Merging PVR and Inox was the only way to improve the balance sheet: MD By Ajay Bijli

A key priority for PVR-Inox currently is improving margins through better capital and operating expenses, says managing director Ajay Bijli. In an exclusive interview with ET’s Vinod Mahanta and Javed Farooqui, Bijli talks about the contours of the deal to merge the two companies, which has created the world’s fifth largest multiplex chain, and what lies ahead.

The merger of PVR and INOX has created a multiplex behemoth with 1,650 plus screens across 350 plus properties in more than 110 cities. It is the fifth largest listed multiplex chain globally by screen count. What was the rationale behind the merger?

This business has always been about scale. Only when you reach a certain scale, do economies kick in. Achieving a certain scale allows for operating and cost efficiencies, as seen in large companies worldwide with 4000-5000 screens or more. However, it’s challenging to achieve that level of scale in India due to the late start of the multiplex journey. The first multiplex only opened in 1997 in New Delhi. Then one leg of our business is joined at the hip with shopping centers and mall development, which also took time to develop due to the lack of organised retail in India.

That’s why, from the beginning of my journey 33 years ago, when I opened my first cinema in 1990—PVR came in 1997—I focused on both organic and inorganic growth. Organically, we were growing by 40–60 screens a year, but then we started acquiring other companies like Cinemax and DT to further expand our reach. But then the pandemic hit. But as Winston Churchill said, we should never waste a good crisis. Though no crisis is good; it completely devastated our balance sheets and business.

And the only way to make our balance sheet stronger and address the challenges we faced was through the merger. The merger allowed us to take on the challenges that lay ahead in the exhibition industry. But it also means we have more responsibility now. Uneasy lies the head that wears the crown: with more screens, seats to fill, people to manage, and expectations to meet, it’s a lot to handle.

How is the integration process going on?
Fortunately, the integration process is going well. We started with the day one structure and prioritised bringing people together. We recently hired Korn Ferry about 3–4 weeks ago to assist with this process. We developed the day one structure to give clarity on everyone’s roles and responsibilities, which was essential for our 23,000–24,000 employees. Everyone knows what they need to do now, and that’s one part of the process over.

Now we are looking at synergies in every revenue line, and we have launched a new initiative called Parikrama. This 100-day initiative involves examining every line of revenue to identify opportunities for improvement. The logo features hands coming together, representing the merger between PVR and Inox, and we hope to achieve great success through this collaboration.

We’re currently exploring ways to improve various aspects of our business, such as ticket prices, advertising revenue, and cost items, whether they’re CapEx or OpEx. There are about 13-14 initiatives that are going on simultaneously. We’ve hired BCG to monitor our progress on every initiative we’re currently undertaking. We’ve informed the markets that it will take at least 12 to 24 months before we start seeing the benefits of our efforts. We have given out a value of 225 crore in synergy value, but we also gave a period because nothing happens overnight.

Given the size of the merged company, do you expect the PVR-INOX merger to have a transformative impact on the industry?
As Spider-Man once said, “With great power comes great responsibility,” and we take that responsibility seriously. Our focus is on improving the well-being of all stakeholders involved, including our employees, customers, and developers. We’re aware of their needs and concerns and are striving to address them.

Currently, our main priority is improving our margins through better CapEx and OpEx. We believe it’s essential to stimulate consumer demand. There is a segment—45 and up—that is taking time to come to cinemas. They are very movie-driven. Also on the supply side, the film industry has to rev up. In 2019—20, 1900 films went through the system; now we are down to 1100–1200. We need to have more movies that connect with the audience.

Has the COVID-19 pandemic and the rise of OTT platforms changed viewing habits and created less tolerance for poor content, as evidenced by the success of blockbusters and the lack of interest in subpar content?
I have seen all the movies that were released post Covid. I tell everyone that some of the movies that didn’t click post-Covid wouldn’t have clicked pre-Covid. There is a confirmation bias going on. We are comparing 12 months of post-COVID to 97 years of pre-COVID. I think we are doing an apple-to-pineapple comparison. Human nature has changed after COVID, and we’re all quick to draw conclusions. Though the graph of movie success has become strange in recent times. When movies connect with audiences, they reach high levels of success, but when they don’t, they fall to low levels. If you remove Bahubali for a moment and look at all the other movies, whether it’s KGF, the biggest Kannada movie; RRR, the biggest Telugu movie; Pathan, the biggest Hindi movie; or Avatar, the biggest English movie, there is a significant shift from the past, when the graph was more linear. It’s too soon to judge, and we need more time to evaluate the situation. Quantity is more of an issue than quality. It will take two to three quarters to see the results. Hollywood released 73 movies last year, which is down from the usual 140, but they are gradually increasing that number.

PVR and INOX promoters would own 10.6% and 16.9% of PVR-INOX, respectively. How will the operational side of it work?
I have been appointed as the MD of the company by the board and shareholders, along with the Jain family as executive directors with equal representation on the board. The chairman is Mr. Pavan Jain. As MD, I am responsible for running the company for the next five years.

At the operating level, we have two co-CEOs due to the large scale of our operations. We have roughly 1700 screens, including 180 that are currently being fitted out. So the span of control of Gautam Dutta, who is CEO of North and South, is equivalent to the span of control of Alok, who is looking after West, East, and Central.

Our focus is on economies of scale and adopting best practices from both companies. To ensure everyone has a clear role in the day-one structure, I wanted to involve everyone in the decision-making process. Nitin Sood is the CFO, and Kailash Gupta is the deputy CFO. Kamal Gianchandani remains the PVR Pictures CEO and is responsible for programming and the film industry. With such a large operation, we need all hands on deck to achieve our goals.

Has occupancy reached pre-Covid levels? Will the higher ticket pricing hold after the COVID bump subsides?
It depends on which region you are talking about. If you talk about the South, the answer is yes. If you talk about the West, North, and East, no, it hasn’t reached the Pre-Covid levels. We do think the ticket prices will hold. They haven’t gone up by that much; it’s less than inflation in a 3-year period. So inflation was 7% and we grew by 5% a year. By the way, minimum wages have gone up, electricity has gone up, and all input costs have gone up. So we have stayed below inflation. So going up by 16% is still below inflation for a three-year period.

So how are you working with the industry to get more footfalls for the multiplexes?
All industry partners are equally responsible for every movie ticket sold and work independently to analyse data on successful movies and improve footfall. While the industry is divided into three or four parts, with Bollywood and southern movie makers creating different types of movies, we share information about what is working and what is not. This shared data is valuable in improving the movie-watching experience, as people may find a movie too long or not connect with the story. The film makers are excited about the limitless earning potential of theatrical releases post-COVID, as successful movies can earn much more than their production costs. So they know that if they sell to an OTT, they will get a cost plus return. Kantara was made for Rs 15–20 crores but made much more. If Kantara had gone straight to OTT, they would have had a cost plus earnings.

You have said in an analyst presentation that the theatrical window has gone up to 8 weeks.
It was always up, but during COVID it shrank. It is eight weeks now.

Do you see a recovery in ad revenues once big-budget movies start doing better?
Everything is dependent on footfall—all our revenues are binary. The FY23–24 lineup is looking good. We have Bhola releasing now; John Wick released and got a lot of traction. Then we have Karan Johar’s Rocky and Rani Ki Prem Kahani. Ajay Devgan’s Maidan is coming. Two Shahrukh movies are coming. Plenty of movies.

How do you plan to expand the F&B business, considering PVR-INOX’s position among the top 5 QSR players based on F&B sales in 2022?
We will be doing a lot more. There are plans to add more variety to the movie-watching experience beyond just post-ticket options. One idea is to convert box offices, which are becoming redundant due to the high percentage of online purchases, into places where you can buy items before buying a ticket. Other initiatives include pre-ticketing FnB options, such as home delivery and proprietary items from PVR and INOX, as well as cloud kitchens.

Will the combined earnings of PVR-Inox be able to fund growth? Are you looking at raising any money?
No, we will not raise any money. All the growth will be through accruals.

Do you see greater acceptance of multi-language movies across India?
One of the things that happened in COVID was that people got used to watching regional cinema. So I think that taste has developed. Now people know who Vijay Sethupathi is; earlier, they only knew Kamal Hassan and Rajnikanth. They appreciate some of the storylines and filmmaking or whatever. So a lot of collaborations are happening. Now if you look at Shahrukh’s next movie, Jawan, it could be bigger than Pathan, I think.

What are your plans with regards to rebranding?
To begin with, PVR already has 900 screens operational, and Inox already has seven to eight hundred screens operational. So there’s already a history for both brands. But there will be a descriptor that connects. So basically, if it says PVR, you will get a PVR IMAX experience at the bottom. We will have enough touch points because when people look at the stock exchange and look at the PVR Inox ticker, they will know about the company. It should not be lost on them that when they come to this cinema or Nariman Point one it’s part of PVR Inox. At the same time, we will look at the attributes of PVR and Inox and then ensure that they both coexist.

Can you take us through how the deal finally materialised?
This deal happened, as I said, because of COVID. I think everybody was in touch with each other because our backs were against the wall. For 18 months, we had zero revenues. We didn’t know if we would survive. It just became very obvious that if we came together, we could build a business. It just made sense. So there were plenty of intermediaries who also felt that if the two came together, the balance sheet would become stronger and all the benefits of scale would accrue. So we had to forget about our respective holdings. In a listed company, you have to look at the interests of all the shareholders. My stake in PVR was 17% even before the merger; now it is about 11%. The Jain family’s post-merger share is about 17%. Perhaps if COVID hadn’t happened, it would not have happened.

Wasn’t diluting your stake to raise money an option instead of a merger?
It wasn’t that easy. Our stock had come down to around Rs 700-800 during COVID. We had done a QIP to raise funds, followed by another Rs 300 crore rights issue. Post that business didn’t pick up again. We had no revenues for 18 months. The merger looked like a sensible decision to take.

So, do you think the film industry will change its content strategy due to the rise of OTTs going forward?
The content strategy has already changed due to the impact of OTT and changes in audience tastes, such as more explicit content. While there is some negativity associated with this trend and calls for control, multiplexes are focused on providing an experience that cannot be replicated at home, such as enjoying food while watching a movie. Despite the impact of OTT on the industry, there is still value in the unique experience that multiplexes offer.