PVR expands its reach in the south Indian market. It will acquire SPI Cinemas for a total consideration of total Rs 1,003 crore. Ajay Bijli, CMD, PVR spoke at length about the same.
PVR Cinemas will issue 1.6 million shares to SPI Cinemas, said Bijli, adding that Rs 100 crore will be released post the regulatory nods.
“In such a large transaction mostly all CPs are always met but one or two things are always something that can be done only post transaction," said Bijli.
“1.6 million equity shares have been issued which is part of the deal, those are not milestone linked or anything like that. It’s subject to merger, when the merger gets approved- that’s the time these shares will be issued. Roughly 3 percent equity will be held by the current promoters of SPI,” he added.
Edited Excerpt:
Q: Tell us about the revenue and margin synergies that you see from this particular acquisition and your comments on how this is going to be earnings accretive from year one?
A: It (SPI Cinemas) is already running a business with 68 screens operational. They do a turnover of about Rs 300 crore and going forward it will be about Rs 400 crore. It is a very profitable circuit, in fact their EBITDA margin is 20.4 percent and they reported an EBITDA of Rs 63 crore last year going up to Rs 90-100 crore next year. So its value accretive because it’s straightaway a profitable circuit that we are acquiring.
Q: I want a couple of more details on the internals – the total cash consideration is around Rs 633 odd crore, we understand. Funding is via debt of around Rs 150 odd crore, an internal accruals but the presentation does say there is Rs 100 crore which is deferred based on some certain milestones. What are those particular milestones and in case of that what are the milestones for the issue of shares for that balance 28 percent stake. Take us through that?
A: There is nothing like that. In such a large transaction mostly all CPs are always met but one or two things are always something that can be done only post transaction. So those are the milestones which once they are achieved, this Rs 100 crore will also be released.
As you righty said, 1.6 million equity shares have been issued which is part of the deal, those are not milestone linked or anything like that. It’s subject to merger; when the merger gets approved that’s the time these shares will be issued. Roughly 3 percent equity will be held by the current promoters of SPI.
Q: Could you talk to us about the expected revenue performance, margin profile etc. that you expect from SPI. Overall impact on PVR’s revenues and margins as well?
A: Basically Rs 2,800 crore is FY18 revenues and the EBITDA would go up to Rs 550 crore. Going forward we are looking at, if we go by the current run rate, the EBITDA will be Rs 100 crore of SPI and PVR’s, it’s just first quarter is over, so we are looking at a good consolidated number going forward.
Q: The one-off margin impact for PVR in FY19 as you bring this chain into PVR?
A: As I said both companies are running at a good EBITDA margin. We finished our year with 18.3 percent last year and SPI finished with 2.4. So the margins are only going to improve because they are at a very high occupancy of 58 percent, PVR at 32 percent.
South Indian market in any case is very movie friendly. There is a huge content diversification that happens over there. 50 percent of the overall box office revenues in India come from south Indian films which is Telugu, Tamil, Kannada and others. So the number of people who visit cinemas in south India and the number of movies that get watched over and above Bollywood as well as English is much more. So keeping that in mind it is going to be value accretive acquisition.
Q: On the food and beverage (F&B) side, could you tell us your expectations now from the Mumbai High Court with respect to outside food. We know that the Supreme Court has stayed the J&K High Court order.
A: It’s a sub judice matter and this call is not about the F&B matter, so I would like to restrict myself to SPI.
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