Will open 60-70 screens per year for the next three years: PVR

PVR realised long ago that scale in movie exhibition is extremely important. First, they acquired Cinemax, now they have announced the acquisition of DT Cinemas. A mix of organic and inorganic growth makes PVR a leading player in the sector. In a conversation with Business Today's Manu Kaushik, Ajay Bijli, PVR's Chairman and Managing Director and Sanjeev Kumar, Joint Managing Director, discuss their long-term strategy for the company. Edited excerpts:

Q.  What was the biggest turning point for PVR in the recent times?

Ajay Bijli: We were growing organically, picking up cinemas in the malls. Sanjeev (Kumar) and I were keen that we should get the best locations. But we saw that the mall growth was only getting us 60-70 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 of what is needed to justify being a leader in the space. I am not making comparisons to China where the numbers are crazy. Within the context of all the challenges in India, being a 100-150 screens company was okay. But then all of a sudden, this opportunity came where the number four player, listed on the stock exchange, Cinemax decided to exit the business.

In the last three years, that probably has been the biggest turning point for PVR. Actually, we didn't realise that what a big decision it turned out to be for everybody. It was a profitable asset as well. On EBITDA margins comparison, they were better than us. That played an important role in the acquisition. Overall, everything changed for us.

Q. How does scale help in this business?

Bijli: Every cost, because there's scale, gets amortised, and we get benefits of that. Because we are doing everything at a much larger scale, economies of scale start kicking in, whether it is on the capex side or opex side. Even when we go for negotiations with developers. Even the rental benefits we get. The bargaining power improves with suppliers, filmmakers, producers and distributors.

Sanjeev Kumar: COGS [cost of goods sold] of food and beverages (F&B), for instance. Our [average] COGS used to be 30-31 per cent. It has come down to 26.5 per cent. On the advertising revenue side, because a lot of companies that we were targeting earlier wanted all-India presence and didn't want to advertise regionally. If you tell them that you have Delhi, Malegaon, Nanded, then you end up expanding the client base because these clients look for national chain.

Q. What is your revenue break-up? Do you expect it to change as you grow bigger in size?

Bijli: If you look at revenue break up, 66 per cent comes from ticket sales, about 23 per cent comes from F&B, and the remaining revenues come from advertising. The percentages will remain the same. By and large, this is the break up the world over.

The spending per head used to be Rs 40-50 ages ago, it has now reached about Rs 77. We are talking about all India [figures] which includes tier-II and tier-III [cities]. In bigger cities like Delhi, Mumbai and Bangalore, and within that, affluent locations like Select Citywalk, Juhu and Phoenix, it goes up to Rs 150-200 [per head]. But you also have Nanded, Ujjain, Pathankot, Malegaon and Panipat, where it is Rs 44-45 [per head].

Q. What's the rationale behind DT Cinemas acquisition?

Bijli: A part of our strategy is to grow organically, and a part is to grow inorganically. Locations are very important to this business. Their locations are in good malls.

Q. How does the movie pipeline looking like this year?

Kumar: Going forward, in both Hindi and English, there's a great mix of films. By and large, the [last] year was slow.

Bijli: The line-up is looking good.

Q. What are your goals?

Bijli: We have a good pipeline of organic growth. We add close to 70 screens a year. This year, we have got that many screens opening up. Every year, for the next three years, we will be opening 60-70 screens. The goal is to keep growing the business and reach every single city where movie consumption can happen.

The idea is to keep improving on the quantitative side - adding more screens - and also improving quality of experience, customer service and technology. There again, we are not sitting still. We have a new format called PVR Superplex which is anything above 11 screens. A new 15-screen complex will open up in Noida. We have to be dynamic and being innovators in what we do.

Q. And what are the challenges for the company?

Bijli: The biggest challenge is the regulatory environment. The entertainment tax is very high. That's the biggest issue. The growth has happened wherever we found the regulatory environment to be conducive to investment. If you look at all the multiplexes that came up in Maharashtra only came up when the government announced a tax break. The biggest growth in UP also happened when tax breaks were announced.