Monday, November 16, 2009

PVR - DT Deal analysis

Multiplex chain PVR Ltd has announced twin deals. It has acquired the cinema exhibition business of DT Cinemas Ltd, a subsidiary of real estate major DLF, in a cash-cum-stock deal. As per the structure of the deal, PVR will pay a cash component of Rs 20.02 crore and allot 2.55 million shares to DT Cinemas.


Simultaneously, PVR has also raised Rs 42.19 crore through a preferential share allotment of over 2.55 million shares to Major Cineplex Group Plc. of Thailand. The deal involves an overall stake dilution of 18.18% by PVR, with both Major Cineplex and DT Cinemas getting 9.09% stake each

PVR already has a joint venture called PVR bluO Entertainment Ltd with Major Cineplex for setting up bowling alleys, karaoke centres and ice-skating rinks.
Here is my analysis
 
PVR: 
1. Low risk capacity addition (they know the kind of revenue generation run rate DT has)
2. Gives them virtual monoply in certain regions (Gurgaon for example)
3. Gets closer in size to Adlabs - Gives them greater bargaining power over producers
4. DLF and PVR have also entered into an agreement by which the latter will gain exclusive and unlimited access to the multiplex space in all future mall developments of the DLF group
5. Ties Major Cineplex's interests to growth of PVR and thus increasing coordination for their JV
 
DLF:
1. Gets a strong anchor partner for new shopping mall and recreation properties
2. Reduces cash requirement for non core businesses
 
Currently, DT Cinemas operates 26 screens with three more screens expected to start in the next six months. This will add to PVR's existing 108 screens and further strengthen its position in the National Capital Region (NCR).


DLF and PVR have also entered into an agreement by which the latter will gain exclusive and unlimited access to the multiplex space in all future mall developments of the DLF group. The deal further re-affirms company's strategy to rapidly grow in the film exhibition space and to be a dominant player in all key markets, it said, in its filing to BSE.

The preferential issue has been made at Rs 165 per share. The shares of PVR Ltd closed at Rs 139.8 today, up by more than 1%. Taking today's closing price, DT Cinemas stands to get another Rs 35.74 crore over its the cash component of Rs 20.02 crore.

DLF, which is looking cut its debt of around Rs 12,000-13,000 crore, has been shedding its non-core assets and plans to raise Rs 4,500 crore through this process.

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