Incorporating Merger of PVR Limited and INOX Leisure Limited

PVR Inox Ltd recently unveiled its financial performance for the second quarter of FY 24, while also highlighting the synergy benefits stemming from the merger of PVR Limited and INOX Leisure Limited that took effect on 6th February 2023. The company expressed confidence in delivering a significant portion of merger synergies in FY 24. Ebitda synergy in the range of ₹124 Crore to ₹143 Crore became evident during the first half of FY 24. Ebitda, or earnings before interest, tax, depreciation, and amortization, is a critical financial metric.

According to PVR Inox, the integration process has proceeded smoothly, leading to substantial operational efficiencies. Notably, synergy benefits have also been realized in overhead costs, encompassing personnel, housekeeping, and security, amounting to ₹17-21 crore during the first half of FY 24.

Operational Efficiency and Per Screen Savings

During the first half of FY 24, PVR Inox reported per-screen savings ranging from ₹1,04,000 to ₹1,28,000. These figures are based on an average screen count of 1,656 screens during this period. Remarkably, the increase in overhead cost per screen was a modest 2.6% year-on-year, rising to ₹2.44 million (₹24.4 Lakhs) during the first half of FY 24 compared to ₹2.38 million during the first half of FY 23. This uptick was notably lower than the 7-8% rise in overhead costs that would have been expected before the merger.

Ebitda Synergy Benefits and Financial Gains

PVR Inox reported significant Box Office Ebitda synergy benefits of ₹75 to ₹84 crore during the first half of FY 24. In the same period, Food & Beverage synergy Ebitda synergy benefits ranged from ₹31 Crore to ₹38 crore. Moreover, Overhead Cost Synergy contributed ₹17 Crore to ₹21 crore to the overall Ebitda synergy benefits for PVR Inox.

Jinesh Joshi, Research Analyst at Prabhudas Lilladher, commended the encouraging synergy benefits reported by the company. PVR Inox’s strong performance in the quarter ending September, particularly its operational performance, was impressive.

Share Price Dynamics

It’s worth noting that the PVR INOX share price appeared to already factor in robust box office collections, reflecting the positive outlook for the company.

Strong Growth and Expansion

PVR Inox, a major multiplex chain operator, reported a net profit of Rs166.3 crore for the second quarter of FY 24, a substantial improvement compared to a loss of ₹82 crore in the first quarter of the fiscal year. The company’s revenue in Q2 surged by 53.3% to ₹1,999.9 crore, up from ₹1,305 crore in Q1.

PVR INOX has maintained a strong growth momentum, with the addition of 37 new screens in 7 cinemas during the quarter and a total of 68 new screens in 12 cinemas in H1 FY 24. Additionally, by exiting 33 underperforming screens during H1 FY 24, the company remains focused on profitable expansion.

Positive Outlook and Merger’s Market Dominance

Indian Ratings had previously expressed a positive outlook for the merged entity, reflecting expectations of Ebitda recovery and an enhanced credit profile over the next 12-18 months. The rating agency believes that the merged entity, PVR INOX, possesses a dominant market share in the Indian movie exhibition industry. This higher scale of operations is expected to improve revenue efficiencies and optimize overall cost structures. Furthermore, the merged entity is likely to enjoy greater bargaining power in negotiations related to revenue and cost elements such as box office collections, rental rates, advertising rates, and convenience fees, all of which are anticipated to support the recovery in operating profitability for PVR Inox.

In summary, PVR Inox’s financial performance, following the merger and operational improvements, indicates a promising trajectory for the company, with the synergy benefits being a notable highlight in the first half of FY 24.