India’s largest multiplex chain is betting big on south Indian cinema

Grab your popcorn.

PVR, the country’s largest chain of multiplexes, on Aug. 12 announced that it will buy a majority stake in Chennai-based SPI Cinemas. The deal, pegged at Rs633 crore ($91 million), will help the Gurugram-based firm get a better grip on the southern Indian cinema market, which has been prolific in churning out blockbusters.

SPI is Chennai’s largest cinema chain. With close to 80 screens, it has a presence in nine other south Indian cities, including Hyderabad, Thiruvananthapuram, Guntur, and Coimbatore. And over the next five years, SPI is expected to add 100 more screens in the region.

Promoted by Kiran Reddy and Swaroop Reddy, SPI counts among its movie halls Chennai’s iconic Sathyam, established in 1974. Gurugram-based PVR, on the other hand, was founded in 1997 by businessman Ajay Bijli. The company gave India its first multiplex in New Delhi’s Saket neighbourhood in 1997.

With this acquisition, PVR’s total screen count across India will move up to 706, the company said in a presentation; by 2020, it plans to take that to 1,000. “The acquisition will further strengthen PVR’s leadership position in India; pro forma combined revenue is twice of the next competitor,” PVR said in a statement to the BSE.

While PVR has had a strong historical presence in northern India, where Bollywood films rule the charts, its presence in south India has been limited. In Tamil Nadu, for instance, the chain has 47 screens; this number will go up to 89 post-acquisition.

PVR’s move is also a bet on regional cinema. Backed by blockbusters such as Bahubali and Rajnikanth-starrer Kabali, the share of regional movies raking in the big bucks has gone up over the years. Post-acquisition, PVR’s box office revenue from regional films will go up from 19% to 22%, the firm said in the statement.

Going South

The southern Indian states have the highest per capita movie consumption in India. The many film industries in this region are dominant across Tamil Nadu (Tamil language), Kerala (Malayalam), Karnataka (Kannada), and the states of Andhra Pradesh and Telangana (Telugu).

Among these, Telugu and Malayalam movies dominate box-office collections, followed by Tamil and Kannada. Three south Indian languages (Tamil, Telugu, and Kannada) contribute roughly 37% to the overall Indian box office earnings annually, according to estimates by PVR.

And these come with large releases annually. For instance, in 2016, nearly 200 Tamil movies were released. In the same year, Malayalam cinema witnessed a “landmark year” with the total domestic box office collection from the top 10 movies rising by 25% over the previous year, according to estimates by KPMG (pdf).

However, the market is still dominated by small single-screen halls and not multiplexes. In fact, while the five south Indian states contribute 49% of total screens in the country, multiplex penetration is still low at 14%. “This provides a significant opportunity for multiplexes to grow in that region,” PVR said.

Over the years, PVR has built a sprawling cinema exhibition business through various acquisitions. In 2013, it bought a majority stake in Cinemax for Rs395 crore. Then, in 2015, it bought DLF’s DT cinemas for Rs500 crore. But, clearly, SPI is its biggest deal so far.

qz.com