In October 2009, Adlabs Films, the Anil Dhirubhai Ambani Group company, changed its name to Reliance MediaWorks, which the management believes, is a full reflection of the entire gamut of work that the company offers. To its chief executive officer Anil Arjun, the new name signifies the coming of age of an end-to-end media services company which has moved on from being just a film processing lab. In an interview with Arundhati Bakshi Dighe, Arjun talks about how the business has transformed itself and what the future looks like.
Is the new name an indication of a change in focus?
The name change was long overdue
| | | | Going forward, the pipeline is looking rich, with big star movies such as My Name is Khan and Raavan | | | | |
|
. When Reliance ADAG acquired a controlling interest in Adlabs in 2005, a substantial part of the business, almost 85 per cent, was still coming from film processing. If you take a look at the FY06 numbers, of the Rs 100 crore turnover, Rs 85 crore came from film processing operations. Between March 2006 and March 2009, we have grown at 80 per cent CAGR into a Rs 680 crore company. We have achieved that by transforming the way we do business. So what was Adlabs’ major business, now constitutes just 15 per cent of the total revenues.
We have moved away from being just a film processing company to cover the entire spectrum of the media, including studios, DI lab, visual effects, post-production, TV production, and a cinema chain under the banner of Big Cinema. We have become enablers in story-telling through our integrated end-to-end media services offering. So, from that perspective the name change was necessary.
So what growth verticals is the company focusing on?
We have three business segments now: TV production, film and media services, and film exhibition. In TV production, under the name of Big Synergy, our focus is to build scale. Almost all the top reality shows across channels are done by us. In the second quarter of FY10 we crossed the Rs 40 crore turnover mark that was registered in FY09. We have grown this business from two to three shows in FY07 to five to six shows a month now. In the case of reality shows, we do not take the risk of talent. We just make the show and charge a fee of roughly around 25 per cent per show per episode.
In the case of the film and media services division, we build upon a complete value chain, right from film studios under construction, to cameras, to print processing, from FX to image correction, everything under one roof and under one brand. And everything is on a fibre optic network that connects Los Angeles and Mumbai. Our objective is to build scale and sustainable cash flows.
The third big business is the film exhibition business under the banner of Big Cinemas. Today, we have close to 509 screens across 115 cities in four countries.
What about the margins?
Being a B2B segment, the film and media services business is low on turnover, but high on margins and capital expenditure. By and large, the margins will be 40 to 45 per cent in the B2B space, but here again it is a function of the turnover.
Now showing
Reliance MediaWorks operates over 500 screens across India, the US, Malaysia and Holland
Source: Fullerton Securities
Scaling up
The profit margin took a hit in the last financial year as the company undertook expansion
The challenge in this business is to ensure asset utilisation. So my main concern is that as long as my film cameras do not have a down time of 10 per cent, it will work. You must understand that we have invested a substantial amount in the last one year, and most of the assets we have built are next generation. The only two challenges that we face are technology obsolescence and asset wear and tear. But at the moment, we have just started building assets. From an utilisation perspective, we are at 80-90 per cent. We do not want to over-invest. Look at our camera utilisation, we did not start with 50 cameras, but began with ten and then added ten. So our asset utilisation is maximum.
With intense competition in the exhibition space, what kind of traction do you see in the business?
We are very bullish on the business in India. The biggest film in India does about two crore admits (the number of people who watch it in theatres) in a year. Compared with a population of 100 crore, the number is just too small. In the US, a top-notch film does six crore admits for a population of 30 crore. The reason why admits are not higher in India is because we lack infrastructure. So, if we build more infrastructure (more cinema theatres), box office returns will just multiply.
If you compare the top five hits of 2005 with those of 2008, the gross returns from theatrical viewership have gone up by 250 per cent. So, we see that the market has a very good absorption capacity and that is where we have built theatres. Also, there is a preference for better quality experience, and the viewer is willing to pay for it. As I said earlier, we have close to 509 screens across 115 cities in four countries. We have 138 properties, 137,000 seats, and 40 million customers. Of the six cinema chains that contributed 48 per cent of the all-India theatrical collections of 3 Idiots, Big Cinemas accounted for 12 per cent.
That brings us to the third quarter, which produced a good set of numbers. Would you throw some light on this?
Yes, it was a very good quarter for us. Our revenue from operations was up 41 per cent y-o-y and 8 per cent q-o-q. Ebitda from operations was up by 125 per cent y-o-y. The main traction came from the film exhibition business, which still contributes about 55-60 per cent of overall revenues. In the exhibition space three things have happened: In the past one year we added 100 screens. Second, we have built on the admit numbers with close to 90 lakh admits in the quarter, which is a 50 per cent increase compared with that last year. Ninety lakh admits gave us a good top line and Ebitda. Besides, fair amount of efficiencies, in terms of operations, brought in a good amount of growth in terms of Ebitda margins.
Colourful projection
Revenues are expected to grow at a 38 per cent CAGR over the next 2 years
Source: Fullerton Securities
Big picture
RoE and RoCE are expected to improve going forward
We have to understand that the top line, to a large extent, depends on the content. This quarter (Q3) was important from two perspectives. It was a quarter that saw a large number of releases, almost 16 films. In fact, the Rs 30-35 hike in ticket charges also went down well with consumers. This indicates that viewers are willing to absorb ticket price hikes if the movie is worth it. Going forward, the pipeline is looking rich, with big star movies such as My Name is Khan and Raavan.
So where do you see the margins headed? What is the capex?
In the exhibition business, margins are a function of admits. Overall, from a blended perspective, margins are at about 20-25 per cent. Last quarter we saw Rs 189 crore operating income and Rs 34 crore Ebitda, but this quarter we did Rs 212 crore of operating income and Rs 41 crore Ebitda. Last quarter we had substantial income from Synergy, this quarter all shows are in the developmental stage. Over the last year and a half (up to December 2009), we have incurred capex of Rs 600 crore and that will reflect in the top line from the next financial year onwards. On an annualised basis we are looking at a capex of Rs 250 crore.
You still have high debt on the books?
Our debt of Rs 1,200 crore is at the gross level. We still have around Rs 50 crore of cash on the books and we are looking at raising up to Rs 600 crore through a rights issue. The enhanced networth of over Rs 1,000 crore by way of the rights issue will further strengthen the company’s financial base and leadership position. We are not under stress, all our projects are funded. The issue proceeds will also be used to retire a part of the debt. At a company level, we will have a debt-equity of less than one.
Our expansion, thus far, has been entirely debt-driven. The huge amount of investment we have done over the last few years and the depreciation have been a huge draw on profitability. Further, we went through a phase between January and June 2009 when the box-office was not doing too well. As a result, profitability took a hit. But as seen in the Q3 numbers, business is improving. As new facilities get commissioned and money starts flowing in, our profitability will improve.
So are you looking at breaking even any time soon?
We will look at a breakeven in the fourth quarter at the net level.