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PVR premium services account for 10-11% of total revenue.

PVR and Inox Leisure, India’s leading multiplex network, have announced their merger.

After the announcement, the share prices of the two companies soared as investors welcomed it.

These companies were the highest profitable companies on March 28, 2022. PVR and Inox share prices jumped 10% and 20% respectively.

While you may be aware of this, you may not be aware of the listed companies that are closely associated with this merger and are likely to benefit from it.

The company that did not reach the news was GFL Ltd.

GFL (formerly known as Gujarat Flourochemicals) is part of the Inox group. It is the parent company of Inox Leisure.

GFL is the largest single shareholder in Inox Leisure, owning 43.1% of the company as of December 2021.

Following the merger with PVR, GFL will have a 16.6% stake in the merged entity.

GFL should not be confused with Gujarat Fluorochemicals (GFCL), which is the chemical branch of the Inox group.

The company’s chemicals business was split in 2020. The resulting entity is GFCL (Gujarat Flourochemicals). The existing company has been renamed GFL.

If you look closely at the market cap of GFL and its subsidiary Inox Leisure, you will see an anomaly.

Inox Leisure dominates the market level of Rs 6,460 crore (as of March 31, 2022). Given that GFL owns 43.1% of Inox Leisure, it is supposed to have a market limit of around Rs 2,750 crore.

However, the holding company dominates the market for only Rs 880 crore. This means GFL trades below the total value of the assets it owns.

So here’s the thing.

GFL seems to be trading at a high discount. In addition, the company will be a significant stakeholder in what will be the largest multiplex chain in India.

Considering all these facts, does GFL look like a good investment? Is this the right time to invest in a company?

Before we answer this question, you need to know a few things that might explain why GFL trades at a discount.

You see, GFL doesn’t have any business operations of its own. Moreover, it does not interfere with the day -to -day operations of its subsidiaries.

So, the company has no control over its investments. Lack of control may be one of the reasons why GFL trades at a discount.

Another reason is uncertainty. GFL is the holding company. So dividends are a big part of his income. This means that GFL’s performance depends on the performance of its subsidiaries.

Because of this, there is a lot of uncertainty around cash flow. And the market doesn’t like the uncertainty associated with earnings. This is taken into account in the stock price.

Now comes to the reason we think GFL might be a good investment…

The cinema business in India is a fast growing business. Indians love to watch movies. In terms of supply, India produces more films every year than any other country in the world.

This is the reason why many analysts have produced encouraging estimates for the industry. According to some estimates, the Indian cinema industry will grow in double digits for the next decade.

Another interesting fact is that the industry has consolidated over the last few years. Single screen cinemas have lost their market share to multiplexers. And pandemics are only accelerating this trend.

The combined entity, the largest multiplex chain with a network of more than 1,500 screens, became the largest recipient of this stream.

Another thing that investors need to keep in mind is the PVR premiumization effort. PVR is focused on providing a luxurious experience to its customers.

PVR premium services account for 10-11% of total revenue and the company aims to increase it to 20% by 2025. We can see premiumization efforts continue after the merger.

As far as the number of screens is concerned, India lags behind other countries. The country has about 9,500 screens compared to 40,000 screens in the US and 70,000 screens in China.

According to management reviews, the merged entity will focus on adding more screens in the next few years. The move will definitely spur its growth.

Many analysts believe a merged entity will have higher price power in terms of revenue and higher bargaining power in terms of cost. The synergy will result in a steady free cash flow that bodes well for GFL.

Speaking of PVR and Inox, Research Analyst at Equitymaster Aditya Vora recently recorded a video discussing multiplex stocks.

In the tug -of -war competition between theater and OTT, Aditya believes theater will succeed and create long -term wealth for investors. Watch the video for more details…

Video link – Time to Buy Multiplex Shares?

So, should you buy GFL right away?

Although the merger has been confirmed as far as the company is concerned, it has yet to be approved by the competition commission of India (CCI). The CCI decision could be a barrier to this agreement. So, check that out.

If all goes well, you can keep an eye on the GFL, especially if you want dividend income.

However, step carefully. Examine the fundamentals of the company carefully, especially the balance sheet.

Happy Investing!

Disclaimer: This article is for informational purposes only. It is not a stock proposal and should not be treated as such.

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