PVR's de-risking strategy gets a big boost

PVR Ltd, India's pioneer in India's film exhibition industry, has entered into an agreement with L Capital Eco Ltd, or L Capital, a private equity arm of luxury and lifestyle products company LMVH, to invest around Rs 108 crore for a 10 per cent stake in PVR's cinema exhibition and in-mall entertainment businesses.

According to a statement, L Capital will initially invest Rs 50.1 crore in a new subsidiary being set up by PVR called PVR Leisure Ltd. PVR's existing investment in PVR bluO Entertainment Ltd will now be held through this new subsidiary company. The joint venture is subject to FIPB approvals.

"This partnership will help us build and expand our core cinema exhibition business and expand our in-mall entertainment portfolio. This is in line with our vision to evolve into a full scale lifestyle entertainment company over the next four to five years," says Ajay Bijli, Chairman and Managing Director of PVR.

At present, the exhibition business contributes nearly 70 per cent of PVR's revenues, a smaller proportion than in other multiplex chains. The revenue share from food & beverages is 18 per cent and from advertisements, 13 per cent. So even as they expand, multiplexes are trying to reduce their dependence on the movie shows and increase the income from food, beverages and advertisements, which have higher margins, apart from setting up bowling alleys, as in the case of PVR.  PVR's subsidiary PVR bluO is setting up bowling centres across the country with four new ones slated to open in 2012-13. According to an industry expert, PVR's gradual expansion beyond the metros into smaller cities,  is in keeping with its plans of de-risking, as is its expansion of the non-core business.

The company's first quarter numbers for 2012/13 show a revenue growth of 52 per cent as compared to the same quarter of previous financial year. Footfalls to its theatres increased by 36 per cent belying any slowdown in the film exhibition industry. Food and beverage revenues also grew by 52 per cent during the quarter.

As announced in October last year, PVR's target is to operate 500 screens by the end of 2014 with a further investment of Rs 580 crore. PVR plans to add another 127 screens to the 16o screens with which it closed financial year 2011/12. That is a capacity addition of almost 80 per cent. It plans to invest around Rs. 120/130 crore in the current financial year.

PVR's expansion exemplifies that of the industry, which had been having a lull for almost three to four years. But suddenly much has changed. The country's largest multiplex chain by revenues, Inox Liesure ltd (including that of Fame multiplex which Inox acquired) has big expansion plans. So does Cinemax. Cinepolis, the Mexican multiplex giant, plans to open 500 screens by 2016.

PVR had in between ventured into the production and distribution business as well. However, apart from Jaane Tu Ya Jaane Na co- produced with Aamir Khan Production, the company's film business has not seen any major successes. The recently co-produced film Shanghai did below average business, according to BoxofficeIndia.com, a box-office tracking website.

Backward integration rarely helps in the movie business. In this era of saturation releases of every new film, any one chain's screens forms less than five per cent screens of a movie's release on an average. But despite this PVR seems to be getting its focus back on its mainstay business, exhibition. With a new foreign partner on board for non-core businesses, the company has streamlined itself to achieve better value for its growth.