|Leading the way: PVR gave birth to the multiplex culture in Delhi.|
But a bigger stage is set for growth as multiplexes are planning another 1,500 screens by 2010, which can rake in more than 30 per cent of box-office collections. That's still a long way off the global average of 75 per cent, but more than enough to keep the profits rolling in for these multiplexes. The big names are set to build more screens (see Gunning for Screens), and its potential is reflected in the rich valuations the companies command-PVR trades at a p-e (price-earnings multiple) of 54, Cinemax 37, INOX 32 and Adlabs 34.
India is among the largest film producers in the world, with over 1,000 movies released annually, but screen density is extremely low at about 12 screens per million people. Besides, on average, an Indian spends just Rs 4 per month to watch movies. Yet with so many films, there's a dearth of good quality screens-India has only around 13,000 screens, but China, which produces fewer films, has five times more screens at 65,000, while us has 36,000.
The business model of a multiplex is simple. The more tickets it sells, the better the occupancy. That apart, the business makes money through sale of food and beverages (F&B), advertising, and some from royalty. About 15 per cent of revenues are accounted by F&B, where the margins are high at a sturdy 80-85 per cent.
This business revolves around attracting more people inside a multiplex. To achieve that, multiplexes are now building other businesses around their core competency of film exhibition. PVR, for instance, is now looking to build food courts, video parlours, bowling centres, fitness and youth zones and integrate it seamlessly with exhibiting movies. Shringar Cinema is also working on opening food courts in multiplexes.
The other challenge for the industry is to sustain margins after tax exemptions are withdrawn. Says Mehta: "When entertainment tax exemptions are gradually withdrawn, there could be a rationalisation of the tax levels as well, which are quite high. If that doesn't happen, then it could be a risk." Entertainment taxes in many states are as high as 40-100 per cent.
Also, as SSKI points out in its report, "With the increasing relevance of alternate revenue streams like telecast rights, home entertainment and mobile entertainment, the share of theatres in media consumption will stagnate, a trend observed in the US." But, adds Mehta, "It would be a while before these revenue streams mature and start impacting the business of multiplexes."
Meanwhile, the big players in the multiplex industry, in an attempt to derisk their business model, are expanding their footprint. Almost all the major players today, like PVR, INOX and Shringar, have a presence in film distribution as well. Some are planning to foray into film financing and production. PVR Pictures, a 100 per cent subsidiary of PVR, has inked a two-film deal with Bollywood superstar Aamir Khan, which it will also distribute on a pan-India basis. Adlabs has signed a Rs 35-crore deal for three movies with Hrithik Roshan. Says Hota: "Right now, it's wait and watch. It remains to be seen whether these companies can be successful in their new ventures. Barring Adlabs, others don't have prior experience of running these businesses."
But investors must look for companies where the valuations are not too expensive. There's immense potential for the sector; but to borrow a term from the industry, not all companies will turn out blockbusters.