Big Idea

The perfect script

Bookmyshow is now the cynosure of PE funds, but can it live up to the hype of its ₹1,100-crore valuation?

Soumik Kar

If social networking is synonymous with Facebook, online shopping with Amazon, then show tickets and entertainment are definitely instantly associated with Bookmyshow, at least in India. In just over a decade, the e-ticketing company has stolen the show with its innovative digital business model, providing moviegoers a hassle-free ticketing option and arming multiplex theatres with higher revenue and footfalls. And all this despite huge external troubles such as the dotcom bust and global sub-prime crisis. From nothing, Bookmyshow has gone on to become a ₹100-crore player with a decisive 80% share in the online movie ticket booking space. Growing at 100% and having turned profitable two years ago, the company has around 400 employees working across major cities such as Mumbai, Delhi, Bengaluru, Chennai and Hyderabad.

So, it is not surprising that it has managed to raise ₹250 crore since 2007 from eager investors, including Reliance-owned Network 18, Accel India and Saif Partners. The latest round of equity infusion by Saif Partners has now valued Bookmyshow at ₹1,100 crore. At present, Network 18 holds 40% in parent company Bigtree Entertainment, making it the largest shareholder in the company. The promoters hold 30%, and the rest is split between Accel India and Saif Partners.

While the ₹10,000-crore box-office ticketing market is growing at anywhere between 10% and 50%, Bookmyshow is expanding into new categories such as theatre and events like sports. The potential, then, seems enormous, but is the picture as rosy as it seems?

 The early days

In 1999, Ashish Hemrajani was on a backpacking trip in South Africa, taking a break from his two-year-old job at ad agency JWT. Travelling around Storms River Valley, he was sitting under a tree, listening to the radio, when it played a jingle promoting tickets for a rugby match. 

Hemrajani was struck by the idea of virtual ticketing. After he returned, he quit his job, persuaded his friends Rajesh Balpande and Parikshit Dar to quit their jobs as well and started a movie ticket selling business through telephone and the internet. The name of their company — Bigtree Entertainment — pays tribute to the site of Hemrajani’s epiphany.

Why cinema tickets? Is Hemrajani a movie buff? “Not really. In my life, I haven’t seen more than 20 movies,” says the 39-year-old. Indeed, Hemrajani is decidedly an outdoors man, and likes to sail and swim in his spare time. A member of the Colaba Sailing Club and Royal Bombay Yacht Club, he’s currently planning to buy a 35-seat sloop cruiser, his first boat, to make his weekend sailing trips even more meaningful. 

What triggered the thought behind Bookmyshow, then, was “an instinct for creating solutions to people’s problems, making an incremental difference to their lives”. Growing up in a middle-class household in Mumbai, he says, he observed how people around him struggled to fulfil even their basic needs, standing in queues for hours to buy staples, movie or train tickets. “It was this feeling of inadequacy that got me going,” he says. 

Taking the plunge, though, wasn’t easy for the three founders. Balpande, for instance, was comfortably placed at the Chatterjee-Soros group when he quit to join his MBA classmates from Syndenham College in their new business initiative. “Coming from a fairly modest, conservative background, it was a difficult decision. Around 2002, we would only get paid when there was business and that was tough since both Parikshit [Dar] and I had just gotten married. But still, we were firm in our resolve and conviction,” says Balpande. Dar, who quit his job as an IT manager with the Star supermarket chain in South Africa to set up Bigtree, concurs, “We were very, very early in the business. Establishing the concept in India was no child’s play.” 

With seed capital of ₹25,000 from Hemrajani and his friends, Bigtree Entertainment came to life in 1999 — and very shortly after, Chase Capital Partners JP Morgan bought a stake. Armed with capital, the founders went about not just building the business, but creating the entire ecosystem of online ticketing. Remember, this was a time when not only was internet penetration minuscule, the concept of multiplexes, too, was practically absent. Bigtree had to introduce cinema houses to technology that would allow them to sell tickets online as well as at the box office. 

Bigtree tied up with New Zealand-based Vista Entertainment Solutions for the ticketing software and customised it to suit local conditions. Initially, the company installed the software for free at theatres but, realising that theatre-owners weren’t really valuing what Bigtree was bringing to the table, soon started charging for the installation. Even now, the software solution accounts for 5% of their revenues.

After tie-ups with 200 cinema houses, Bigtree launched its service in 2000 as But the dotcom bust in 2001-2002 put the business model under tremendous pressure, even as Chase Capital exited by selling its stake to NewsCorp. At the time, Bigtree’s arrangement with theatres involved buying a fixed amount of inventory and selling that to customers — often, it ended up with unsold tickets on weekdays while running short on weekends.

This, coupled with its 15 call centres and 150 employees, including staff to hand over tickets on cash-on-delivery (COD) basis, meant costs became unwieldy. The company quickly restructured the organisation, shifting offices and cutting costs to stay afloat; headcount came down to just six. “It wasn’t easy in those days. I kept getting calls from headhunters about jobs but I clung on to our company steadfastly,” recalls Hemrajani. 

Between 2002 and 2006, Hemrajani ran the company as a B2B service, providing ticketing software to the mushrooming multiplex sector. It turned into a call centre for multiplexes such as PVR and Cinemax, among others, and had around 60 employees. The inflection point, though, came in 2007.

Fresh impetus

Greenshoots became visible at Bigtree in 2007 when Network 18 invested around ₹35 crore in the company. Sarbvir Singh, managing director, Capital 18, which handles the media and entertainment investments for Network18, says the group believed in the potential of Bigtree. “We spotted the talent and ambition of the trio early on. They are a grounded lot who have seen failures but still managed to stay focused,” said Singh. 

The fresh investment aside, the external environment was also much more promising now. Mobile telephony had exploded across India and internet banking was gaining ground. Accordingly, Bigtree changed its business model. Rechristened Bookmyshow, now the service involved entering into a convenience fee arrangement with multiplexes and standalone cinema houses; buying bulk inventory and COD came to an end and all customer transactions moved online. 

The next hurdle appeared quickly. Like everyone else, Bookmyshow, too, suffered the consequences of the global financial meltdown. Apart from that, there was also a strike in the Hindi film industry then and “all kinds of mayhem that could unsettle a businessman”, says Hemrajani, adding, “But we had learnt our lesson from 2002.” Cost-cutting measures were immediately implemented — minimum, lowest-cost travel, cutting down on stationery and electricity, etc. Around 80 employees also collectively decided on salary cuts of 10-30% across the board. 

The measures helped and Bigtree turned the corner in 2011, when it became Ebitda positive. The following year, Accel India contributed to the second round of fund infusion, investing ₹100 crore, even as Bigtree expanded to 150 cities. In 2013, in a bid to widen its coverage, Bigtree acquired the Chennai-based, the flagship brand of Ticketgreen Solutions, a leading entertainment ticketing portal in the south. Around the same time, the company also moved beyond cinema to offer tickets to events such as concerts and theatres as well as sports such as IPL matches and F1 racing. Currently, 30% of Bigtree’s revenue comes from non-movie tickets.

The same year, Hemrajani and his partners got a third round of fund infusion when Saif Partners put in ₹150 crore into the company. Deepak Gaur, managing director, Saif Partners, says, “Entertainment events is a fast growing market in India. Internet penetration is also growing fast in the country. Ashish and his team have a genuine passion for their business. Their main differentiator is the ability to create end-to-end solutions for offline events. They managed to develop a customer-friendly solution. We might increase our stake in the company as and when the opportunity comes,” says Gaur. He declines to share details about Saif Partners’ stake in the company.

“It’s not that we desperately needed funding,” adds Hemrajani. “It’s just that we needed a player such as Saif Partners, who understands the value of scaling up an organisation. Also, Saif has helped other online companies such as Justdial and MakeMyTrip, which it invested into, go public in a short time,” said Hemrajani. While MakeMyTrip got listed on the Nasdaq in 2010, Justdial recently got listed on the NSE. 

Staying the course

For now, the company has big growth plans for the next few years. “Our focus will remain on innovation and people. We will also work on new ticketing formats — we are trying to deploy new technologies to make the transactions smoother and more seamless,” says Hemrajani. Last year, the company launched the Bookmyshow mobile app, which has been very successful — already, 40% of tickets are booked through the app. “We are also investing heavily into some of our product lines, such as the automated ticketing machine, and looking at cloud-based solutions to make the check-out process and ticket collection much easier,” he adds.

As a pilot, Bigtree has set up automated ticket collecting machines at select cinema houses. Customers simply place their debit or credit cards on the machine, which scans the card and prints the ticket, similar to self check-in kiosks at airports. “From an operational level, there should not be any queues at the counters, where people have to stand to collect their tickets,” Hemrajani explains. 

Bigtree also plans to expand into tier 2 and tier 3 cities, going forward, from its current focus on metros. “The growth potential from smaller towns is very good because of mobile phones,” says Hemrajani. Currently, Bookmyshow does almost 40% of its transactions on mobile. Its target for FY15: selling 50 million tickets across all mediums.

Hemrajani explains that it was not too difficult persuading theatre owners to join hands with Bookmyshow. “Once they saw the enthusiasm we had and the kind of work we were doing with our market partners, they readily accepted us as we had the same objective,” he says.

As on date, around 80% of Bookmyshow’s business comes from movie tickets, while the rest comes from events such as music festivals, Formula One races, concerts and IPL, among others. Its main sources of revenue (85%) comes from the convenience fee charged on each ticket; the sale of ticketing software, including maintenance fees, to multiplex theatres brings in 5%, and turnkey solutions for events and sports such as IPL contributes to around 10% of revenue. While Bookmyshow sells software to around 50% of its 3,000 screens clients, it hopes to add 5,000-6,000 screen clients over the next two years. Going forward, it is also looking at targeted advertising for production houses and conversion of tickets from cash to credit card as other sources of revenue. 

At present, Bookmyshow covers 3,000 screens across 200 cities, with the southern market contributing to 30% of revenues as the region has many more releases compared with the north and the west, which add an equal 25% share to revenues. With most multiplexes increasing their footprint and 10,000 screens likely to be added across India in the next five years, there is enough growth potential for Bookmyshow. “We have been Ebitda and PAT positive for two years now. We have seen around 100% growth in the last one year,” points out Hemrajani. Though the company refused to share financials, data sourced from the registrar of companies shows Bigtree Entertainment clocked revenue of around ₹53 crore in FY13 against ₹29 crore the previous year. Similarly, profit after tax in FY13 was ₹3.2 crore against ₹1.4 crore in FY12.

While the convenience fee arrangement seems to be a big part of revenue, the arrangement does not necessarily mean Bookmyshow’s business model is risk-free. For instance, after the Maharashtra government chose to scrap the convenience fee in 2013, in the last one year, Bigtree suffered a revenue loss of ₹10 crore. That number will get reflected in the FY14 numbers, which the company has not yet revealed. The Bombay high court has since stayed the ban, but the fact remains that regulation changes can easily impact Bookmyshow’s core business. However, Hemrajani is not unduly worried. “I believe consumers pay money if they see value in the service being provided and had that not been the case, Bookmyshow would not be in business.”

Despite the challenges, existing investors don’t seem to be worried. In fact, Saif Partner’s fund infusion has now valued Bookmyshow startlingly high for a company with revenue well under ₹100 crore. Girish Nadkarni, partner, IDFC Alternatives-Private Equity, believes that the online space is now the flavour of the season for investors. “Increasingly, private equity players and investors are investing into online businesses, which are abuzz with stories of potential growth.” But Jaideep Ghosh, partner, KPMG believes valuations here are getting into bubble territory. “One cause of concern is that the club of highly valued online firms is only swelling with players such as Flipkart and Bookmyshow. While some are real, some are stretching out too thin and may find it hard to survive,” he points out. 

Gaur of Saif Partners, though, believes valuations are a function of comparables and growth potential for online businesses. “We analysed the financials of Bookmyshow, compared those with other online firms, weighed the growth potential and then decided to invest into the company.”

Not surprisingly, such an approach has seen investors in Bigtree Entertainment ready to pay a premium. In 2012, Network18 made a profit of ₹45 crore by selling its 20% stake to Accel India, which has thus far invested ₹100 crore in Bigtree. Globally, Accel has invested successfully in online companies such as Facebook, Rovio and Groupon, among others. In India, too, it has invested in growing internet businesses such as Flipkart and Myntra. 

For now, the private equity players are keeping their faith. “Bookmyshow has added significant value since we invested into the company. It is speeding ahead,” feels Prashanth Prakash, partner, Accel India. Saif Partners, too, believes the best is yet to come. “We have an investment horizon of around five-seven years and believe Bookmyshow enjoys a dominant position in a growing market,” adds Gaur. For Hemrajani & co, who have come back from the brink, that vote of confidence is what will keep them going.