Mumbai: PVR Ltd, India’s largest multiplex operator by number of screens, is in talks to buy Chennai-based SPI Cinemas (formerly known as Sathyam Cinemas), said three people aware of the negotiations.

The development underlines the continuing consolidation in the cinema exhibition sector.

“Chennai is a strong market where occupancy is more than 70% at all times. The company has initiated talks," said one of the persons mentioned above, adding valuations for the deal may be around 10 times earnings before interest, taxes, depreciation and amortization (Ebitda), in line with similar transactions in the cinema space.

Negotiations are underway, the second person quoted above said, declining to give further details.

In an emailed response, PVR said, “We have no comments. This is complete speculation and as a responsible organization, we refrain from commenting on these."

An email sent to Kiran Reddy, chairman of SPI Group, on Thursday evening went unanswered. Reddy could not be reached on phone till press time.

The SPI Group currently runs a cinema exhibition, distribution and production business.

According to the company’s website, under its cinema exhibition business, it has five brands of theatres—Sathyam, Escape, Thecinema, S2 Cinemas and Luxe. Overall, the group operates around 56 screens, mainly in Tamil Nadu and with a few in Andhra Pradesh.

PVR, with 454 screens in 102 locations across 43 cities, is the largest cinema exhibitor in terms of screens. Of these, 204 screens are in western India, 133 in the north, 98 in the south and 19 in the east.

“Over the last two years, the south market is looking good and ticket sales have picked up, and occupancy levels have been consistently over 70-75% in this region. If PVR acquires this asset, it would be a good acquisition because it intends to double its capacity in the next four-five years," said a research analyst with an international brokerage who did not want to be identified, adding that production houses are increasingly looking at targeting regional markets in south India.

According to a 4 November research report by Standard Chartered Securities (India) Ltd, PVR has taken an enabling resolution to raise 500 crore in equity to fund inorganic growth opportunities. “While not averse to an inorganic growth strategy, we believe any irrational acquisition will lead to a significant de-rating of PVR," said the report. In the first half of this fiscal, PVR has opened 33 screens and it expects to open 65-70 more during the rest of the fiscal.

According to the Standard Chartered report, PVR and Inox Leisure Ltd, India’s second largest cinema operator in terms of screens, together command close to 50% of the screens in India’s multiplex sector.

PVR is not alone in looking at the inorganic route for growth in cinema exhibition. On 30 July, Inox acquired Delhi-based Satyam Cineplexes Ltd for 182 crore. With the acquisition, Inox expanded its presence to 50 cities, with 91 multiplexes and 358 screens. Inox had said the acquisition of Satyam was part of its strategy to expand its footprint across the country and gives it a significant foothold in northern India.

The acquisition was the third for Inox in less than a decade. In 2007, it acquired Calcutta Cine Pvt. Ltd, heralding the consolidation phase in the multiplex industry. In 2010, it acquired Fame India Ltd.

Smaller rival Carnival Films Pvt. Ltd (Carnival Cinemas) acquired Broadway Cinemas from Mumbai-based real estate developer Housing Development and Infrastructure Ltd on 3 July for an undisclosed sum.

In November 2012, PVR had acquired Mumbai-headquartered Cinemax Ltd from its promoters for 395 crore.

“The consolidation in the multiplex industry has been going on for a while and this activity will continue. Transactions are not region-specific but as industry evolves, there will be fragmentation," said Jehil Thakkar, head of media and entertainment at KPMG.

Thakkar added that while globally, transactions happen at six times Ebitda, in India some transactions have been concluded at 10-11 times Ebitda. “Globally, the multiplex business is growing at a slower rate but in India, acquisition allows players to scale up quickly and increase ticket prices," Thakkar added.

S. Bridget Leena in Chennai contributed to this story.

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