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PVR has aggressively expanded to maintain its hold on multiplex business

Manu Kaushik     July 10, 2015

Fastest Growing Emerging Companies Rank: 3

For PVR, 2012 was a defining year. Until that year, the company had set up 213 cinema screens across India since starting its first multiplex, in Delhi, in 1997. "We were growing organically," says Ajay Bijli, Chairman and Managing Director. "But we saw that growth in shopping malls was getting us only 60 to 70 screens a year, and there were other players as well who were doing the same thing. That wasn't taking us to a critical mass needed to justify being a leader," he adds. To boost growth, PVR in November 2012 bought about 70 per cent of Mumbai-based multiplex chain Cinemax from realty player Kanakia Group for Rs 395 crore. That deal propelled PVR's screen count 65 per cent overnight to 351 and cemented its standing as market leader, a position it maintains even today. The buyout, says Bijli, is the biggest turning point for PVR in recent times.

The deal helped PVR in several other ways. It expanded PVR's presence in western India where it had limited properties - 70 per cent of Cinemax's properties were in that region. Geographical reach is important from the perspective of advertising revenues. "Historically, the fragmented [movie] exhibition industry and its small reach versus traditional advertising platforms (such as TV and print) attracted limited advertisers. Consolidation... has addressed this issue," says a March report by Kotak Institutional Equities on PVR.

{quote}Advertising contributes about 11 per cent to PVR's revenue while box-office sales make up 66 per cent and food and beverages (F&B) 23 per cent. "Globally, the revenue pie of cinema exhibition companies is similar," says Bijli. For example, in 2013, Regal Entertainment Group, the largest cinema exhibition company in the US, generated 68 per cent revenues from ticket sales, 26 per cent from F&B and six per cent from advertising.

PVR has continued to expand at a rapid clip over the past few years. Earlier this year, it announced its second acquisition, of DT Cinemas from property developer DLF for about Rs 500 crore. PVR had first tried to acquire DT Cinemas in 2009 but the deal did not go through. DT Cinemas operates 29 screens across eight properties in the National Capital Region and Chandigarh. With the acquisition, PVR will have a presence in 44 cities with 506 screens. The deal will help PVR increase its share of the installed seating capacity in the profitable Delhi-NCR area to 21 per cent from 15 per cent before.

{quote}However, some say the acquisition is a tad overpriced. The acquisition price works out to around Rs 12 crore per screen while a six- to seven-screen multiplex typically costs about Rs 25 crore. Bijli defends the deal. He says the location of screens is very important in the multiplex business. "Their screens are in good malls. If we find a high-quality asset that is generating good EBITDA and is in a good location, [we will buy it]," he says. Chitrangda Kapur, analyst with Reliance Securities, says that if the location is premium, the average ticket price (ATP) is higher. "While the ATP for PVR is higher than INOX, it is comparable to DT Cinemas."

{blurb}To fund the acquisition, PVR is raising Rs 350 crore from Renuka Ramnath-founded private equity firm Multiples Alternate Asset Management by diluting 10.7 per cent equity. The remaining amount will come from debt and internal accruals. Analysts say PVR is financing the deal mainly from PE funds because its debt-to-equity ratio at 1.6 is already high. The high ratio restricts PVR's ability to raise money for additional screens in the future. "The organic expansion will continue to happen from internal accruals," says Jaykumar Doshi, analyst at Kotak Institutional Equities.


Bijli says PVR plans to add 60 to 70 screens each year for the next three years. But rising competition from players such as INOX and Cinepolis and a weak pipeline of shopping malls under development could hamper growth. This could prompt existing mall owners to demand higher rent, say analysts.


To address this issue, PVR is seeking revenue-sharing deals with mall owners instead of giving a fixed amount as rent. Another major factor over which PVR has no control is the quality of movies being released. Sanjeev Kumar, Joint MD, PVR, says last year was difficult as very few movies succeeded at the box office. According to BSE, the company's consolidated net profit was down 77 per cent to Rs 12.76 crore in 2014/15. But he is hopeful about the current year. "There's a great mix of Hindi and English films [this year]. The line-up is looking good," he adds.

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