The Indian film industry is one of the largest globally with a renowned history. Since last year, big players in the industry like INOX, Carnival etc. started making acquisitions. Now another big player, PVR has acquired DLF’s DT Cinemas for Rs.500 crores on a slump sale basis.

The deal is subject to approvals.

PVR has announced that it will raise (subject to shareholder approval) INR3.5b (INR700/share) in fresh equity from Multiple Private Equity to fund this deal. This preferential allotment will result in 10.7% dilution in PVR’s equity.

About Companies: PVR Limited

PVR is the largest and the most premium film and retail entertainment company in India. Since its inception in 1997, the brand has redefined the way entertainment is consumed in India. It currently operates a cinema circuit comprising of 467 screens in 106 properties in 44 cities pan India. The subsidiaries range from the largest bowling chain in India, ‘PVR bluO’ to the two casual dining restaurants Mistral and Mr. Hong under PVR Leisure. The group under the arm of PVR Pictures is into film distribution of non-studio/ independent international films in India. The company is also known for cultivating and spreading international movie culture countrywide and supports independent filmmakers under the banner of ‘Directors Rare’.

Currently, amongst the top 10 cinema companies in the world with respect to admissions per screen, PVR has entered the World Economic Forum’s List of Fastest-Growing ‘Global Growth Companies’.

About Companies: DT Cinemas

DT Cinemas is the wholly owned subsidiary of the DLF Group. The Multiplex chain started its operations through its first Multiplex at DLF City Centre in Gurgaon with a belief to create a comprehensive retail experience for the Indian Consumers through the best retail entertainment. DT Cinemas has been showcased as the “Entertainment Anchor” for DLF malls by being the robust footfall driver. DT Cinemas have been screening movies since 2003 and is in sync with their customers’ needs to provide an ultimate movie experience.

With current operational cinemas at DT Star Cinema Saket, DT Star Cinema Vasant Kunj, DT Cinema Shalimar Bagh, DT Cinema City Centre and DT Cinema Mega Mall, DT Cinema Star Mall, Gurgaon, and DT Cinema, Chandigarh, they have 29 screens with an overall seating capacity of around 6000.

Valuation:

Consideration per screen & seat received –

Particulars
Consideration for the deal 500 crores
Number of Current screens of DT Cinemas 29
Consideration per screen 17.24 crores
Number of seats of DT Cinemas 6000
Consideration per seat 0.08 crores

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Particulars PVR (Rs. In Crores) DLF (from cineoperations) (Rs. In Crores) Consolidated
Gross Income as on 31.03.2015 1,477 *131.84 1,609
Number of screens presently 467 29 496
Gross Income per screen 3.16 4.55 3.24

*Revenue of DLF assumed to be decreased by 1.38% as it decreased in 2014.

There is a marginal increase in the income per screen compared with the income per screen of PVR.

PVR’s revenue increased from 1,271crores in 2014 to 1,477crores in 2015 i.e. by 16.25%

Why deal aborted in 2009?

PVR Announced the Acquisition of DT Cinemas

In November 2009, PVR entered into an agreement to acquire DT Cinemas in cash and stock worth Rs 20.2 crores and allotment of 25.57lakh shares of PVR  ( at Rs 150 per share it comes to Rs 38.55 crores)to DT Cinemas which comes to approx. 60 crores of total consideration.

Consideration per screen –

Particulars
Consideration for the deal 60 crores
Number of Current screens of DT Cinemas 26
Consideration per screen 2.31 crores

DLF did not increase the number of screens since November 2009 perhaps the same was not its core business and the same was done as part of its various township project. Revenue from the said business for FY  2009 was just 13 crores and FY 2010 the same was above 51 crores .PVR & DT Cinemas had entered into the Business Transfer Agreement dated 13th November 2009. The agreement stood automatically terminated if conditions precedent to the acquisition were not satisfied within 60 days or extended period mutually agreed by both the companies.

The conditions precedent to the acquisition were not satisfied even within one extended period & hence acquisition was terminated.

Slump Sale of the undertaking:

As DLF earlier and now wanted to exit this business as the same being, not its core business. Further, as on 31.03.2015, long-term borrowings of DLF are Rs. 63,547 crore. And in any case, it needs to deleverage, as PVR wanted to expand it needs to raise both debt and equity and hence it is financing the same by raising debt and equity both in the ratio of 1:2. PVR as on date also has interest coverage ratio of just above 2 and hence it has diluted more equity notwithstanding it is getting in the process lower revenue and revenue per share post acquisition.   Further integration of businesses posts-acquisition will be faster as compared to any other structure.

Conclusion:

This is a win-win deal for both the companies. For DLF it is an exit from the non-core business at 8times the valuation as compared to valuation agreed in 2009 and will get cash to retire some of the costly loans through impact may not be significant. For PVR its strategic and quick scale-up of operations with entry into lucrative geography i.e.  Delhi, Gurgaon & Chandigarh. Presence in those areas is the advantage for PVR. Secondly, the acquisition gives PVR the right of first refusal in malls that DLF will develop in future. The deal will create substantial value for PVR,

  1. If it is able to integrate its business ,
  2. Is able to sell its other services in these newly acquired cinema screens ,
  3. Optimally utilise facilities and
  4. In the process generate at least 100 CR EBITDA from these new acquisitions.
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