Multiplex owners on expansion spree

Shravan Shroff, 34, director of Shringar Films is a busy man. He's been running around getting the paperwork in place for his company's forthcoming public issue, besides overseeing the launch of four new multiplexes in Mumbai.

Ditto for Pooja Shetty, chairman of Adlabs Ltd. Shetty is gearing up to launch six new screens in India while Shishir Baijal, CEO of Inox Leisure, plans to add three more multiplexes to his existing theatres in Pune and Baroda.

Atul Goel, CEO of Essel Group's E-City entertainment is targeting six multiplexes by next year. An estimated Rs 300 crore (Rs 3 billion) is being invested in the new projects.

To expand operations, theatre owners are moving beyond the metros. On their radar screens are cities like Mangalore, Nasik, Allahabad, Lucknow,  Kanpur and Ludhiana.

Experts say that the multiplex chain owners expect to leverage the increasing spending power of the middle class in smaller towns. Adlabs, for one, is looking at Mangalore other than big cities like Kolkata and Hyderabad.

Shetty claims expansion was always on the business menu. "When we launched four years ago, the plan was to have two multiplexes in the first two years and then one every six months."

The theatre chains may be on an expansion drive, but can India absorb so many multiplexes? Studies have pointed that a population of 10 million needs at least 20 theatres.

And that is still not the case in India. Anil Chopra, editor of the trade magazine Studio and Systems and who's observed the Indian film exhibition business for over 20 years claims India has merely 7,000 operational theatres.

"The actual demand for theatres is about 100,000; in a country where entertainment plays such a major role, it's ironical that we do not have enough screens."

Farokh Balsara, head of media and entertainment practice at Ernst & Young, says growth in cinema screens is desirable for two reasons -- more multiplexes mean more people can watch different kinds of films at the same venue and it helps in curbing video piracy.

But multiplex is a capital intensive business where companies spend nearly Rs 2.5 crore (Rs 25 million) per screen. So are they making money? "Yes," claims Shroff adding that Shringar Films has posted good returns. "We're expecting a turnover of Rs 40- 50 crore (Rs 400-500 million) this year," he adds.

Baijal admits that the returns are substantial once the break-even period of three years is over.  But for quick turnaround, it is important for multiplexes to be in prime locations.

Besides, companies opt for the lease route where property is developed by a real estate developer and the multiplex operators lease it for a fixed or varying rent.

Says Shetty: "We are theatre managers,not property developers." Shishir Baijal claims the retail revolution has resulted in 60 per cent of the new malls making provisions for multiplexes.

Though the business seems attractive, competition in the category is intense. In Delhi and UP, multiplex operators like the PVR Group and the owners of Wave cinema, are also going national.

There may be room for all currently but the future belongs to those who can offer flexi ticket pricing with frills et al.