PVR Limited and Inox Leisure Merger

PVR Ltd (PVRL IN) and INOX Leisure (INOL IN) announced that the boards of directors of PVRL &
INOL at their respective board meetings held on 27 th March, 2022 has approved the merger of INOL
with PVRL under the composite scheme of arrangement and amalgamation. The merger will bring
together two of India’s best cinema brands with a network of more than 1500 screens. Post the
merger, the promoters of INOL will become co-promoters in the merged entity along with the existing
promoters of PVRL. New cinemas that would be opened post the merger would be branded as PVR
INOX. As a consideration for merger, the shareholders of INOL will receive 3 shares of PVRL for
every 10 shares held in the company. Based on current market price, INOL is trading at a discount of
~10.7% vs. PVRL Spot.

For cash CMP Swap multiple

PVR 1930 5790
Inox 523 5230
Spread 10.7%

Hence, one can exit their current holdings in PVR and buy Inox Leisure to get an advantage of the
spread. Alternatively, we recommend setting up a merger arbitrage of Buying INOL and Selling PVRL
future at a spread (discount) of ~10% or better. The strategy is explained below:

Strategy Involving futures

Inox Quantity Bought 1357

Price 523

Margin Required for PVR Future short (`) 2,15,000.00

Total Margin required (`) 9,24,711.00

Shares Price Value

A. Inox Quantity Bought 1357 523 7,09,711

xw
B. PVR Future sell 407 1930 7,85,510

Profit/Loss (B-A) 75,799

ROI 8.2%
The future positions need to be rolled over every month till the process of merger is completed, which
may take 10-12 months. The profit might be enhanced even further through rollover of short
positions in PVRL futures. As normalisation gathers further momentum, roll levels in PVRL should
receive some boost too. The below table shows the change in the profit/loss through different
combinations of price movement in Inox Leisure Ltd and PVR Ltd.

Sensitivity Inox Price Movement

Total P/L -> 70,971.10 -15% -10% -5% 0% 5% 10% 15%

-15% 11,370 46,855 82,341 1,17,827 1,53,312

1,88,798 2,24,283
PVR Price Movement

-10% -27,906 7,580 43,065 78,551 1,14,037

1,49,522 1,85,008
-5% -67,181 -31,696 3,790 39,276 74,761
1,10,247 1,45,732
0% -1,06,457 -70,971 -35,486 - 35,486 70,971
1,06,457
5% -1,45,732 -1,10,247 -74,761 -39,276 -3,790 31,696 67,181
10% -1,85,008 -1,49,522 -1,14,037 -78,551 -43,065 -7,580 27,906
15% -2,24,283 -1,88,798 -1,53,312 -1,17,827 -82,341 -46,855 -11,370

Risks
 The process can take around 10-12 months going by the recent trend of merger completion.
 CCI approvals: As per our knowledge, this scheme doesn’t require CCI approval. However, note
that in the past, CCI has been strict even when it comes to smaller acquisitions in the multiplex
space.
 PVR Future lot size can change and hence changes accordingly might be required.
 Returns could be between 10-15% if the short yields in PVR future is favourable. In case of
negative short yields, the returns could be lower.
 Disclaimer
Investments in securities market are subject to market risks, read all the related documents carefully before
investing. There is no assurance or guarantee that the investment objectives shall be achieved. IIFL does not
guarantee any assured returns on the investments recommended herein. Past performance of securities/
instruments is not indicative of their future performance. IIFL makes no representation/s or warranty/ies, express s
or implied, as to the accuracy, completeness or reliability of any information compiled herein, and hereby disclaims
any liability with regard to the same, including, without limitation, any direct, indirect, incidental or consequential loss.
You shall verify the veracity of the information on your own before using the information provided in the document.
Investors are requested to review the prospectus carefully and obtain expert professional advice. IIFL group,
associate and subsidiary companies are engaged in providing various financial services and for the said services
(including the service for acquiring and sourcing the units of the fund) may earn fees or remuneration.

IIFL Group | IIFL Securities Ltd., IIFL House, Sun Infotech Park, Road No. 16V, Plot No. B-23, MIDC, Thane Industrial Area, Wagle Estate, Thane -
400604. CIN: 99999MH1996PLC132983 Tel.: (91-22)2580 6650. Customer Service: 40071000.Stock Broker SEBI Regn: INZ000164132. NSE:
10975 BSE: 179 MCX: 55995 NCDEX: 01249 Depository: INDP1852016. MF Distributor ARN: 47791. PMS SEBI Regn,: INP000002213.
Investment Adviser SEBI Regn. INA00000623. Research Analyst SEBI Regn: INH000000248. Loan products are offered by IIFL Finance Ltd. &
IIFL Home Finance Ltd. Kindly refer to www.indiainfoline.com for detailed disclaimer and risk factors.