INOX, the country's second-biggest multiplex chain, will merge with bigger rival PVR in an all-stock deal, with INOX shareholders receiving three shares in PVR for every 10 shares of INOX, the companies said https://bit.ly/3wGAfvC in a regulatory filing on Sunday.

With PVR currently operating 871 screens in 73 cities and INOX owning 675 screens in 72 cities, the combined entity will become the largest film exhibition company in India with 1,546 screens across 109 cities, the companies said.

"This is big. We did not expect the two biggest players would merge," Ajit Mishra, vice president, research at Religare Broking said, adding that despite original content on streaming services such as Netflix, Amazon Prime Video and Walt Disney Co's Hotstar, theatres were starting to witness a recovery in footfalls.

India is home to Bollywood, known worldwide for its over-the-top song and dance spectacles. The pandemic had brought the industry to a grinding halt, but production houses are now starting to go with "theatre only" releases and banking on celebrities such as Alia Bhatt as the country inches toward normalcy.

PVR shares jumped as much as 10% and were last trading up 7%, while INOX Leisure was up 14.8%, as of 0443 GMT, after surging 20% to a record high earlier in the session.

As of last close, the market capitalizations of PVR and INOX were at 111.04 billion rupees ($1.46 billion) and 57.46 billion rupees, respectively.

Both companies said the merger would help improve efficiency, reach newer markets and optimise cost. New cinemas would be branded as PVR INOX.

"We believe there is a high likelihood of the deal going through and the Competition Commission of India too may not object on the merger," said Karan Taurani, senior vice-president at Elara Capital.

(This story corrects last name to Bhatt from Bhat in paragraph five)

(Reporting by Rama Venkat and Chris Thomas in Bengaluru; Editing by Subhranshu Sahu and Sherry Jacob-Phillips)

By Rama Venkat