Inox in talks to buy smaller rival Satyam Cineplexes4 min read . Updated: 30 Jun 2014, 12:06 AM IST
Inox Leisure will sell treasury stock to raise funds for the acquisition that may be valued at `220 crore
Mumbai: Inox Leisure Ltd, India’s second largest multiplex chain, is in talks to buy Satyam Cineplexes Ltd in a transaction that may be valued at ₹ 220 crore, signalling further consolidation in the movie exhibition business.
Inox Leisure will sell treasury stock to raise funds for the acquisition, said three people familiar with the transaction, including two bankers who had sought the mandate to raise funds for the acquisition. Yes Bank Ltd has been given the mandate to sell the treasury stock and look for acquisitions. A fourth person who was approached by Inox Leisure for funds also confirmed that talks were on.
The acquisition of Satyam Cineplex will strengthen Inox Leisure’s presence in North India, a territory that is dominated by larger rival PVR Ltd. Ajay Bijli-controlled PVR overtook Inox by acquiring Cinemax India Ltd in November 2012 to become the largest multiplex operator in India.
“PVR is the dominant player in the northern region and clearly Inox wants to enter that market. Also, the best way to increase their exposure is to go and directly buy the asset rather than put in time and effort to build these properties," said one of the people cited above. “Satyam has a strong presence where Inox is weak. It is logical for Inox to look at Satyam for the next level of growth."
New Delhi-based Satyam Cineplexes is likely to be valued at ₹ 220 crore, said an executive directly involved in the transaction, who is one of the four people cited above.
Inox, Satyam Cineplexes and Yes Bank did not respond to emails and phone calls seeking comment.
Satyam Cineplexes has a total of 38 screens, including three four-screen multiplexes in New Delhi. The company’s other multiplexes are located in Indore, Jodhpur, Aurangabad, Rohtak and Mysore. It is in the process of opening screens in Amritsar, Bhilwara and Bangalore. In comparison, Inox Leisure operates 310 screens in 43 cities, according to an analyst presentation given by the company on 28 May. PVR had 421 screens at the end of March.
Multiplexes account for approximately 25% of the total number of screens in India, where there are just eight screens per million people, according to a March 2014 report by consulting firm KPMG. That compares with 117 per million people in the US. “Given the low screen penetration, India has the potential to significantly increase the number of existing multiplex screens in the country over the next decade without causing an oversupply of screens," KPMG had said.
An analyst with a foreign brokerage, who did not want to be identified, said the management of Inox had indicated that it is actively evaluating acquisitions. “It has a healthy balance sheet which can support these acquisitions and further they are looking to raise capital by selling their treasury stock. Also, unlike PVR, which is looking for only leased assets, Inox has its own real estate assets and is comfortable with that," he said.
Inox Leisure’s annual profit doubled to ₹ 36.93 crore in the year ended 31 March from ₹ 18.45 crore in the previous year. Revenue rose to ₹ 877.77 crore from ₹ 768.91 crore in the previous year. The company’s net debt was at ₹ 233 crore as on 31 March 2014. The value of its treasury stock would offset the debt, the management had indicated in a conference call with analysts on 28 May.
Inox made its first acquisition in 2006, when it bought Calcutta Cinema Pvt. Ltd to increase its footprint in the eastern market. With the 2011 acquisition of Fame India Ltd, Inox became the largest multiplex operator in the country.
Multiplex operators spend approximately ₹ 2.5 crore to set up a screen in Metro cities, and ₹ 1-1.5 crore in smaller cities, according to analysts.
Big Cinemas, the third largest multiplex operator in India in terms of number of screens, is looking to expand its presence in the southern region. The company has 516 screen spread across India, the US and Malaysia.
The company is in talks to acquire assets in the southern region, according to a person familiar with its acquisition strategy. An email sent to Big Cinemas went unanswered.
HDIL Entertainment, a fully owned subsidiary of HDIL, launched a chain of multiplexes under the brand name Broadway. According to its website, HDIL Entertainment has 13 screens and has plans to set up around 150 screens in major cities. Carnival Cinemas has a presence in four cities in Kerala, Tamil Nadu and Karnataka.
“We are in talks with Carnival Cinemas. Nothing has been finalized. The transaction is at least three months away," said a senior HDIL Entertainment executive, requesting anonymity.
Emails seeking comments from Carnival Cinemas did not elicit any response.