MUMBAI: The profitability of multiplexes is being clobbered by rising expenditure as content cost is on the upswing and there is pressure to scale up screens.
Indiantelevision.com looks at two multiplexes to elucidate this reality. Both Inox and Cinemax have announced their fiscal results and the common thread that we find is a dent in the bottom line.
While Inox Leisure Ltd. has seen a gradual rise in annual revenues, profit margins have gradually eroded. Although expenses have increased in all sectors of the business, the chief contributors include film distributors‘ share (at Rs 530 million); property rent and conduction fees (at Rs 264.3 million) and entertainment tax (at Rs 284 million). The corresponding expenditure in these areas last year stood at Rs 449.6 million, Rs 187.7 million and Rs 215.7 million respectively. Inox has also increased its screen tally from 84 to 91 for the year.
The problem area is also on the revenue side, which has slowed down substantially in FY‘09.
A look at the financial figures of Inox reflects the actual picture of a multiplex that is beginning to feel the pinch of a slowdown. The table below shows the numbers from FY‘06 to FY‘09.
| INOX financial figures (in Rs millions) | ||||||||||||||||||||
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The graph below indicates how rising expenditure has eaten into the profits of the company.
Inox is not the only multiplex plagued by rising costs. Cinemax reflects a similar story, though its revenue is also on the upside.
As can be seen from the table and graph below, there is a stark difference in expenditure incurred in FY‘08 and FY‘09. Profit margins have really been compressed.
| Cinemax financial figures (in Rs millions) | ||||||||||||||||
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Ambitious expansion plans by Cinemax may be one of the reasons for the steep rise in expenditure. The number of screens increased from 52 in the last fiscal year to 74 this year, which means an addition of 22 screens in the last year.
Profitably of Cinemax has headed south. The graph below shows how expenditure in the year ending 31 March 2009 towers above the corresponding values of the previous year. Although this has been accompanied by an increase in revenues, profits have taken a hit. Other than the first quarter, the profits in FY‘09 have been lower than their counterparts the previous year across all quarters.
It remains to be seen how the new revenue share deal with the film producers and distributors is going to affect these two multiplexes. That, however, is not going to prove a hurdle for Inox‘s and Cinemax‘s growth plans. Cinemax, for instance, is planning to pump in between Rs 800 million and Rs 1 billion to roll out 50 screens in the current fiscal.
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