Carnival Films, Cinepolis in talks to buy SRS Cinemas

Mumbai: Mexican film exhibitor Cinepolis and Kochi-based Carnival Films Pvt. Ltd are in separate talks with SRS Ltd to buy its cinema exhibition business, signalling further consolidation in the movie exhibition industry, according to two people directly aware of the development.

“They have initiated the process sometime back and the valuation discovery process is on,” said one of the people. They declined to be named.

The transaction, if concluded, will add to a rush of acquisitions seen in the multiplex business. In 2014, four such deals valued at over Rs.1,410 crore have been closed. Both Cinepolis and Carnival have bought assets in India this year. Larger exhibitors have more bargaining power with film distributors and service providers, say experts.

“These are pure market speculations and we would not like to comment on these,” said an SRS spokesperson. Cinepolis declined to comment on queries related to acquisitions.

An executive at Carnival Films confirmed the development. “The discussions are progressing, but nothing has been finalized,” he said, requesting anonymity.

“Consolidation is happening in the industry and players are now looking at a pan-India footprint. Also, with economies of scale, it helps these players to procure cheaper food and beverages, and gives them better bargaining power in terms of revenue shares with distributors,” said Ajay Shah, partner, transaction advisory services, at consulting firm EY. With new content coming in every week and more people visiting cinemas, the industry is set to grow, he said.

A fortnight ago, Carnival Cinemas, backed by Kochi-based commodity trader Advantage Overseas Pvt. Ltd, acquired Big Cinemas, the multiplex business of Anil Ambani’s Reliance MediaWorks Ltd, for close to Rs.700 crore. In July, Carnival Cinemas acquired Housing Development and Infrastructure Ltd’s (HDIL) exhibition business, Broadway Cinemas, for an undisclosed amount. Carnival now has 300 screens.

On 2 December, Business Standard reported that Cinepolis has acquired Zee Group-owned Fun Cinemas for Rs.470 crore.

Cinepolis has 17 properties spread across Bengaluru, Pune, Mumbai, Jaipur, Bhopal, Surat, Mangalore, Hubli, Ahmedabad, Amritsar, Hyderabad, Ludhiana, Patna, Vadodara, Vijaywada and Pune.

Most of the deals have been struck at 8-10 times earnings before interest, tax, depreciation and amortization, with each deal surpassing the valuation of the earlier one, according to an investment banker involved in two of the transactions mentioned above. The banker declined to be named.

The deal with SRS Cinemas will help both contenders increase their presence in smaller cities in northern India.

SRS Cinemas has 17 properties with 48 screens spread across 11 cities that include Ghaziabad, Gurgaon, Shimla, Lucknow, Gorakhpur, Faridabad, Bhiwadi, Ludhiana, Patiala, Bareli and Agra. Apart from the cinemas business, SRS has exposure in the retail, food and beverages, jewellery, real estate and healthcare segments.

“Across all developed countries, the evolution of this business has happened by acquiring strong regional players and three-four players emerging as leaders in the segment,” said Jehil Thakkar, head of media and entertainment at consultancy KPMG, adding that companies with pan-India ambitions are now looking at regional and smaller chains as a way to scale up.

PVR Ltd is the largest exhibitor with 454 screens spread across 102 properties. PVR is in talks to acquire Chennai-based SPI Cinemas (formerly known as Sathyam Cinemas), which will expand its reach in the southern market that forms 22% of its existing portfolio, Mint reported on 1 December.

The second position has been held by Inox Ltd, which shows movies through its 358 screens. It added nearly 50 screens after it acquired Satyam Cineplexes earlier this year for approximately Rs.240 crore, including debt.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.