It's showtime

It was 2009. The real estate market had tanked. Mall developers were stuck with unsold stock. Pramod Arora had just returned to PVR from a year-long stint with Kingston Properties (now Oberoi Realty). He had previously spent 12 years at PVR but the brief switchover to real estate did him a world of good, he says: “It had opened my eyes to thinking big.” The slowdown was a now-or-never opportunity, and Arora knew instinctively what to do. He told his team and a few broking agents that he was giving a flight ticket a day to them to travel across the country and check out which malls were affected the most and, therefore, ripe for the picking.

Over the next three-and-a-half months, they notched up a staggering number of air miles. “At any point in time, we had eight people travelling.” What they found was equally staggering: 392 suitable properties across 27 Indian cities were available. “We signed them up at Rs 18-20 per sq ft — prices that were unbelievable then,” Arora recalls.

It was a perfect time to seal those deals. Developers, under pressure, were only too willing to sign up contracts on terms that were tilted in PVR’s favour. But there was one hitch to the seemingly rash bet. “We didn’t have the board’s approval yet, and there was a three-month window before we could go ahead with these agreements,” says Arora, who is now PVR’s group president. “It was a tough call. We had taken a risk; we stood to forfeit Rs 3-3.5 crore if it didn’t come through.” Luckily, it did, and PVR picked up all of them. 

“Those 392 deals changed the face of PVR,” says Arora. It was among the many bold moves that have marked the rise of India’s first cinema multiplex company to the top. Last year, founder Ajay Bijli took a big gamble by buying out Mumbai’s Cinemax chain for Rs 543 crore to emerge as the largest multiplex chain in the country by size (see: Blockbuster hit). PVR now has 402 operational screens, and another 300 under development. The company delivered Rs 674 crore in revenue in FY13, growing by 39%. It registered 32.6 million footfalls in FY13 against 24.7 million in FY12, a 32% spurt. What next?

Hunger games

“We plan to have 500 screens by next year,” says Bijli. Cinema exhibition is a numbers game. The more screens and seats, the better the leverage with film producers and distributors, and pretty much everyone associated with the business. PVR is looking to add around 100 screens every year. “It’s very important to create cinemas that are not just efficient but have a wow factor as well,” points out Sanjeev Kumar, Bijli’s younger brother and PVR’s joint MD. Meanwhile, competition is growing: with its acquisition of Fame Cinemas in 2010, Inox is a serious contender for the top position with 288 screens, followed by Big Cinemas with 254 screens in India. Mexico’s Cinepolis, the first FDI-led investment in the space, is another player to watch out for.

Edelweiss Securities’ associate director Abneesh Roy believes the multiplex industry in India will pan out just as it has in other markets — as an oligopoly, under the control of a few players. That means size and scale matter most, but the distinctive edge could come from enhancing the experiential aspects. “The movie theatre business is a very detail-oriented industry, where you need passion. PVR’s promoters have that passion,” points out Roy. Multiplexes are a minority in the Indian cinema exhibition space by numbers, but they wield considerable leverage with Bollywood. And there is plenty of room to grow, says Bijli. “India has less than 2,000 new built multiplex screens. The other 7,000 are still single screens; there is no incentive for their owners to invest further,” he adds further. No wonder he is in a hurry to ramp up fast yet profitably.

The Cinemax acquisition has been PVR’s high point in recent years, more so after a failed attempt at inorganic growth with DLF’s DT Cinemas in 2009. This time, it was a tightly managed affair. “This acquisition was special. It was almost the same size as our balance sheet and it was the fastest we could manage. From the time we shook hands to closure, it took us only 27 days,” says Nitin Sood, CFO, PVR. The acquired properties are yet to shift to the PVR brand, and Bijli is as obsessed with the changeover as he is with his own properties. “It shouldn’t look like a fake PVR,” he says. “That’s what I keep saying at our brand change meetings. The last thing I want to put is the logo.”

Kamal Gianchandani, who rejoined the group in 2010 after a four-year stint with Reliance Entertainment, is in charge of the Cinemax integration. With an additional role as CEO of Cinemax, apart from heading the film distribution arm as president of PVR Pictures, he is focused currently on making the acquisition work. “About 75-80% of my time is spent on Cinemax, trying to ramp up revenue, integrating with PVR and ironing out differences in culture. That will be my focus for the next 10-12 months,” he says. This has meant cross-transfer of best practices and processes between the two entities. “Cinemax brought us  a new level of understanding of the business. Their fiscal control was much higher and we were able to imbibe that into PVR,” adds Arora.

PVR initially stayed focused on the north India cluster, particularly Delhi-National Capital Region (NCR). Buying Cinemax nearly tripled its properties in the west, and added some screens in south India as well. It now has an edge over competition, though Inox and Big Cinemas have also been growing their properties across the country. “South India accounts for 60% of the 9,000-odd screens in India, thus making it a lucrative market to tap. The management targets 25% revenue contribution from the south by FY15, which will drive growth,” says Niket Shah of Motilal Oswal Securities in a report on PVR. Even as PVR works to seamlessly integrate Cinemax with its existing business, it is also working on ways to improve revenue from the multiplex business as a whole. 

Beyond popcorn

Given that the exhibition business has zero content differentiation, PVR is seeking to increase the average ticket price (ATP), which currently stands at Rs 163 (a blended price following the Cinemax takeover), by engaging with customers beyond the movie experience. PVR’s ATP is already significantly higher than its peers (and expected to rise to Rs 180 in FY15), primarily due to its prime location strategy, premium interiors, design and consistent viewing experience, according to Shah. Bijli has also been working at other aspects and adding new lines that augment and help bring revenue. Among them are in-theatre advertising, which includes both on-screen and off-screen advertising, food and beverages (F&B) and other forms of leisure and entertainment that complement PVR’s business.

In the past three years, growth in F&B has been driven by PVR’s efforts to improve offerings and the fact that it has taken liquor licences at premium locations. Sood informs that average F&B spends at PVR are Rs 47-55 per customer. While F&B contribution to revenues for Inox grew from 18% to 22% in the past five years, for PVR this figure grew almost similarly from 19.5% to 23% in the same period. Post Cinemax, the F&B growth doubled in FY13 by 70%.

Come one, Come all

seating capacity has nearly doubled for PVR screens in the past five years

The F&B growth initiatives come under PVR Leisure, a JV with L Capital, the private equity arm of the LVMH Group. Under this are Mistral and Mr Hong, both unique experiments in multiplex chains. European fine dining restaurant Mistral, at Ambience Mall in Gurgaon, has an open-sky beer bar, a vodka and whisky bar and an open kitchen with a sandwich counter and grill just outside PVR Director’s Cut, its top-end theatre offering. Mr Hong, on the other hand, is an upcoming chain of Oriental ‘all-day dining’, the first of which will open shortly in Bengaluru.

“We are looking at several brands. The idea here is to build a full-fledged F&B division within the group itself,” says Renaud Palliere, CEO, international development, PVR, who is in charge of the F&B business. “There is a critical mass that warrants new initiatives. The PVR brand equity is built around an ecosystem where 75 million people are walking in through our doors on an annual basis.” Getting them to spend more is the key.

At the theatre itself, there are different brand formats to appeal to different customer groups, from PVR Director’s Cut (ultra-premium and exclusive), PVR Imax, PVR Gold (premium), PVR (regular) and PVR Talkies (economy). Cinemax has also given PVR access to more 3D-enabled theatres — the company now has 94 such screens, which include two Imax theatres (three more are being developed) and 61 Cinemax screens.

The low-end theatre concept, PVR Talkies, is aimed at tier 2 and tier 3 cities. Against an ATP of Rs 180-200 in larger cities, tickets at PVR Talkies are priced at Rs 80-100. It works on a more tightly controlled model with the cost of setting up each screen at Rs 1-1.25 crore, compared with Rs 2-2.5 crore in large, urban centres. Three such properties are already operational in Vadodara, Latur and Aurangabad, which COO Gautam Dutta terms ‘pilots’.

At the other end of the spectrum is Director’s Cut, which has screens with various seating capacities down to a 25-seater for exclusive group bookings. Tickets are priced at Rs 1,000 each on weekdays and Rs 1,400 each on weekends, and come with electronically-controlled recliner seats, blankets and in-seat ordering of gourmet meals.

Another concept PVR is building up is BluO. A bowling chain through a JV with Thailand’s Major Cineplex, it has six centres operational across five cities, with the seventh coming up at Ludhiana. Half of its revenues come from bowling. Each centre is over 30,000 sq ft, with 22-25 bowling lanes each.  With investments of Rs 75-80 lakh per lane, the typical fit-out period is six to seven months. “We are growing 8-10% annually on same-store sales,” says Vishal Sawhney, COO, PVR BluO Entertainment. But it’s a challenging business. “Bowling is not a common sport in India.” concedes Sawhney. So, scaling up isn’t easy: “We cannot open more than two or three centres in a year.” He’s now working on stirring up interest through corporate and women-only bowling leagues. “We have trainers at every centre educating people on how to bowl. Each centre has the potential to do business worth Rs 10-15 crore annually.” PVR BluO has contributed around 4% to revenues, growing 30% last year.

Another new concept is the Enhanced Cinema Experience (ECX), which has been launched first at the Phoenix Market City mall in Mumbai and the Orion Mall in Bengaluru. These screens offer 7.1 Dolby surround sound, 4K digital projection against 2K on regular screens and gourmet F&B options.

The bigger picture

Certainly, PVR has a lot going for it. Its real estate tie-ups are strong, for one, and that makes a key difference. But multiplexes depend upon content and its success, and that’s often an uncertain bet. It hasn’t been a good season lately for the business as many big releases didn’t fare too well, Sood admits. Still, he’s banking on PVR’s reputation to secure good mall locations and build on the ones that it already has. “The industry will consolidate further in the next 24 months. We’ve seen enough cycles to know that,” he says.

Competition is also nipping at its heels. With 84 screens across 13 Indian cities, Cinepolis has barely begun to scratch the surface in India’s cinema exhibition landscape, even as it ranks fourth globally with 3,290 screens. A rift between its Indian founding members and the Mexican management has kept it in the news, but country head Ashish Shukla says he’s on track to deliver 80-100 new screens in the coming year, and touch 500 screens by 2017. Its megaplex approach is setting the tone for the scale at which multiplexes will be built in major urban centres. “This has proven successful for us across the globe. It’s our core business,” he says. The first one opened in Magarpatta City in Pune with 15 screens. “We have eight screens per location on an average, while others have 3.5.”

While megaplexes are the way to go, these may not be enough to give Cinepolis an edge for now. Its limited track record in the country and lack of adequate scale are issues as well. “This is a very domestic-driven business. Clearly, PVR’s domain knowledge counts. Property owners need a strong tenant, and for that they would go to an Inox or PVR. Cinepolis doesn’t have that kind of pull,” says Roy.

For his part, Bijli feels there’s plenty of room for everyone and PVR will be adding screens both organically and through acquisitions. “We believe there’s huge potential for us to grow. We are targeting 1,000 screens in 48 months and we’ll close at 450 this year. Inorganic growth could speed it up even faster,” he says. “New mall development is going to be very slow in the next three to four years. But PVR has already tied up a lot of space,” adds Roy.And while occupancy rates have increased from 27% in FY11 to 35% in FY13, the company is working hard to ensure those numbers stay up. It’s already increased the number of shows, from 4-4.3 per day per screen about five years ago to 5.7 currently; this will further rise and peak at 6, says the management. Promotions such as the one where ticket prices for all shows are reduced to Rs 75 every Thursday also help bring in theatre-goers.

Also, PVR’s advertising revenue per screen is expected to get a big fillip, given its clout. The company had consolidated advertising revenues of Rs 86 crore in FY13, with national advertisers contributing 70-80%. “Given its bargaining power, the management plans to significantly increase consolidated ad revenue per screen over the next two years,” states the Motilal Oswal Securities report. “More importantly, given its high footfalls, 25% Bollywood box office market share and 35% Hollywood box office market share among multiplex theatres, PVR stands to gain significant bargaining power in terms of film hire charges,” it further adds.

Analysts expect PVR revenues to grow at a CAGR of 47% over FY13-15, driven by consolidation of the Cinemax acquisition and aggressive opening of new screens. Its consolidated PAT, too, has registered healthy growth — from Rs 32 lakh in FY11 to Rs 44.3 crore in FY13, and is set to grow at a CAGR of 49% over FY13-15. All the expansion and acquisitions have resulted in a debt burden of over Rs 620 crore, but the management is not losing sleep over it. “Currently we are at the peak of our debt. In the coming years, the debt levels will start coming down. The entire capex of Rs 120-130 crore for the next year is to be met through internal accruals,” says Sood.

Looks like Bijli has enough on his plate as PVR heads for its next milestone. Sit back and watch the screens; he promises it will be an interesting show.