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Curtains off: Enter a new film exhibitorv

Multiplex Industry is all set to see a new entrant. Cineline India Limited (part of Kanakia Group), is re-entering the film exhibition business in Q1FY23 (under a new brand). PVR had acquired 135 Cinemax movie screens in 2012 for INR3.95bn. Out of this, 23 screens were owned properties of Kanakia Group, which PVR had leased till March 2022. Since lease is coming to an end and the non-compete clause has ended, PVR will lose these screens to Cineline. The impact on PVR will be negligible: 2 percent on EBITDA.

In our view, the multiplex industry is essentially a duopoly, and we do not anticipate any significant ramp up by non-core players.

What did Kanakia Group say in 2012 while selling it to PVR?

Mr. Rasesh Kanakia, a promoter of Cinemax, said, “We believe the exhibition business benefits from consolidation, as the large scale strengthens competitive advantage and significantly enhances operational efficiencies. This transaction enables the realisation of such benefits. The deal would enable us to focus more on our real estate and hospitality businesses.”

Event and rationale of re-entry

It is surprising to see Kanakia Group re-enter given: i) they felt the multiplex industry is a game of consolidation; ii) they wanted to focus on core business of real estate and hospitality. Cineline (part of Kanakia Group) is re-entering the film exhibition business and will launch operations under a new brand in Q1FY23, through nine properties with 23 screens. They were present in the film exhibition business for 15 years through the ‘Cinemax’ brand. In 2012, the company had sold its multiplex business along with the Cinemax brand to PVR under a non-compete clause, which has already ended. Kanakia Group had leased out nine properties with 23 screens to PVR in Mumbai, Thane, Nashik, and Nagpur. In light of weakening industry dynamics for the unorganized and single-screen players, there is a tremendous opportunity for organised players to take the market share.

Limited impact on PVR but Maharashtra is number one market

The impact on PVR would be negligible with a 2 percent adverse impact on EBITDA. PVR currently has 158 screens in Maharashtra and a total of 855 screens. So these 23 screens will account for ~3% of its total screens and 14% of its Maharashtra screens.

However, it is important to note Maharashtra is India’s largest market for films; so PVR will need to ramp up to come back to its dominance in this market. In our view, the multiplex industry is essentially a duopoly, and we do not anticipate any significant ramp-up of non-core or new players. In case of an acquisition, since PVR is acquiring a running business, it acquires the business with existing contracts. The properties in question were leased out to PVR for 10 years, which has now ended.

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