MERGERS AND ACQUISITIONS

(A CASE STUDY ON PVR AND CINEMAX)

Submitted by

VANSHIKA SHROFF
ST. XAVIER’S COLLEGE, KOLKATA
DEPARTMENT: BACHELOR OF MANAGEMENT STUDIES (H)
REGISTRATION NO: A01-2112-2393-20
ROOM NO: 42
ROLL NO: 0170

Supervised by

Professor. Sukanya Sarkhel

Year of Submission
2022

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 ACKNOWLEDGEMENT

Any research work cannot be completed without the support of a team or a group
of persons. I would like to take the opportunity to thank all my supporters in the
research term paper for their immense help.

I would like to express my gratitude towards my college, St. Xavier’s College and
my professor-in-charge for providing me with an opportunity to work on the
project and also for their constant assistance and guidance. My project guide,
Prof. Sukanya Sarkhel was constantly available to answer any queries that I had
during the course of this project and this would not have been possible without her
support.

I would also like to thank all my friends who provided me with essential
suggestions for the project and motivated me through its journey and spared their
valuable time to assist me with my research for this project.

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 TABLE OF CONTENTS

CHAPTER 1: INTRODUCTION 4
BACKGROUND 5
LITERATURE REVIEW 6
RESEARCH MOTIVATION 7
AIMS & OBJECTIVES 8
RESEARCH GAP 8
RESEARCH METHODOLOGY 8
LIMITATIONS 9
CHAPTER 2: CONCEPTUAL FRAMEWORK 10
MULTIPLEX INDUSTRY IN INDIA 11
PROFILE OF THE COMPANY 13
REASONS FOR THE MERGER OF PVR AND CINEMAX 13
THE DEAL 14
CHAPTER 3: FINDINGS & ANALYSIS 15
PRE MERGER FINANCIAL ANALYSIS OF PVR 16
PRE MERGER FINANCIAL ANALYSIS OF CINEMAX
INDIA LTD. 23
PRE AND POST MERGER SCENARIO OF PVR 28
PRE AND POST MERGER RATIO ANALYSIS OF PVR 31
CHAPTER 4: RECOMMENDATIONS AND CONCLUSION 37
RECOMMENDATIONS 38
CONCLUSION 39
REFERENCES 40

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CHAPTER 1:
INTRODUCTION

Page 4
 BACKGROUND

Mergers and Acquisitions is an aspect of corporate strategy, corporate finance and

management dealing with the buying, selling, dividing and combining of different
companies and similar entities that can help an enterprise grow rapidly in its
sector or location.
Merger (or amalgamation) occurs when two or more companies transfer their
business and assets to a new company and in consideration, their members receive
shares in the transferee company. A Merger is a transaction that results in the
transfer of ownership and control of a corporation. The term merger refers to a
combination of two or more companies into a single company and this
combination may be either through consolidation or absorption.
"Acquisition" usually refers to a purchase of a smaller firm by a larger one.
Sometimes, even the smaller firm takes over the control of the larger organisation
and this is called Reverse Acquisition, or Reverse Takeover. There’s a fine
distinction between the Mergers and Acquisitions. When one company takes over
another and clearly establishes itself as the new owner, the purchase is called an
"Acquisition". A merger happens when two firms agree to go forward as a single
new company rather than remain separately owned and operated.
The concept of merger and acquisition in India was not popular until the year
1988. During that period, a very small percentage of businesses in the country
used to come together, mostly into a friendly acquisition with a negotiated deal.
The key factor contributing to fewer companies involved in the merger is the
regulatory and prohibitory provisions of Monopolies and Restrictive Trade
Practices Act, 1969.

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 LITERATURE REVIEW

Lodorfos&Boateng (2006) has presented a comprehensive overview of the role

of culture in the merger and acquisition process. The study finds that culture
differences between the merging firms are a key element affecting effectiveness of
the integration process and consequently the success of Merger & Acquisitions.
They have provided a summary of previous research on this issue by concluding
that the lack of intercultural synergy is at the heart of Merger & Acquisitions
failure.
PramodMantravadi and A.Vidyadhar Reddy (2007) in a study entitled
“Mergers and Operating Performance: Indian experience” explained the impact of
Mergers and Acquisitions on the operating performance of acquiring corporate in
different period in India , by examining some pre and post merger ratios with
chosen sample firms and merger between 1991-2003. The result suggests that
there are minor variations in terms of impact on operating performance following
merger in different intervals of time in India.
Kumar and Bansal (2008), in their study “The Impact of Merger and
Acquisitions on Corporate Performance in India” attempted to analyse whether
the claims made by the corporate sector while going for Merger & Acquisitions to
generate synergy are being achieved or not.. The study used ratios and correlation
matrix for analysis, andfound that in many cases of Merger & Acquisitions, the
acquiring firms were able to generate higher cash flow, more business,
diversification, cost cuttings and more.
ManojAnand and Jagandeep Sing (2008) in their study “Impact of Mergers
Announcement on Shareholders’ Wealth Evidence from Indian Private Sector
Banks'' studied the impact of mergers announcements on shareholders wealth
among Indian private sector banks by capturing the returns to shareholders as a
result of the merger announcements using the event study methodology. The study
observed that merger announcements in the Indian banking industry had positive
and significant shareholder wealth effects both for bidder and target banks.

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Rajeshkumar and Panneerselvam (2009) in a study entitled “Mergers,
Acquisitions, and Wealth Creation: A Comparative Study in the Indian Context”
analysed the comparative effect of Mergers & Acquisitions on the wealth of
shareholders of acquiring and target firms during the period 1998-2006. The study
used cumulative average abnormal returns for analysing the strength and
weaknesses of the acquiring firms after merger. The study indicated that the
binding and target firms had a significant positive net present value in the
post-merger period.
UdayBhaskar (2012) captured the criticality of HR getting involved during the
Merger & Acquisitions process. He pointed out that the key to success was to get
HR involved at an earlier stage of the process, rather than after the deal was over.
According to him, before the merger, the difficult issues involved analysing
employee compensation. He opined that HR must observe the target organisation
in terms of all employee related subjects like skills, capabilities, rewards and
benefits. In the post-merger phase, differences in culture were the major
challenge.

RESEARCH MOTIVATION

A study of the PVR Cinemax merger gives one insight into how market
competition drives two major players in any industry to merge together to capture
larger market share and work together as one to compel the other competitors to
leave the industry and establish somewhat of a monopoly.
Owing to globalisation there is a vast scope for mergers and acquisitions in
today's corporate world. This is because of the fact that different countries provide
different working environments to their companies and the positives of all merge
as well during a merger providing a scope for the same.
This merger perfectly portrays what a win-win situation looks like from both the
merging companies as well as the shareholders and investors point of view.

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 AIMS & OBJECTIVES

1. To analyse the pre and post-merger performance of the multiplexes

involved.
2. To identify the reaction of security prices to the announcement of
Mergers/acquisitions decision of the study units.
3. To study how mergers present opportunities to boost customer focus and
the way they help the companies to build flexible, low-cost operations that
empower them to offer superior customer value.

RESEARCH GAP
This project report mainly covers the analysis of the pre and post-merger situation
of PVR and Cinemax which has been depicted through various statistical means.

RESEARCH METHODOLOGY

The study uses secondary data which consists of information provided by the
companies itself so as to make known the true affairs of the companies and data
that are already published.
The project work includes the use of secondary data published in websites,
studies, newspaper, journals and interview scripts as well. Secondary data is
available from other sources and may already have been used in previous
research, making it easier to carry out further research. It is time-saving and
cost-efficient. A clear benefit of using secondary data is that much of the
background work needed has already been carried out, such as literature reviews
or case studies.

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TOOLS USED
Tabulation with the help of MS-Excel- The advantages of using tables and graphs
to organise data include easy visualisation of statistics, poignant descriptions of
data, the provision of a summary of the overall work and the interest people show
to graphics over word.
Bar Graphs- They help to show each data category in a frequency distribution,
display relative numbers or proportions of multiple categories, summarise a large
data set in visual form, clarify trends better than do tables, permit a visual check
of the accuracy and reasonableness of calculation and can be be easily understood
due to widespread use in business and the media.
Ratio Analysis- Ratio Analysis is a form of Financial Statement Analysis that is
used to obtain a quick indication of a firm's financial performance in several key
areas.It is a very powerful analytical tool useful for measuring performance of an
organisation. It highlights important information in simple form quickly. A user
can judge a company by just looking at a few numbers instead of reading the
whole financial data.

LIMITATIONS

● The uncertainties involved in this research are the validity and reliability
of the secondary data which may be ambiguous at times due to web
complicacies.
● Due to the confidentiality clause the data obtained from the Annual
Reports of the company cannot be supported with appropriate documents.

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 CHAPTER 2:
CONCEPTUAL FRAMEWORK

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 MULTIPLEX INDUSTRY IN INDIA

The multiplex industry has grown significantly over the last decade
complemented by rise in per capita income, increasing discretionary spends and
changing consumer preferences for an enhanced movie-watching experience.
Increasing number of malls with multiplexes have also contributed to the shift
from single screen theatres to multiplexes. As per ICRA estimates, India currently
has around 8,200 film screens of which ~2,200 are multiplex screens and the rest
consists of single screen theatres. Three states viz. Andhra Pradesh, Tamil Nadu
and Kerala together account for half of the total single screens in India. The
multiplex industry has seen significant consolidation in recent years with seven
major acquisitions valuing over Rs 2,500 crore since November 2012. This has
led to considerable change in market dynamics with four major multiplex chains
emerging as the prominent players. These four players, in order of their screen
count as of September 2016, are PVR1 (557 screens), Inox 2 (429 screens),
Carnival Cinemas3 (324 screens) and Cinepolis4 (269 screens). They together
contribute to more than 70% of the total screen count of the Indian multiplex
industry

Source: Industry sources

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.

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 PROFILE OF THE COMPANY

PVR
PVR Cinemas or PRIYA VILLAGE ROADSHOWS LTD., the largest cinema
exhibition company in the country presently stands at a count of 501 screens
across 111 properties in 45 cities. Their ability to reinvent, to innovate, and to
challenge themselves is a testimony to the exponential expansion across India.
The Company’s long term vision is to excel in its domain by providing movie
connoisseurs a premier experience by redefining cinema viewing. PVR Cinemas
aims to immerse the viewers in the movies.
CINEMAX
Cinemax India Limited of Kanakia Estate is one of the largest Exhibition theatre
chains in India and has a business of exhibition of films. “Cinemax” brand is one
of the most recognisable film exhibition brands and stands for superlative and
innovative entertainment for families and social cohorts. The exhibition chain is a
combination of high-end multiplexes and provides customer satisfaction through
process enhancements and constant innovation in the services and facilities such
as high comfort recliner seating arrangements in ‘The Red Lounge’, massage
chairs etc.

REASONS FOR THE MERGER OF PVR AND CINEMAX

One of the prime motives for PVR Cinemas taking over CINEMAX India Limited
is to expand to new markets.PVR Cinemas was aware that CINEMAX India
Limited had a deep penetration in the country being the largest Exhibition theatre
chains in India and having a business of exhibition of films.

The year 2010-2011 was a challenging year for the company, as it was for the
entire entertainment industry as the business is dependent on the content. But
through the merger of PVR Cinemas with Cinemax India Limited, they believed
that 2011-2012 would be an exceptional year experiencing strong tailwinds.

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 THE DEAL

This deal – worth Rs.542 crores, has two parts – one, buying the stake of Cinemax
and two buying the additional 26% share from public shareholders through open
offer. Two other companies – INOX and Cinepolis – were also in race, but they
lost out to PVR.

As per SEBI rules, this was followed by an open offer for an additional 26 percent
(upto 72.80 lakh equity shares) at 203.65 per share, taking the total deal size to
about Rs.543 crore. PVR is also raising Rs.260 crore through a preferential issue
of equity shares to its promoters, existing investors. For the investors too, it
seemed like a good deal. It may not be paying in the short term, but from the long
term perspective, when the financial burden of the purchase is offset, the deal will
be paying more to the company. PVR got a very good bouquet of properties from
Cinemax stable. So from a Business point of view, it is an excellent deal for PVR
because it now became the top multiplex operator.

From Cinemax shareholders’ point of view, it was a very good deal because the
price is good and purely if we were to analyse the way Cinemax was performing,
the shareholders could not have expected anything better. But the deal for PVR
shareholders is not convincing because the financial burden of this deal might at
least for the next two to three years completely offset any business
synergies(4:27).

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 CHAPTER 3:
FINDINGS & ANALYSIS

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 PRE MERGER FINANCIAL ANALYSIS OF PVR
YEAR 2010:

● The financial year 2009-10 was a difficult year for the Film Industry due
to MultiplexProducers stalemate in the first quarter of the year under
review, which left the Film Industry with significant losses.
● As on March 31, 2010 the Company had three subsidiary companies
namely M/s CR Retail Malls (India) Limited (CRR) (wholly owned
subsidiary of the Company), M/s PVR Pictures Limited (PVR Pictures)
and M/s PVR Bluo Entertainment Limited (PVR Bluo).

Capital Raised during the Year

Mode Amt. in Rs. Thousand

Private placement 421,905

Public issue Nil

Right issue Nil

Bonus issue Nil

Position of Mobilisation and Deployment of Funds

Source of Funds Amt. in Rs. Thousand

Paid up Capital 256,243

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 Reserves and Surplus 2,216,384

Secured Loans 1,346,986

Unsecured Loans 20,800

Deferred Tax Liabilities 205,982

Total Liabilities 4,046,395

Application of Fund Amt. in Rs. Thousand

Net Fixed Assets 2,336,878

Investments 1,114,346

Net Current Assets 695,171

Total Assets 4,046,395

Performance of the Company

Particulars Amt. in Rs. Thousand

Turnover 2,806,545

Total Expenditure 2,806,066

Profit before Tax 2,479

Profit after Tax 2,577

Earning per Share (In Rs) 0.11

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 Dividend (Rate %) 10%

YEAR 2011:

● While the performance of the Company for the first nine months of
2010-11 was decent, however the fourth quarter was impacted due to the
Cricket World Cup as no blockbuster movies were released during the
period.
● As on March 31, 2011 the Company had three subsidiary companies
namely M/s CR Retail Malls (India) Limited (CRR) (a wholly owned
subsidiary), M/s PVR Pictures Limited (PVR Pictures) and M/s PVR Bluo
Entertainment Limited (PVR Bluo).
● During the financial year under review the total income of the Company
was Rs.360 Crore as compared to Rs. 280.6 Crores in 2009-10, up by
28%. EBITDA for 2010-11, were Rs. 60.7 Crores as compared to Rs. 31.7
Crores in 2009-10, up by 91%. Profit after Tax for 2010-11 was Rs. 16.3
Crores as compared to Rs. 0.26 Crores in 2009-10.
● The company operated 33 properties with 142 screens in 18 cities across
the country. The company added 19 Screens at 3 locations i.e. Chennai,
Ahmedabad and Lucknow in 2010-11. The Company had signed
Agreements/MOUs for 75-80 screens for the coming financial year in
different parts of the country.

Capital Raised During the Year

Mode Amt. in Rs. Thousand

Private placement Nil

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 Public issue Nil

Right issue Nil

Bonus issue Nil

* The Company amalgamated with erstwhile Leisure World Private Limited by

issuing 14, 60,112 equity shares during the year.

Position of Mobilisation and Deployment of Funds

Source of Funds Amt. in Rs. Thousand

Paid up Capital 271,494

Reserves and Surplus 2,606,003

Secured Loans 1,605,913

Unsecured Loans 10,400

Deferred Tax Liabilities 272,730

Total Liabilities 4,766,539

Application of Fund Amt. in Rs. Thousand

Net Fixed Assets 2,819,221

Investments 499,879

Net Current Assets 1,447,439

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 Total Assets 4,766,539

Performance of the Company

Particulars Amt. in Rs. Thousand

Turnover 3,600,219

Total Expenditure 3,371,124

Profit before Tax 229,094

Profit after Tax 163,447

Earning per Share (In Rs) 6.03

Dividend (Rate %) 10%

YEAR 2012:

● During the Financial year ended March 31, 2012. The Company has
achieved new heights in terms of income and profitability. The total
income increased from Rs. 361.06 Crores, during the preceding year to
Rs.478.74 Crores in the year under review registering a growth of 32.57%.
Operating Profit before interest, depreciation and tax increased to Rs.
81.12 Crores as against Rs.62.96 Crores during the previous year.
● As on March 31, 2012 the Company had two subsidiary companies PVR
Pictures Limited (PVR Pictures), a wholly owned subsidiary and PVR
Bluo Entertainment Limited (PVR Bluo) a Joint Venture Company. CR

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 Retail Malls (India) Limited (CCR) ceased to be Company’s subsidiary
w.e.f. 17th May, 2011 i.e. the date of sale of the investment in Share
Capital of CRR by the Company.
● During the year, your Company has paid Rs. 4/- (Rupees Four) per Equity
Share as Special Interim Dividend to the members of the Company.

Capital Raised during the Year

Mode Amt. in Rs. Thousand

Private placement Nil

Public issue Nil

Right issue Nil

Bonus issue Nil

*The company issued 1, 41,620 shares under Employee Stock Option Plan and
Bought Back 13, 88,328 shares during the year.

Position of Mobilisation and Deployment of Funds

Source of Funds Amt. in Rs. Thousand

Paid up Capital 259,026

Reserves and Surplus 2,474,705

Secured Loans 1,686,993

Unsecured Loans 1,156,558

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 Deferred Tax Liabilities 95,025

Total Liabilities 5,672,307

Application of Fund Amt. in Rs. Thousand

Net Fixed Assets 3,386,932

Investments 287,816

Net Current Assets 1,997,559

Total Assets 5,672,307

Performance of the Company

Particulars Amt. in Rs. Thousand

Turnover 4,787,469

Total Expenditure 4,442,530

Profit before Tax 344,939

Profit after Tax 281,089

Earning per Share (In Rs) 10.50

Dividend (Rate %) 60%

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PRE MERGER FINANCIAL ANALYSIS OF CINEMAX INDIA LTD.

YEAR 2010:

● In a year like 2009-10 where the multiplexes strike in the first quarter
impacted the revenues, their revenue grew by 14% to Rs.17, 607lacs.
EBITDA margins are among the best in the industry at 20%. They
recorded a PAT of Rs.1, 697 lacs and a PAT margin of 10%. This is
testimony to the strength of the company.
● They planned to add over 9,000 seats in 2010-2011 and that’s the highest
they would ever have added in a year.
● They had 108.10lacs footfalls across their properties in the year 2009-2010
as compared to 85 lacs in 2008-2009.Even with the new properties
opening across the country the total SPH at our properties increased to Rs.
159(from 158 in 2008- 2009) and the ATP was maintained at Rs.128.
● The average number of shows in the year 2009-2010 increased to 5.5 from
5.4 in 2008- 2009. During the year, the concept of Breakfast Shows was
introduced starting as early as 6:30 a.m. with tea and biscuits served as
complimentary.

Capital Raised during the Year

Mode Amt. in Rs. Thousand

Private placement Nil

Public issue Nil

Right issue Nil

Bonus issue Nil

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Position of Mobilisation and Deployment of Funds

Source of Funds Amt. in Rs. Thousand

Paid up Capital 281,702

Reserves and Surplus 11,30,244

Secured Loans 851,899

Unsecured Loans Nil

Deferred Tax Liabilities Nil

Total Liabilities 22,92,225

Application of Fund Amt. in Rs. Thousand

Net Fixed Assets 2,131,185

Investments 13,989

Net Current Assets 147,051

Total Assets 22,92,225

Performance of the Company

Particulars Amt. in Rs. Thousand

Turnover 1,425,639

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 Total Expenditure 1,375,230

Profit before Tax 7,378

Profit after Tax 60,294

Earning per Share (In Rs) 2.15

Dividend (Rate %) 12%

YEAR 2011:

● Cinemax India Limited reported consolidated revenue growth of 12 % to

Rs.197.41 crores, consolidated EBITDA and PAT stood at Rs. 35.28 crores
and Rs. 5.45 crores respectively. However, this was not enough to manage
the expenditure growth resulting in consolidated EBITDA being flat. Also,
the quality of content in 2010-2011 was not well accepted by the audience
and this once again led to lower patrons per show.
● There was a delay in the opening of the screens too. They had built up the
cost for the same and hence, the expenditure increased but the revenues
got postponed resulting in lower consolidated EBITDA margin at 18% in
2010-2011 (21% in 2009-2010). The rising interest rate led to increased
cost rising too.
● In spite of being a difficult year due to lack of quality content, the
company was successful in increasing the footfalls by 6%- from 108.1 lacs
in the previous year to Rs. 115.01 lacs in the current year. However, in
spite of higher footfalls, the occupancy during the year declined to 23%
from 26% in the previous year.
● There was a full growth of 3,672 seats set up in the year 2010-2011. And
also a partial growth of 9,000 seats was likely to come up in 2011-2012.

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Capital Raised during the Year

Mode Amt. in Rs. Thousand

Private placement Nil

Public issue Nil

Right issue Nil

Bonus issue Nil

Position of Mobilisation and Deployment of Funds

Source of Funds Amt. in Rs. Thousand

Paid up Capital 281,702

Reserves and Surplus 1,114,725

Secured Loans 1,226,982

Unsecured Loans Nil

Deferred Tax Liabilities Nil

Total Liabilities 2,634,635

Application of Fund Amt. in Rs. Thousand

Net Fixed Assets 2,435,120

Investments 17,004

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 Net Current Assets 182,511

Total Assets 2,636,635

Performance of the Company

Particulars Amt. in Rs. Thousand

Turnover 1,595,236

Total Expenditure 1,625,720

Profit before Tax 30,484

Profit after Tax 15,420

Earning per Share (In Rs) 0.55

Dividend (Rate %) Nil

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 PRE AND POST MERGER SCENARIO OF PVR

(I) Pre and Post Merger Income position of PVR

Year Total Income (Rn in Crores)

2012 481.44

2013 677.63

2014 1284.96

2015 1387.04

2016 1759.60

The graphical presentation of the income earned by the company is shown below:

After merger, we see that the total income of PVR has increased in financial year
2016 to Rs.1, 759.60 Crs. as against Rs. 1387.04 Crs. in the year 2015. The

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income of the company has increased significantly after the merger of PVR and
Cinemax.

(II) Pre and Post Merger Total Assets of PVR

Year Total Assets (Rn in Crores)

2012 567.22

2013 1151.70

2014 1231.37

2015 1364.67

2016 1708.10

The graphical presentation of the total assets of the company is shown below:

After the merger, the total assets of the company increased to Rs. 1708.10 Crs. in
2016. Before the merger it was only Rs. 567.22Crs.

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(III) Pre and Post Merger Total Turnover of PVR

Year Total Assets (Rn in Crores)

2012 476.04

2013 669.37

2014 1271.19

2015 1383.98

2016 1739.63

The graphical presentation of the total turnover of the company is shown below:

Immediately after the merger, in 2014 the total turnover of PVR has increased to
Rs.1, 270.59 Crs. and to Rs.669.37 Crs. in 2013 as against just Rs. 467.47 Crs.
before merger in the year 2012. By merging with Cinemax, PVR has achieved the

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strategy of expansion. The total turnover of PVR has shown an upward trend i.e.
continuous increase in sales post merger.

PRE AND POST MERGER RATIO ANALYSIS OF PVR

(I) Pre and Post Merger Current Ratio of PVR

CURRENT RATIO = Current Assets / Current Liabilities

Year Current Assets Current Current Ratio

(Rs in Crores) Liabilities
(Rs in Crores)

2012 119.75 125.15 1.60

2013 232.15 177.08 1.31

2014 368.16 337.08 1.09

2015 443.85 288.04 1.21

2016 560.05 405.93 1.38

The graphical presentation of the current ratio of the company in shown below:

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There was a continuous decline in the current ratio from 1.60% in 2012 to 1.31%
in 2013 followed by 1.09 % in 2014. Thus, the merger of PVR & Cinemax could
not increase the current assets in comparison to current liabilities. Later on in
2015 the current ratio was 1.21 and in 2016 it was 1.38 which showed there was
an increase in the current assets of the company compared to current liabilities.

(II) Pre and Post Merger Quick Ratio of PVR

QUICK RATIO = LIQUID ASSETS / CURRENT LIABILITIES

Year LiquidAssets Current Quick Ratio

(Rs in Crores) Liabilities
(Rs in Crores)

2012 193.10 125.15 1.54

2013 224.50 177.08 1.27

2014 359.10 337.08 1.06

2015 432.82 288.04 1.50

2016 541.53 405.93 1.33

The graphical presentation of the quick ratio of the company is shown below:

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 Along with a fall in current ratio, there was also a fall in the quick ratio from
1.54% in 2012 to 1.27 % in 2013 and then 1.06% in 2014 but later on there was a
slight rise in quick ratio in 2015. In 2016 again there was a fall in quick ratio
which showed that the company didn’t have enough liquid assets.

(III) Pre and Post Merger Operating Profit Margin Ratio of PVR

OPERATING PROFIT MARGIN RATIO = (OPERATING INCOME / TOTAL TURNOVER)* 100

Year Operating Income Total Turnover Operating Profit

(Rs in Crores) (Rs in Crores) Margin Ratio

2012 69.85 476.04 14.94

2013 104.23 669.37 15.57

2014 200.67 1271.19 15.78

2015 186.43 1383.98 13.47

2016 311.06 1739.63 17.88

The graphical presentation of the operating profit margin ratio of the company is
shown below:

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 In 2012, Operating profit margin ratio was 14.94% which after the merger of PVR
& Cinemax increased to 15.57% in 2013 followed by a further increase to 17.78%
in 2016. It showed that the company has been earning well post-merger.

(IV) Pre and Post Merger Debt Equity Ratio of PVR

DEBT EQUITY RATIO = TOTAL LONG TERM DEBTS/ SHAREHOLDERS FUND

Year Total Long Term Shareholder Debt - Equity

Debt Fund (Rs in Ratio
(Rs in Crores) Crores)

2012 168.70 273.37 0.62

2013 331.41 643.22 0.52

2014 502.12 391.77 1.28

2015 677.86 398.37 1.50

2016 574.09 854.06 1.33

The graphical presentation of the debt equity ratio of the company is shown
below:

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 After merger the debt equity ratio falls further by 0.10% from 0.62 % to 0.52%.
But gradually it increased to 1.28 % in the year 2014 followed by a further
increase to 1.50% in 2015. In 2016 there was a fall by 0.17% in debt-equity ratio.

(V) Pre and Post Merger Net Profit Margin Ratio of PVR

NET PROFIT MARGIN RATIO = (NET PROFIT/ NET REVENUE FROM

OPERATIONS)* 100

Year Net Profit Net Revenue Net Profit

(Rs in Crores) from Operation Margin Ratio
(Rs in Crores)

2012 28.11 474.06 6.01

2013 54.85 669.37 8.19

2014 57.87 1271.19 4.55

2015 13.62 1383.98 0.98

2016 114.14 1739.63 6.56

The graphical presentation of the net profit margin ratio of the company is shown
below:

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In 2012, Net Profit Margin Ratio was 6.01% which after the merger increased to
8.19% in 2013. But in later years there was a continuous decrease in the net profit
margin ratio.

Page 36
 CHAPTER 4:
RECOMMENDATIONS AND
CONCLUSION

Page 37
 RECOMMENDATIONS

PVR gets a very good bouquet of properties from Cinemax from this merger. So
from a business point of view, it is an excellent deal for PVR because it now
becomes no. 1 multiplex operator. From Cinemax shareholders’ point of view, it is
a good deal because the price is good and purely if we were to analyse the way
Cinemax was performing, the shareholder could not have expected anything
better, but for PVR shareholders the financial burden of this deal might last for at
least next two to three years. However, from a long term point of view, it seems to
be a good deal but long term is real long term in this case. Proper caution needs to
be taken in the following areas:
● PVR must take care of the current assets and quick assets as well as there
was a continuous decline in the current ratio and in the quick ratio.
● A flawed intention in terms of unethical motivation or high expectations
can eventually lead to failure of the merger. Therefore, a company should
desire high capital gain along with glory and fame keeping in mind the
corporate strategy defined to fulfil the requirements of the company.
● PVR should establish a completely different set of screens for customers
who are ready to pay for luxury. This is other than the gold class seats in
the normal theatres. These screens would be strictly for the purpose of
adding revenue by overpricing the tickets for the additional services
provided to the customers like push back seats, complimentary snacks,
blankets, and increased leg space.
● Cinemax and IMAX are known for the 3D and 4D screenings. PVR should
try and develop more of such screens in metropolitans to increase the
revenue.
● There are many factors contributing to the failure and elements that are
problems of merger and acquisition. There are many aspects that should be
understood and analysed because even one small mistake in taking a
decision can completely dump both the companies with an irreversible
impact.

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 CONCLUSION

The above case of merger was substantially to enhance PVR Cinemas, already the
largest and the most premium film and retail entertainment company in India. It
merged with Cinemax India Limited, to enhance the ability of the merged entity to
capitalise on the growth opportunities in the Indian Economy. This showed that
PVR believed in the expansion by the strategic move through amalgamation
which is definitely a cost effective strategy.

(i) After merger, the overall income and profitability of the company increased.
Thus, the strategy of expansion through merger with Cinemax has been achieved
by PVR.
(ii) There was continuous decline in the current ratio post-merger till 2015 but in
2016 there was a slight increase in current ratio.Thus, overall the merger of PVR
& Cinemax could not increase the current assets in comparison to the current
liabilities.
(iii) Along with a fall in current ratio, there was also a fall in the quick ratio from
1.54% in 2012 to 1.27 % in 2013 and then 1.06% in 2014 but later on there was a
slight rise in quick ratio in 2015. In 2016 again there was a fall in quick ratio
which showed that the company didn’t have enough liquid assets.
(iv) After merger the debt equity ratio falls further by 0.10% from 0.62 % to
0.52%. But gradually it increased to 1.28 % in the year 2014 followed by a further
increase to 1.50% in 2015. In 2016 there was a fall by 0.17% in debt-equity ratio.
(v) In 2012, Operating profit margin ratio was 14.94% which after the merger of
PVR & Cinemax increased to 15.57% in 2013 followed by a further increase to
17.78% in 2016. It showed that the company has been earning well post-merger.
(vi) In 2012, Net Profit Margin Ratio was 6.01% which after the merger increased
to 8.19%in 2013. But in later years there was a continuous decrease in the net
profit margin ratio.

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