PVR rating – Buy: New entrant to have negligible impact on firm

Cineline re-entry as exhibitor to affect PVR’s Ebitda by just 2%; ‘Buy’ rating retained

PVR currently has 158 screens in Maharashtra and a total of 855 screens.
PVR currently has 158 screens in Maharashtra and a total of 855 screens.

Multiplex Industry is all set to see a new entrant. Cineline India Ltd (part of Kanakia Group), is re-entering the film exhibition business in Q1FY23 (under a new brand) through nine properties with 23 screens. PVR had acquired 135 Cinemax movie screens in 2012 for Rs 3.95 bn. Out of this, 23 screens were owned properties of Kanakia Group, which PVR had leased till March 2022. Since lease is coming to an end and the non-compete clause has ended, PVR will lose these screens to Cineline. The impact on PVR will be negligible: 2% on Ebitda. In our view, the multiplex industry is essentially a duopoly, and we do not anticipate any significant ramp up by non-core players.

Event and rationale of re-entry: It is surprising to see Kanakia Group re-enter given: (i) they earlier felt the multiplex industry is a game of consolidation; (ii) they wanted to focus on core business of real estate and hospitality. They were present in the film exhibition business for 15 years through the ‘Cinemax’ brand. In 2012, the company had sold its multiplex business along with the Cinemax brand to PVR and had leased out nine properties with 23 screens to PVR in Mumbai, Thane, Nashik, and Nagpur. In light of weakening industry dynamics for the unorganised and single-screen players, there is a tremendous opportunity for organised players to take the market share.

Limited impact on PVR but Maharashtra is number one market: PVR currently has 158 screens in Maharashtra and a total of 855 screens. So these 23 screens will account for ~3% of its total screens and 14% of its Maharashtra screens. However, it is important to note Maharashtra is India’s largest market for films; so PVR will need to ramp up to come back to its dominance in this market.

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