Enhanced integration: Inox Leisure offers 20%, hitting a record high; PVR jumps by 10%

Shares of PVR and Inox Leisure surged 20 percent in BSE in intra-trade Monday after we announced the merger between the two major multiplex owners, in a full-share merger of Inox with PVR. Inox shareholders will receive three shares of PVR for 10 shares of Inox.

In trades so far, Inox Leisure hit a record high of Rs 563.60, up 20 per cent in intraday trade. The stock has breached its previous high of 510.80 rupees touched on February 25, 2020. As of 09:17 am, the stock was trading 15 per cent higher at 540 rupees, compared to 0.06 per cent on the S&P BSE Sensex.

Meanwhile, PVR rose by 10 per cent to Rs 2010, which is also a 52-week high in BSE. The stock moderately trimmed its gains and rose 5 per cent at Rs 1,925.25 later. It hit a record high of 2,081 rupees on February 20, 2020.

After the merger, the PVR promoters will own 10.62 percent of the stock while the Inox promoters will have a 16.66 percent stake in the combined entity with equal representation on the two-seat board of directors for all of the promoters’ entities on a 10-member board. The merged entity will be named PVR INOX Limited with the existing screens being branded to continue as PVR and INOX respectively. The new cinemas will open after the merger as PVR INOX.

The combined entity will become India’s largest film exhibition company with 1,546 screens, with a market share of around 50 per cent of the multi-display market share and a box office collection market share of 42 per cent.

The main synergy for both companies will be the ability to bargain costs (particularly rent) as they compete for premium space as well as revenue such as advertising. [wherein Inox whose normalised (pre-covid) ad/screen/annum was at Rs 29 lakh vs. Rs 44 lakh for PVR ~36 per cent discount] Or a 6-7 percent ATP discount between Inox and PVR, which could catch up, ICICI Securities said in a note.

Furthermore, they will have a higher leverage in favorable fee deals (with Bookmyshow and Paytm) and distribution revenue. It is also possible to make some administrative cost rationalization when overlaps occur. Even a merged entity targeting multiple and subsequent market value can be reset given the superior market share and access and synergies mentioned above.

Although target company (Inox) turnover is less than Rs 1,000 crore, the merger may get a “minimum CCI approval exemption”, the roadblocks will be a CCI pass, if assessed on the market share screen (since it has more than 50 Per the brokerage firm said the cent share in multiplex screen in most states) or revenue is normal.

Valuation on a standalone basis is largely fair, but the combined entity’s valuation could be 25-30 percent higher based on 1) synergies on different metrics as mentioned above and 2) reclassification due to the large size of the entity, analyst at Elara Capital He said.

In terms of management control, we believe it would bode well if PVR had control in the early years as the latter had a better branding against Inox stock; We need to watch in terms of who controls in the medium to long term. The brokerage said that, as indicated by the exchanges, both promoters will now have equal seats on the entity’s board of directors.

Technical View – Inox Leisure

Bias: Uniformity likely

Support: 490 rupees

Resistance: Rs 575

The stock has been trading with a positive slope since early February 2022. However, after today’s sharp 20 percent rally, the stock has reached overbought territory, so it may see some consolidation.

According to the daily charts, the general bias is likely to remain bullish as long as the stock is trading above the Rs 490 level. The weekly charts are also pointing to support in the range of Rs 480-490 single levels. On the upside, the stock is approaching resistance at Rs 575 as shown on the annual Fibonacci chart, above which the next significant hurdle is placed at Rs 660.

Among the major momentum indicators on the daily charts, the 14-day Relative Strength Index (RSI) has entered the overbought territory, and the Slow Stochastic has provided a slight negative divergence. Thus, some calming down in the share price cannot be ruled out. However, DI (Direction Indicator) and MACD (Moving Average Divergence Divergence) are still in favor of the bulls.

Technical Presentation – PVR

Bias: Uniformity likely

Subsidy: 1,890 rupees

Target: 2,125-2,150 rupees

PVR shares are up as much as 35 per cent in the last 15 trading sessions from a low of 1,485 rupees touched on March 7, 2022. The price-to-movement averages movement is also positive for this stock, with 20-DMA (Daily Moving Average) much higher. From 50-DMA and 200-DMA. 20-DMA is currently around Rs 1,700 individual levels.

According to the daily and weekly charts, the near-term bias is likely to remain positive as long as the stock is stable above the Rs 1,890 level. On the upside, the stock could retest the 52-week high at Rs 2,125, above which the next hurdle is at Rs 2,150, based on the annual Fibonacci chart.

Identify the main momentum indicators on the daily charts, such as the 14-day Relative Strength Index (RSI) and the Slow Stochastic in overbought conditions, while the DI (Trend Indicator) and MACD (Moving Average Convergence Divergence) are in favor of the speculators. on height.

(with input from Rex Cano)

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