Mumbai: Carnival Films Pvt. Ltd, backed by a Kochi-based commodity trader, has agreed to acquire a 100% stake in multiplex operator Big Cinemas, a division of tycoon Anil Ambani’s Reliance MediaWorks Ltd, for around 700 crore in a deal that will further consolidate the movie exhibition industry.

The transaction will reduce its debt by approximately 700 crore, through a combination of transfer of debt of Reliance MediaWorks and infusion of cash proceeds, Reliance Capital Ltd said in a statement on Monday.

The deal excludes real estate owned by Reliance MediaWorks at IMAX Wadala and other properties that the company intends to separately monetize for an approximate value of 200 crore.

“Reliance Capital will have the option to acquire a pre-initial public offer (IPO) minority stake in Carnival Cinemas at an appropriate discount, upon eventual listing of the company," it said in the statement.

Carnival Films may be close to acquiring a majority stake in multiplex operator Big Cinemas, Mint reported on 10 September, citing unnamed people.

This deal is the fourth transaction in the movie exhibition business in six months, as multiplex operators seek consolidation, partly to increase their bargaining power with film producers and distributors, and to gain a bigger share of box office receipts in India’s 9,200 crore movie industry.

Inox Leisure Ltd, India’s second largest multiplex operator, acquired Delhi-based Satyam Cineplexes Ltd for nearly 240 crore, paying 182 crore in cash and taking over its debt in a deal that expanded Inox’s presence to 50 cities, with 91 multiplexes and 358 screens; Housing Development and Infrastructure Ltd (HDIL) sold its multiplex business Broadway Cinemas to Carnival Cinemas, and Mexican multiplex chain Cinepolis bought Fun Cinemas, the multiplex chain promoted by Shubhash Chandra’s Essel Group through E-City Ventures.

“It would be fair to say that the demand-supply equation has pushed the multiplex business valuations a couple of notches higher. From six-eight times earnings before interest depreciation tax and amortization (Ebidta) to now up to 10-12 times. The need for consolidation in this consumer space is being felt by all the acquirers. Players are fundamentally betting on two things. First, the fact that the consumer space is picking up and it will continue to do so and drive average ticket prices (ATP) and per-head spends on food and beverages (F&B) higher," said Vivek Gupta, a partner with BMR Advisors, a consultancy firm. “And second, players are expecting that with introduction of GST (goods and services tax), entertainment tax will get rationalized and that would add to the profitability of these companies."

The proposed transaction will catapult Carnival, promoted by Asian Business Connections Pvt. Ltd, to the ranks of the top three multiplex operators in the country, with over 300 screens nationwide, the joint statement on Monday said.

“We are targeting to achieve 1,000 screens by the year 2017, and look forward to the continued support of Reliance Group in our future growth," said Shrikant Bhasi, chairman, Carnival Group. “Carnival Cinemas will not only make its presence in Tier I (cities), but also lay emphasis for strong presence across Tier II and III cities. We want to make cinemas synonymous to Carnival."

Bhasi said Carnival will take over the complete debt of Big Cinemas and pay some part in cash as a part of this acquisition.

“We are planning to fund this transaction by way of promoters’ contribution and some equity infusion by private equity firms. We are talking to a leading Singapore-based private equity firm to sell a minority stake to fund this deal. We are in the final stages of discussions on equity sale," Bhasi said.

The proposed transaction is subject to necessary statutory and other approvals and is expected to be closed within the current fiscal year. EY advised the Reliance Group, and KPMG the Carnival Group.

Bhasi said his company would spend around 800-900 crore to add 500 more screens by 2017.

Carnival had started its operations with just four screens in Angamaly in Kerala. Until July, Carnival had a presence in the southern region, mainly in four cities of Kerala, Tamil Nadu and Karnataka. After it bought multiplex business Broadway Cinemas from HDIL in July, it now operates 75 screens.

In July, Reliance MediaWorks merged its global film and media business with media and entertainment services provider Prime Focus Ltd, and both the companies infused 120 crore into the merged entity through preferential allotment of shares.

On Monday, shares of Reliance Capital ended at 520.85 on BSE, down 0.9%, while the benchmark Sensex index fell 0.11% to close at 27,319.56 points.

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