Two of India’s top three multiplex operators PVR and Inox Leisure are to merge creating a clear market leader in the sector.

Inox shareholders will receive three new PVR shares for every ten Inox Shares they currently hold – there is no cash component or cash alternative – but the founding families (known in India as ‘promoters’) will gain equal representation on the new board of directors at the new PVR Inox Limited.

The deal, which has the approval of both company’s directors and both sets of promoters, is subject to the approval of general shareholders, industry regulators and the stock market authorities. No timetable was indicated.

PVR’s Ajay Bijli is to be appointed as MD of PVR Inox, while Inox’s Pavan Kumar Jain is to be its non-executive chairman.

With PVR currently operating 871 screens at 181 properties in 73 cities and INOX operating 675 screens at 160 venues in 72 cities, the combined entity will become the largest film exhibition company in India operating 1546 screens across 341 properties across 109 cities.

Explaining the rationale behind the deal, the companies said that the enlarged company would offer an unparalleled consumer experience, enjoy complementarity and growth opportunities and revenue and cost synergies.

Another factor driving the long-time rivals into each other’s arms is the impact of the COVID-19 crisis which has caused on-off openings and closures of cinemas. That has in turn caused the flow of new release titles to slow to a trickle and given India’s voracious streaming operators a golden opportunity.

PVR’s MD and chairman, Bijli acknowledged as much. “The film exhibition sector has been one of the worst impacted sectors on account of the pandemic and creating scale to achieve efficiencies is critical for the long term survival of the business and fight the onslaught of digital OTT platforms,“ he said in a statement.

Inox Leisure director, Siddharth Jain, called the merger, “certainly the most historic moment in the Indian cinema exhibition industry.”

He explained that bigger will be better as the exhibition sector tries to recover. “As we head into the industry’s revival amidst headwinds, this decisive partnership would bring in enhanced productivity through scale, a deeper reach in newer markets and numerous cost optimization opportunities,” he said.

India’s cinema exhibition industry has been painfully slow to evolve. A decade ago consultants and the operators themselves were forecasting tens thousands of new screens coming on stream each year. But the sclerotic nature of India’s property sector has kept new multiplex developments, which are mostly in shopping malls, at a much slower pace. That has meant that single screen cinemas remain the numerical majority, though they operate on significantly different business models form the multiplexes. In some of the pre-COVID years box office was growing (due to the growing number of multiplexes and higher ticket prices) while attendance of ticket sales was declining.

COVID has brought additional difficulties. A recent report from accountancy and consultancy firm EY showed box office in 2021 rebounded by more than 50% compared with 2020. But even then it was only 37% of 2019 levels.

The nationwide screen count was estimated at 9,423, a marginal decline over 2020. But the report also quoted industry respondents as estimating that around 1,000 screens, which were at best open intermittently during the year, may not reopen again. The screen count (single screen venues and multiplexes) grew in 16 states and fell in 13 others.

Before hatching the deal with Inox, PVR is understood to have held merger or takeover talks with Cinepolis India, the local offshoot of the huge Mexican-based Cinepolis cinemas group.