Adlabs Films Ltd is Anil Ambani's first big catch in the entertainment arena: Rs 3.6 billion for a 51 per cent stake.

Moving rapidly to arm the company with more capital, he raised $100 million through an offering of foreign currency convertible bonds (FCCBs). His gameplan: to pump in as much money as it takes to establish Adlabs as an entertainment powerhouse for movies and radio.

Guiding the company will be Adlabs chairman and managing director Manmohan Shetty. A man with deep interests in movies, Shetty, along with Vasanji Mamania, founded Adlabs in 1978. He established it as a leading motion picture processing laboratory and operator of multiplexes. Film production was done through a wholly owned subsidiary, Entertainment One (India) Ltd.

Even as Mamania sold his stake to Ambani, Shetty held on to his shares in Adlabs. Along with his new partner, his focus is to scale up existing businesses, build up new operations, and make acquisitions.

In an interview with Indiantelevision.com's Sibabrata Das, Shetty spells out the company's ambitious growth plans in multiplexes, film production, distribution, home video and, if eligible, private FM radio broadcasting.

Excerpts:

How is Adlabs going to be a different company in shape and size after Anil Ambani's Reliance Capital group acquired majority stake in it?
The main divisions of film processing, exhibition and production were already there. But now we have more capital in the company and can aggressively expand to become one of the largest film entertainment firms. New areas like film distribution and home video are being added up. We also plan to enter into the private FM radio broadcasting sector.

Since Adlabs has just raised $100 million through issue of foreign currency convertible bonds (FCCBs), what is the investment plan for the company?
We will be investing at least Rs 6 billion over the next three years. We are still drawing up the plans, but a large part of it will be towards the multiplex business.

Which means Adlabs will be more aggressive on multiplexes?
We plan to invest Rs 2 billion over three years towards multiplexes. We will be adding 100 new screens by the end of FY 08, taking the total to 135 screens. Multiplexes currently comprise 30 per cent of our total revenues. This share will increase in the near future as we scale up.

There were reports of Adlabs being in talks for acquiring stake in PVR, the Delhi-based multiplex operator. With PVR raising money through an initial public offering (IPO), obviously the talks failed. Is acquisition still part of the growth strategy?
I can't comment on whether we were in talks with PVR at any stage. We are currently not in discussion with any company for buying a stake. But if opportunities are there, then we would like to grow more rapidly. In the multiplex sector, acquisitions can happen.

Is the occupancy rate high in these theatres?
Our occupancy rate is about 40 per cent. It is a good enough ratio, but there should be no further drop.

In the home video segment, I believe Adlabs is in negotiations with some of the existing companies. Will it enter this segment only through the acquisition route?
We are in talks with a few home video companies. We are interested in making an acquisition. We do not prefer to set it up ourselves. We hope to enter the home video segment within three months. We see the market expanding and we want to be a major player in this.

Why aren't there big cash-rich home video companies in India except perhaps Shemaroo?
The problem is that you need to keep acquiring rights like Shemaroo does. And you need funds for that. If some home video companies are not in good financial health, it is not because the market is not big enough. The home video market, in fact, is growing very fast. If a year back we sold Gangajal for Rs 3 million, the price in one year has gone up to Rs 10 million. We would have got a very high price for Apaharan but decided not to sell it because we want to get into the home video business ourselves.

Have you drawn an investment plan for this?
Our investment plans would be drawn up only after we make the acquisition. The company we acquire will make a business projection and we will work on that.

Is film production being ramped up?
We plan to produce 10 films in a year from FY 06 onwards. We will be pumping in at least Rs 500-600 million a year towards film production. The current outlay is Rs 250 million.

Other companies like Sahara also have ambitious movie production plans. Will production of 10 movies a year be enough to make Adlabs a leading player?
We have to grow with the market. A lot will depend upon how many productions the market will absorb. Other companies like Mukta Arts, Sahara and Yash Chopra have big production plans. But on the positive side, multiplexes are growing. More supply will be needed.

Is Adlabs getting into long term deals with film directors?
We have done an exclusive deal with Ram Gopal Varma for 12 movies. We have tied up with Vipul Shah for three movies in three years. Prakash Jha is making two films for us in one year's time. And we are in negotiations with Ramesh Sippy, who has already done three films for us.

Were you in the US to initiate talks with Sony Group over film production?
Sony is entering the Hindi film production market in India. It is co-producing a Hindi film with Sanjay Leela Bhansali. We met executives from the company. We wanted to check out if the Group was getting into more Hindi film productions. If they are, we are interested in being given an opportunity to co-produce with them. We also met Walt Disney officials in the US. But we are at a very early stage of talks.

How are you looking at growing the film processing business?
We are looking at expanding our footprint. Chennai and Hyderabad are two big markets, accounting for 60 per cent of Mumbai's consumption. We are already working in association with Chennai-based Vijaya Labs. The new investments are being pumped in by Adlabs.

I believe you are in negotiations to acquire Prasad Film Laboratories which is the biggest player in both Tamil Nadu and Andhra Pradesh. How far have the talks progressed?
I am not going to reveal the names of the companies we are in talks with. But yes, we want to buy a majority stake while allowing the old management to run the operations. We are in negotiations with a few companies for acquisition so that we can have a strong presence in the southern region. But we have not reached a breakthrough as yet.

How important will this segment be as a source of revenue for Adlabs in future?
It will continue to be an important revenue source even as we are expanding geographically. Apart from entering the southern region, we are setting up operations in Kolkata by January-end. The film processing segment is currently about 50 per cent of our revenues. But going forward, this will come down. We expect multiplexes to overtake our labs business from the next financial year.

How is Adlabs gearing up for film distribution?
We are planning to get into domestic theatrical distribution of movies. But it will be an exhibition-led distribution strategy. Once we own a large number of theatres, we can use it as a captive content pipeline. There are too many players in the market and the margins are reduced.

For international film distribution, we have signed up four films. They are Krrish, Babul, Janeman and Salam-e-Ishq. We are setting up offices in UK and US while in other territories we will be selling it to distributors as the market size is not that big. In overseas business, the margins can be 15-20 per cent. For us, this will be a margin-based rather than a turnover-led business.

In post-production, Adlabs has 6 per cent stake in Prime Focus while Reliance Capital holds around 15 per cent. What is the plan?
Once the management at Prime Focus chalk out their expansion plans, we will see what we can do that will be beneficial for the company.

Why is the Mukta Arts and Adlabs joint venture company for digital delivery of movies not taking off in a big way?
We have taken digital film exhibition to 25 theatres. Sure, it is a slow growth. We want to build new digital cinemas in B-class stations. We are analyzing how to take the model forward in terms of technology.

Are there plans to go for a satellite mode of delivery to theatres since Reliance in any case is planning to start a direct-to-home (DTH) service?
We haven't firmed up our digital plans yet. We hope to finalise our plans in the next six months.

In the private FM sector, how many radio stations does Adlabs want to bid for?
We have an interest in getting as many radio stations as we are allowed. If we are eligible and get to operate the maximum stations that are allowed to an individual operator, we will invest approximately Rs 1.25 billion.

How will Adlabs integrate with the overall business plan of Anil Ambani's telecom-cum-entertainment model?
There is tremendous potential to grow. Movies, for instance, can be delivered to the theatres through Reliance Infocomm's optic fibre or even through satellite. The home video unit will fit into the triple play game, once it starts rolling out. But what exactly is the business model only Reliance Infocomm can tell. Plans are being drawn up to work out all the synergies.