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'Consolidation in the multiplex sector will happen when the real value of the business is captured' : Cinemax India senior vice president business strategy Devang Sampat

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Cinemax India Ltd entered into the multiplex business with a cluster approach, concentrating on Mumbai and the Maharashtra market. Running a cinema chain with 76 screens, it has a load of 40 screens in Mumbai and 18 across rest of Maharashtra.

The thrust now is to build a national footprint with focus on locations that would give it an advantage. The expansion plan is to have 300 screens over a period of three years.

Facing a slowdown, the immediate task is to add 60 screens in FY‘11 with an investment of Rs 1 billion. Cinemax will also push digital technology and expand its gaming zones.

Cinemax has plans to raise funds but is not in a hurry. Promoted by real estate developers, it has an asset bank and can leverage it to raise debt. The company has a debt of Rs 750 million and the debt to equity ratio is 1:2.

Cinemax is not keen on film distribution as it is a risky business. But it is readying to enter into film production and is waiting for the right script.

In an interview with Indiantelevision.com‘s Sibabrata Das and Ashish Mitra, Cinemax India senior vice president business strategy Devang Sampat says consolidation will take time as average occupancy needs to rise from 24 per cent to 32 per cent and profit margins improve.

Excerpts:



 

 

Cinemax had indicated earlier that it would expand its screens to 300 over a period of three years. Has the economic downturn affected the growth plans?

There is a slowdown for all multiplex operators as the mall developers are not pacing up. We will be taking our total number of screens to 100, from 74 in the year-ago period (earlier guidance was addition of 40 screens during the fiscal). We have closed down three screens in Faridabad as the mall wasn‘t taking off. But we are not revising our three-year target of 300 screens.

 

 



Are you scaling down your investments in the short run?

For the current fiscal, we are investing Rs 600 million. We will be adding 60 screens in FY‘10 and our investment requirement is Rs 1 billion.

 

 



Will you be raising funds for this?

We will take a call in December. We are not in a hurry and will raise money when we need it. With the promoters being real estate developers, we also have an asset bank which we can leverage.

 

 



Wouldn‘t you like to retire some of the high-cost debt?

We have a debt of Rs 750 million. The debt to equity ratio is 1:2. There is room to leverage and we are not facing any fund constraints.

 



 

Cinemax has concentrated its multiplexes in Mumbai and Maharashtra. Will the spread out now be more national?

Initially when we ventured into the business, we took a cluster approach in Mumbai. Now during the course of our expansion, the focus will be on going to good locations. In the multiplex business, location is king.

 

 



‘We will definitely get into film production. We are ready and are waiting for the right script. We feel this will complement our exhibition business‘

 



 

Will you look at acquisitions or you feel the industry is not ready yet for consolidation?

The industry has an average occupancy rate of 24 per cent. Unless this goes up to 32 per cent, the real numbers don‘t come up. The profit margins stay low. Consolidation will happen when the real value of the business is captured. Being real estate developers, the promoters decided to foray into multiplex as part of their retail business. The capital cost for Cinemax will, thus, be comparatively lower and the promoters have a better understanding of locations.

 

 



How could Cinemax achieve operational break-even during the quarter when film producers froze fresh Bollywood content to multiplexes?

This was primarily due to three reasons. Our presence is predominantly in Mumbai and Maharashtra. Secondly, there were some Marathi films that released during this period and they fared well at the box office. Thirdly, we own some properties, reducing the impact of the expenditure on lease rentals.

We expect to clock Rs 2 billion this fiscal, up from Rs 1.54 billion a year ago.

 

 



But the first quarter turnover was weak?

We expect contributions to come from the new properties in the third and fourth quarters. The existing properties should give us a revenue of Rs 500 million in each quarter. Don‘t forget that the Khans (Salman, Shah Rukh and Aamir) will make their appearance from the third quarter onwards. As for profitability, we will maintain the same percentage as the last fiscal.

 

 



Do you see a change in the revenue mix in the near future?

We expect the Food & Beverage (F&B) segment to contribute 20-22 per cent in FY‘11, up from 18 per cent. Advertising income should go up from 8 per cent to 10 per cent. Currently, box-office collections account for 69 per cent of our total revenues and gaming zone and others six per cent.

 

 



Having entered into film distribution, is Cinemax also looking at venturing into production?

We will definitely get into film production. We are ready and are waiting for the right script. We feel this will complement our exhibition business.

We distributed two films - Kismat Konnection and Singh Is Kinng. We managed to break even. But this is a risky business and we are not keen on it.

 



 

What are the digital steps Cinemax is taking?

Digital technology helps reduce piracy and enables 3D viewing. This will lead to an increase in the share of Hollywood movies released in India and, in turn, to higher ticket prices. We have introduced digital technology in 24 screens.

We are also looking at augmenting our revenues from gaming. We have introduced gaming zones in six places and are planning to expand it to our other theatres.

 

Does Cinemax have plans to set up cinema theatres overseas?

We have no such plans.

 

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