Mumbai: The Dalian Wanda Group, a Chinese conglomerate and the largest cinema exhibitor in the world, has initiated talks with Indian multiplex owners to acquire assets and enter the Indian market, said three people directly familiar with the development who asked not to be identified.
If its efforts are successful, the Dalian Wanda Group will be the second large global cinema exhibitor, after Mexico’s Cinépolis de México SA, to enter India’s fast growing market.
“Over the last few months, Dalian Wanda Group has held talks with large multiplex owners in India, including the listed ones such as PVR Ltd and Carnival Cinemas Ltd, and they are keen to establish their presence in the Indian market,” said one of the three people.
Shrikant Bhasi, founder and chairman of the Carnival Group, confirmed that his firm had been approached.
“We have received an offer from Wanda Group through its representatives. It is looking to buy into an unlisted film exhibition company in India and then later list it. We are yet to evaluate the proposal.”
The Dalian Wanda Group did not respond to an email sent on Friday seeking comment.
Repeated calls made to the company’s listed phone numbers remained unanswered.
A spokesperson for PVR did not respond to an email sent on Wednesday seeking comment.
The Indian market is currently dominated by four companies. PVR owns the maximum number of screens 516 followed by Inox Leisure Ltd 420 and Carnival Cinemas (341).
Cinepolis India Pvt. Ltd, the Indian movie exhibition arm of Mexican chain Cinepolis, entered the market in 2009 and owns 215 screens, according to the company’s website. It has grown its presence inorganically. In December 2014, it acquired the Zee Group-owned Fun Cinemas to increase presence in smaller cities.
Dalian Wanda intends to follow a similar strategy, but the deals won’t come cheap.
“Even though large global companies are bidding for Indian assets, they are being outdone by domestic peers due to sheer valuations. Domestic firms have paid nearly 12 times EV/Ebitda as compared to global average of 6-7 times,” said the second person.
EV/Ebitda is the ratio of the enterprise value to the earnings before interest tax depreciation and amortisation.
The valuations are too high, the second person added.
“With multiplex owners not able to increase ticket prices and food and beverage costs over the last six months, the valuations are highly questionable.”
Indeed, while several foreign investors are keen on the Indian multiplex business, valuations pose a hurdle to deal closure, an expert added.
“The interest among global firms and private equity funds in this sector remains intact but not much has fructified due to a disconnect in valuations. There is some premium for the Indian market due to the kind of growth and potential it offers, but the question is how much,” said Frank D’Souza, partner and leader for media and entertainment at consulting firm PricewaterhouseCoopers India Pvt Ltd.
The Dalian Wanda Group, founded in 1988, has three businesses: commercial properties, culture (or entertainment) and finance. Its multiplexes business is housed under the Wanda Cultural Industry Group. It runs multiplex businesses in China, Australia, New Zealand and the US. In the US, it owns AMC Theatres which has 4,950 screens.
According to Bloomberg, Wanda Group’s culture business saw sales rise 46% to 51.3 billion yuan ($7.8 billion) in 2015, outpacing the group’s total revenue growth of 19%.
In January this year, The Economic Times reported that Dalian Wanda Group plans to invest $10 billion in India over the next ten years to construct industrial townships and retail properties. This would be one of the largest investments by any Chinese firm in India, that report added.
The multiplex space has seen significant consolidation over the past few years.
The consolidation began in July 2014 when Inox Leisure, the second largest exhibition chain by number of screens, bought Delhi-based Satyam Cineplexes Ltd at an effective deal value of Rs.200 crore, including debt.
Carnival Cinemas followed and acquired the Anil Ambani- controlled Big Cinemas for Rs.700 crore in December 2014. Within a month of that acquisition, it bought Stargaze Entertainment Pvt.Ltd from a unit of Mukesh Ambani-controlled Network 18 Media and Investments Ltd for an undisclosed amount.
In June 2015, PVR announced the acquisition of DLF Ltd’s cinema business, DT Cinemas, for Rs.500 crore. The deal is yet to receive the final approval from the Competition Commission of India (CCI).
According to an April 2015 research report by brokerage IIFL Holdings Ltd, in 2005, six firms held 41% market share of the business. By 2015, four firms controlled 75%