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Multiplex Is Our Core Business: Ajay Bijli, Chairman and Managing Director, PVR

Ajay Bijli and his brother and Joint MD Sanjeev share their views on the SPI Cinemas acquisition and other plans with Ashish Sinha

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Keen to offer the best cinema viewing experience Ajay Bijli, Chairman and Managing Director, PVR is focused on growing the multiplex business in India and even abroad. Bijli and his brother and Joint MD Sanjeev share their views on the SPI Cinemas acquisition and other plans with Ashish Sinha. 

Excerpts:

Now that the SPI Cinemas acquisition is done, what is keeping you busy? 
There are a lot of things happening. The existing business has become large and requires attention. As for the SPI Cinemas deal, now we are working on integrating it. Following every acquisition, we face challenges that come along. Therefore, we keep a bench strength of senior management that helps us in smooth integration. Till 2012 we were growing organically, and did our first acquisition only after 2012.

Is the multiplex business so difficult to run that established chains are keen to exit?
Ajay: No established player wants to part with their business happily. It is a question of priority, focus and core competence. In every acquisition that we have done, the existing player was doing a good job. Take Cin­emax, for instance. Their main business was real estate so at some point I guess they realised that they wanted to focus on their core business. For us, mul­tiplex has been our core business. In order to grow in this business you need scale -- either organically or inorganically.
 
Sanjeev: Take the case of DLF and DT Cinema. Everybody knows that DLF’s main business is real estate. They are the largest developers. So when the opportunity came, we moved in. Selling a business or buying a business is all about priorities. Like, for us exhibition is our core business. For some time in between we also had a bowling business which was doing well. But we sold it off to focus on the multiplex business. So it is all about priorities.

Others in the business have also been acquiring multiplex chains. Is consolidation happening in this space for real now? Are there operational challenges in operating a cinema chain beyond a certain scale? 

Sanjeev: In our industry, consolidation has been happening for some years now. It is happening else­where too; in America and most of the developed markets. Running a business beyond certain scale and size is not the main challenge.

Ajay: Look at successful chains like Starbucks, Ikea, Zara or any such established retailers. They are expanding and opening more outlets. Therefore scaling up is not really the main challenge. As San­jeev said, it is about prioritising your business goals. Someone sees value in exiting the business and fo­cusing on something else. We see value in scaling up our operations.

What are the key things you look for before going for an acquisition?

Ajay: Obviously, the circuit has to be profitable. It has to be a high-quality circuit that is built well and has a brand fit with PVR. Also, it has to come at the right valuation. If all these factors align, we move ahead.

Sanjeev: The geographical location of the chain has to enhance our business and add value. In the case of Cinemax, it enhanced the western region for us. In the case of SPI Cinemas, it enhances the southern region for us. In the case of DLF, it was the northern belt that added value to us.

In the SPI Cinemas acquisition, the average per-screen acquisition cost is around Rs 8-8.3 crore whereas your revenue per screen today is Rs 3.5 crore. How do you explain the math?
Ajay: We do not look at per-screen cost when mak­ing an acquisition. That is a wrong way of looking. We always look for Ebitda of the screen/business. Then you multiply it by a multiple which we feel would be the right figure irrespective of the per-screen cost. Then we look at the payback duration from the screen. We must get the payback in four-five years. Analysts keep writing about per-screen cost etc. But that does not matter to us. You could have a very low per-screen cost but if it is a loss-mak­ing business then what is the point of buying it? I can give you hundreds of example in this country where not even Rs 2 crore has been spent but you lose Rs 2 crore per screen if you buy. So this per-screen arith­metic is a wrong benchmark for acquisitions. For us, what matters is the Ebitda that is getting generated and it should be a profitable chain. Now if you look at the Ebitda being generated by SPI Cinemas, it is Rs 100 crore. And we paid Rs 1,000 crore or 10 times the Ebitda. This is all in the public domain. So we did not look at how much it was capitalised for and how much we were buying it for.

What is driving the business in the absence of any big spike in ATP or occupancy which is directly linked to the quality of the content shown?
Ajay: The ATP growth is more than the inflation currently — about 7-8 per cent. Occupancy is in­creasing every year and the content line-up is always good, which drives the footfalls. The demand side is always strong and the supply side is equally good and driving the business.  


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