Customers loved the multiplex. But there was pressure to deliver the same exacting standards at every location. Since Village Roadshow was expanding across the world, they were not able to give India the kind of attention they wanted to. And, to top it all, India was a complex maze with its ticket controls and different tax structures. So, all expansion plans were up to me and my team. Also, since I was the majority partner, I had to cough up 60% of the funds each time we opened a cinema. I used to wonder where I would get the funds to do that.

I knew that there was no choice but to expand the business. So I had to keep looking for new locations. In those days, there were no malls or shopping centres. Though I decided to stay within Delhi, I started to realise that Hindi films were having a revolution of their own. I remember SRK’s Yes Boss was the first movie I screened. We offered the producer percentage sharing terms and he agreed. Yes Boss was a hit and the occupancy levels hit the roof. Since 90-95% of the box office collections in India come from Hindi movies, I couldn’t afford to get too westernised — I had to play what the audience consumed. So, we decided to look beyond South Delhi for locations.

I asked my team to look for all cinemas that were not doing well but were in good catchment areas, anywhere in Delhi. I found in Naraina, a cinema called Payal. Soon I found one in Vikas Puri called Sonia. I refurbished all of them — Sonia became PVR Vikas Puri, a threeplex and PVR Nairana, a fourplex. Both of them started to do really well. By 2000, we had a chain of sorts with 12 screens in Delhi, including Priya.

By then, I had started to hear that some developers were finally planning to set up malls in India. Projects were being announced in Bangalore, Gurgaon, Hyderabad and Mumbai. Irfan Razack, who runs Prestige Group, heard of PVR and wanted to put cinemas on the top floor of his mall. He asked, “Are you ready to take a chance with me? I don’t want to do fourplexes, I want to go bigger.” I asked him how many screens he wanted and, he replied, “At least 11.” “I am going to give you the whole floor. Given that you have been doing fourplexes, do you think you have the bandwidth to do this?” I spoke to my distributors, my team and Village Roadshow. They said it was audacious but it might do well. The only reason I felt confident was since Bangalore was increasingly becoming cosmopolitan, there was room to play English, Hindi and regional language movies. So I committed myself to this project and also signed up for another sevenplex in MGF.

In all, I had signed projects worth Rs.100 crore for about 50 screens across Hyderabad, Delhi, Bangalore and Mumbai by 2001. I was really nervous about funding these projects. But people at Village Roadshow put me at ease saying, “Ajay you can bring 25-26% and we will fund you.” It was the beginning of a dream run. Or so I thought.

***
Just when everything was going as per script, came the most unexpected twist. Terror struck the heart of the US on 9/11 but its ramifications reverberated worldwide. All global companies were pulling the plug on their expansion plans and Village Roadshow was no different. I was in office when I got a fax stating that they were pulling out. I panicked. Never in my wildest dreams did I imagine that things would come to such a stage. I was looking at Rs.100 crore and here I was suddenly staring all of that going to zero! It was a defining moment in my life.

In those six months, post 9/11, I just about met everybody at Village Roadshow, but they didn’t budge. Chairman Robert Kirby and CEO Graham Burke, though, were gracious and even set up a meeting with an investor in New York — Anthony Munk, managing director at Onex Investment Corp, which specialised in cinema investments. But the meeting didn’t go well. He was not keen on investing in India and asked me a lot of statistics on the business in India but there weren’t too many available then. So he concluded that I didn’t know anything about the business. I returned empty-handed.

Between 2001 and 2003, I was running 12 multiplexes. In retrospect, a lot of good projects went to competitors as they kept signing up with newer malls which I could have signed. But I did not want to stretch myself. No doubt the market potential was huge, but the biggest blunder an entrepreneur can do is to get carried away. The only thing going in my favour was that the mall projects were getting delayed. But I had to, eventually, meet the milestone payments.

So, I went to Sunil Mittal for advice. He saw the numbers and was quite impressed. He felt private equity would be a good bet and asked me to get in touch with Shripal Morakhia in Mumbai. Shripal lined up meetings with some funds, which did not yield any result. In 2002-03, I met Renuka Ramnath at ICICI Venture. She really liked the business model and said, “I have never seen 500,000-1,000,000 sq ft malls with multiplexes on the top floor.” She didn’t promise me anything but wanted to go to Australia for a one-on-one meeting with Robert Kirby to understand a bit more about the business and my proposition. She said, “I don’t want you to be present in the meeting.” I said, “I totally understand.”

Despite our JV being a non-starter, I was still in good terms with the folks at Melbourne. In fact, Village Roadshow had given me two years to repay its share of the joint venture which was about Rs.60 million. I rang up their HQ and told them: “I just want one last favour. I am bringing an investor, who wants to do a due diligence and understand the business.” They said, “No problem Ajay, we will roll out the red carpet.” So, both of us ended up visiting seven to eight properties across Melbourne, Brisbane and Sydney. She said, “Wah! I didn’t know we could see movies like this.” In February 2003, a letter came from her. I had been waiting for two months with bated breath for her decision. She had to take it to her board which was then headed by Mr. KV Kamath. It was a moment of sheer joy. The fund invested was about Rs.47 crore. Luckily, we could match the contribution with debt, though I had to mortgage my house and Priya.

Every cinema had a two-year payback and since it was the first time multiplexes were coming up in Mumbai, Bangalore and Gurgaon, there was a lot of excitement and interest among movie-goers and shoppers. In fact, there were days when there would be massive traffic jams in Koramangala as people would come to watch movies in the mall. Once we got going, the numbers were way ahead of what was required to meet the bank covenants. Sanjay Malhotra, my then CFO, had a chat with the bankers and told them, “Listen, we have proved ourselves, so we don’t want to hypothecate these properties anymore.” The bankers agreed and instead of collateral, for the first time, we securitised our cash flows.

While I was warned about the pitfalls of private equity and how one had to provide a time-bound exit, my learning was that if one performed well, things would eventually fall in place. Hence, private equity is, probably, the best option for companies looking for growth capital. You only have to be confident about your performance, be transparent in your dealings and take key decisions together. I was fairly confident that, in the next four to five years, we would reach a critical mass to raise the next round of funding, thereby, facilitating an exit for our existing investors.

Renuka has been phenomenal throughout PVR’s journey, asking us to focus on unit-level economics and profitability rather than chasing mindless growth. We had signed lots of screens by then, but we couldn’t fund it through accruals, nor could the company take more debt. So, we both decided that IPO was the right thing to do. PVR went public in 2006. It turned out to be a profitable exit for ICICI Venture — it had entered at Rs.47.5 and part-exited at Rs.225 per share.

This is part 2 of a three-part series. You can read part 1 here part 3 here.

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