 "Inox's high growth ambition soars")
At second spot with 358 cinema screens across the country, Inox has since its inception looked at acquisitions aggressively and will be continuing with the strategy, the Satyam acquisition being an example.
Until the Delhi-based multiplex chain came under Inox's fold, the latter had practically no presence in the North Indian market. With the buyout, Inox now stakes claim to three prime properties in the national capital, apart from properties in Rajasthan and neighbouring states.
Also Read
“India is a prolific producer of content, with 1,000-plus movies being released every year. There is appetite for this content, since around four billion tickets are sold on an annual basis. The only lacuna is in the exhibition space. We have only nine screens per million citizens; China has 25 screens per million. More, of these nine, only one or two screens per million are multiplex ones,” explains Asher, on why he believes this is the best time for expanding.
He breaks this further down. Nationally, there are three to four entities -- PVR, Inox, Cinepolis and BIG Cinemas. There are 15-20 regional ones and more local players, state or citywise. The smaller ones will find viability of their business difficult as national players enter the regional space and this will lead to more consolidation.
Cost economics
This does not mean the expansion will come cheaply. After the Satyam deal announcement, rival and sector leader PVR Ltd''s Ajay Bijli commented in an interview ona news channel that he personally felt the cost per screen in the deal was over-priced. Inox bought the 38-screen multiplex chain for Rs 182 crore, a per-screen cost of Rs 4.5 crore. Bijli explained the average investment for developing a new property was Rs 2-2.5 crore and, hence, the cost of Rs 4.5 crore a screen was too high, he felt.
Asher says at Inox they do not always look at the cost per screen logic. He agrees that Bijli's calculation for a new screen via the organic route holds true for Inox, too. However, he says, he looks at acquisitions from an Ebitda (earnings before interest, taxes, depreciation and amortisation) perspective.
“Acquiring a business has to be based on the Ebitda it is making. It is a running business and so, the enterprise value is based on an Ebitda multiple. By that calculation, I do not feel we have overpaid. The valuation is in the market range, given the size and scale of Satyam's operations,” he asserts.
Asher adds while Inox has acquired the 38 operational screens from Satyam, the company also has access to 36 screens in the Satyam development pipeline, of which four are already funded. This means, he contends, that the company paid Rs 182 crore for 74 screens -- of which 38 are operational, four are non-operational but fully pre-funded and 32 are yet to be developed.
Coupling this with the 96 screens Inox has already planned for organic growth, its screen footprint in the country would be around 490 by the end of 2015, if it does not buy any more regional entities.
Ahead
Sources also reveal Asher and company are in talks with Reliance Media Works to merge the BIG Cinemas business with Inox's. Non-committal on this, Asher simply maintained, “Not specifically referring to the BIG Cinemas issue, Inox will always look at acquisition possibilities if it fits the criteria. We usually look at acquiring chains that have at least 15 to 20 screens, complement the Inox presence in terms of geography and catchment and branding at par with Inox.”
If the BIG Cinemas merger with Inox becomes a reality, the combined screen count would be about 600, since the former operates close to 250.
Inox, however, will not be looking at converting single screens to multiplexes after acquisition. Asher says there are too many regulatory hurdles in doing so.
Additionally, the cost of acquiring and renovating the single screen into a multiplex could actually be more than developing a new property organically. At Inox, they prefer to leave the real estate development to the builder and developers, and intend to focus on running the exhibition wing only.
Revenue issues
Apart from aggressive acquisitions, Inox is looking to increase its revenue by focusing on increasing the food and beverage (F&B) business, and cinema advertising.
“While 70% of our top line (revenue) comes from ticket sales, hardly 50% goes to the bottom line (profit), since we have to remove the distributor share. In the case of F&B and advertising, almost 75% reflects in the bottom line. We are consciously trying to up the spends per head by 10-12% this year in the F&B segment and aim to touch Rs 50 lakh revenue per screen per annum over the next few quarters,” he says.
Additionally, Inox plans to reduce the cost on F&B by 25% using economies of scale, helping improve the Ebitda. Ticket prices might also rise but restricted to the prime slots. Asher says the average ticket price at Inox annually is Rs 159.
“This is fairly affordable in today's times. We will try and increase the prices for the big movies and the weekends and festival days. On normal days, we have tickets as low as Rs 70 or Rs 80. The trick is to find that sweet spot where the ticket price is premium but at the same time, footfalls are not affected,” he adds.
BUILDING AUDIENCE
- With 358 cinema screens across the country, Inox has since its inception looked at acquisitions aggressively
- With the Satyam buyout, Inox now stakes claim to three prime properties in the national capital, apart from properties in Rajasthan and other states
- Inox bought the 38-screen multiplex chain for Rs 182 crore