DT Cinema

A Buyout Would Have Given PVR A Lease Agreement & Some Exhibition Equipment

IT WAS supposed to be one of the biggest acquisitions in the Indian film exhibition industry and the one that would have firmly put consolidation in the multiplex industry on the fast track.

   However, at the last moment, the deal fell through. Earlier this month, Inox Leisure acquired a majority stake in Fame India to emerge as the country's secondlargest multiplex operator.

   Part of the DLF Group, DT Cinema is one of the leading film exhibitors in the National Capital Region (NCR) with 29 screens in operation and another three more under construction. The acquisition would have consolidated PVR's presence in NCR and raised its market share in the region to nearly 70% in the Delhi-Gurgoan territory. Earlier, DT Cinema had announced plans to invest Rs 1,250 crore to expand its screen count to around 100. It appears that DT Cinemas wants to chart its own growth path now that its parent DLF is out of the woods and doesn't need to divest its noncore assets to raise resources. DT Cinema's ambitions may also have been fuelled by its financial health, which seems to be better than PVR's and is showing signs of improvement. In FY09, DT Cinema reported a net profit of Rs 16.4 crore on net sales of Rs 305 crore. In comparison, PVR reported a net profit of Rs 12.6 crore on similar revenues.

   The other likely source of irritant in the deal is the difference in the business model of the two firms. While DT Cinema follows an asset-light model and restricts itself to operating screens on properties leased in from DLF, PVR owns many of the properties where its screens are located. This becomes clear by comparing their balance sheets. At the end of FY09, DT Cinema's gross block was one-eighth that of PVR, even though both have equally large operations. This model may not have been favourable for PVR. The reason being the acquisition would have provided it with nothing more than a transfer of lease-agreement in its favour besides some amount of exhibition equipment. In contrast, Inox-Fame deal involved the actual assets in ground in the form of multiplexes and food courts. So on balance, PVR hasn't lost much by not pursuing the deal further. It is not likely to have any significant bearing on its stock performance or growth prospects.