<b>PVR: Expanding presence</b>

Difficult times herald consolidation and the entertainment space saw the first slump sale between troubled real estate entity DLF group and PVR.

PVR announced an acquisition of the Cinema Exhibition business of DT Cinemas, part of the DLF Group. The transaction will be funded by an issue of 25.57 lakh preferential shares to DT Cinema and cash pay-out of Rs 20.02 crore, making the effective cost of the deal about Rs 55.7 crore (at 13 November 09 market price per share of Rs 140). The deal sees PVR acquiring a portfolio of 26 operational screens which are all on long term lease in various mall developments owned and operated by the DLF Group. Additionally, three screens will become operational in the next six months. The partnership will also give PVR exclusive and unlimited access to multiplex space in all future mall development of the DLF group, according to a company release. 

PVR simultaneously announced further equity dilution through a 25,57,000 preferential share issue to the Major Cineplex Group of Thailand at Rs 165 per share ( about 18% premium to market price on date of announcement- 13 November, 09) raising capital of about Rs 42.19 crore.  Collectively, total equity dilution would be 18.2%. The promoter stake will dip to 34% from 41.24% earlier. On a fully consolidated basis, the DLF group and Major Cineplex would hold 9.1% each in the company, as per Religare research.

Value creation

The deal is seen as value accretive for PVR in spite of the equity dilution. At Rs 55.7 crore (payout based on share price of Rs 140), the cost of acquisition per screen works out to just over Rs 1.9 crore. Current capex per screen incurred by PVR is in the range of Rs 2-2.5 crore, as per Angel Broking research. 

PVR currently runs 26 cinemas with around 108 screens across 14 cities. Post-acquisition, number of screens will go up 24% and seats will increase about 20% to 33,231 seats, giving it a dominant presence in the northern region. It will control 60-70% of the market share of the Delhi and Gurgaon market. Its all India market share will go up to 165 from 13% currently, according to Edelweiss 
research. 

The revenue boost will be around 16% with incremental revenues of about Rs 75 crore annualized and add Rs 14-15 crore to EBITDA, according to Religare. Incremental FY11 EBITDA growth is estimated to be around 14.5%. 

The stock closed flat at Rs 142.65 on 17 November, 09 after rising about 1.9% post the acquisition announcement. It trades at a valuation of 10.8x consensus analyst pre-acquisition EPS estimates.