Indian Multiplexes Industry: An Overview.....Major Shift post Consolidation

Indian Multiplexes Industry: An Overview In the last three years, exhibition cos have seen a big rise in revenues and operating margin, Post Consolidation Multiplex companies present a picture of healthy consolidation as they have recorded a significant improvement in their revenues per screen per quarter and operating margins after expanding inorganically over the past three years. PVR and Inox Leisure have reported a growth of 28-58% in revenues per screen per quarter since their respective acquisitions. The growth has come from a combination of factors, including consistent increase in average ticket prices, increasing contribution of revenues from food & beverages as well as advertising segments, expansion in non-metro cities and, perhaps most important, their bargaining power with producer-distributor groupings that share part of the revenues from sale of tickets. There have been two major acquisitions in the multiplex industry over the past three years. Inox Leisure acquired Fame India in 2010, a move that strengthened its presence in western, southern and eastern regions. PVR acquired Cinemax India in November last year, thereby consolidating its presence in the western region considerably after having established itself in the North. Prior to the acquisition, Inox Leisure and Fame India individually generated average revenues per screen per quarter of . 59 lakh and . 41 lakh, respectively, from June 2009 to June 2010. The merged entity has been recording an increase in average revenue per screen per quarter. According to an ETIG analysis, the average revenue per screen per quarter for Inox Leisure has increased to . 79 lakh after acquisition, leading to a growth of 58% in average revenue per screen per quarter in the quarter to September 2013. Similarly, PVR and Cinemax India individually generated average revenues per screen per quarter of . 86 lakh and . 57 lakh, respectively, from June 2010 to December 2012. The merged entity has generated . 91 lakh revenue per screen per quarter in the quarter to September 2013, spelling a growth of 28%. “Besides robust box-office collections (with a consistent growth of 7-8% in average ticket prices), a major factor that contributed to the growth of revenue per screen per quarter is the strong growth in food & beverages revenues in the last three years,” said Nitin Sood, chief financial officer of PVR. Among the chief reasons for growth in revenues from food & beverages is the frequent change in the food menu. “At Inox, apart from usual snacks, we constantly innovate on our food menu. We have different varieties of sandwiches and other items, which are improvised according to the changing taste of patrons,” said Alok Tandon, chief executive officer of Inox Leisure. The contribution of food & beverages to the company’s revenues in April-September 2013 was 21%, compared with 15% in the corresponding period in 2010. Consistent increase in advertising revenues also contributed to the growth in revenues per screen per quarter as multiplexes increased their presence across the country. Inox Leisure is present in 40 cities with 288 screens, while PVR is present in 38 cities with 402 screens after their respective acquisitions. This has added to the advertising revenues as well, which, in turn, enhanced revenues per screen per quarter. “Due to enhanced presence in tier-II and tier-III cities, our advertising revenues are also growing by 30% year-on-year for the last three years,” said PVR’s Sood. Analysts, however, say the increased bargaining power of exhibition companies is the biggest driver of their growth. Multiplex companies get half of the revenues earned from sale of tickets during the first week of release of a film, while the rest goes to producer-distributor entities. In the subsequent weeks, the share of revenues changes between multiplexes and producer-distributor entities depending on the collections. PVR, which commands as much as a quarter of the screen capacity of the entire multiplex industry in the country, now has an average bargaining power of 47.2% with producer-distributor entities, compared with 48% earlier. This means it saves 0.8% of its collections, directly enhancing its operating profit. Another factor is the improved product mix that these companies implemented after the acquisition. Following the increase in screen count, these companies also cashed in on the demand for regional films, which not only ensured them more revenues but also tax benefits in select states. “Regional cinema is playing an active role in enhancing overall revenues of multiplexes,” said Alok Tandon, chief executive officer of Inox Leisure. An analyst with an institutional broking house agreed. “As regards regional films, the overall budget, quality and more importantly boxoffice collections have improved dramatically. It is a serious business for multiplexes.” For PVR, the contribution of regional films to box-office collections has increased to 12-15% from 6-7% three years ago. Multiplex firms have improved their operating profit and revenues. Inox’s EBIDTA per screen per quarter before acquisition was . 5 lakh, while Fame’s average EBIDTA was . 4.6 lakh. Post-acquisition, the merged entity Inox Leisure has an average EBIDTA per screen per quarter of . 9.7 lakh, a growth of 98%. On the other hand, PVR and Cinemax India both had average EBIDTA per screen per quarter of . 14 lakh before acquisition, which grew 30% to . 18 lakh after the acquisition. Importantly, this expansion has not over-leveraged the balance sheets of these companies. On a full-year annualised basis, PVR is currently trading at a debt-to-EBIDTA ratio of 2, while Inox Leisure is trading at ratio of 1.4. These are manageable levels since debt-to-EBIDTA ratio of more than 4 stretches the balance sheet.     Ref: An ET Article