crore (Rs 600 million) as debt to finance the expansion, which includes adding 75 to 80 screens in the next 18 months.

Ajay Bijli, Chairman and Managing Director PVR said, "The acquisition of DT Cinemas and long-term strategic partnership with the prestigious DLF Group is part of our expansion strategy and will enhance PVR's position as a leading multiplex operator in the country."

Asked whether PVR's revenues would be cannibalised since PVR screens are located close to DT screens in many areas, Nitin Sood, CEO of PVR said: "The market in Delhi is big enough and in south Delhi we can do with two or three more properties in the same location."

The deal will enable PVR to control over 138 screens India-wide, which amounts to a 20 per cent national share. The acquisition will also help PVR close the gap between it and Anil Ambani-promoted Big Cinemas, which has over 200 screens, and widens its lead over Inox which currently runs over 105 screens and has been closing in on PVR (see table).

All the DT screens will be rebranded PVR within the next two months. PVR currently runs 26 cinemas with around 108 screens across 14 cities.  DT Cinemas has a portfolio of 29 screens, with 26 currently operational and another three screens expected to start operations in the next six months.

These are located in Delhi, Gurgaon and Chandigarh. All the acquired cinemas are on long-term lease in various mall developments owned and operated by DLF Group.

As part of the overall alliance, PVR will be offered exclusive rights to operate as a key anchor multiplex partner in all future mall developments by the DLF Group. DLF has a string of future mall developments planned in key markets in Delhi (Chanakya Puri), Mumbai, Chennai, Hyderabad, Noida, Jalandhar and Lucknow.

The deal will also ensure the domination of PVR in the Gurgaon-Delhi region, where it will now control 60 to 70 per cent of the market.

Says Vishal Kapur, chief operating officer of Fun Cinemas promoted by the Essel group, which competes with PVR: "It is a clear example that the industry will have to consolidate and it is good because there will now be only a few serious players in the game."

Avers an analyst: "It takes Rs 1.5 crore (Rs 15 million) to 2 crore (Rs 20 million) to build one screen, so PVR would have to fork out around Rs 60 crore to reach the same numbers which it has got after acquiring DT. And executing so many screens would have also taken time."