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Company Overview Statutory Reports Financial Statements

01-24 26-81 82-212

Management Discussion and Analysis


The following Management Discussion and Analysis Section Opportunities
should be read in conjunction with the financial statements and Largest Industry
notes to accounts for the period ended March 31, 2017. This The Indian film industry is one of the largest globally with a history
discussion contains certain forward looking statements based on of steady growth. With films being the most popular form of mass
current expectations, which entail various risks and uncertainties entertainment in India, the film industry has witnessed robust
that could cause the actual results to differ materially from double-digit growth over the past decade.
those reflected in them. All references to “PVR”, “we”, “our”,
“Company” in this report refers to PVR Limited and should be Under screened market
construed accordingly. India’s challenge of low screen density (8 screens/million) is an
opportunity which the multiplexes are capitalizing on. After the
Industry Structure & Development wave of consolidation in the industry in the last 3 years, the focus
In Current Year 2016, the Indian film industry grew by a mere has now shifted to adding screens organically. In 2016, the
3 percent over the previous year to reach Rs.142.3 billion. multiplexes together added approximately 200 screens across
Domestic theatricals and Cable & Satellite rights segments, the India. Industry discussions indicate that the industry is likely to
two major contributors to the industry’s revenues, along with the continue to grow at a similar pace – adding 200-250 screens
home video segment witnessed a negative growth. per year.

Regional markets continued to grow with the increasing reach This pace of growth, however, is woefully inadequate if India is to
of Marathi, Punjabi & Gujrati markets starting to demonstrate realize its true potential as a film market. If regulatory hurdles are
greater depth in addition to major South India language markets. eased at a state and local level, the industry has the potential to
Hollywood movies recorded steady growth and increased their be a material player on the world stage in terms of market size.
market share with increasing revenues coming from dubbed
versions. However, demonetisation dampened the overall box Strengthening Food & Beverage (F&B) revenue stream
office collections. The multiplex chains have realized a steady increase in the F & B
contribution to overall revenues over the years. To increase growth
Current Year 2017 is expected to witness recovery of the domestic in this high margin revenue stream, multiplex chains have expanded
theatricals from the impact of demonetization. Films, especially their F&B menu, introduced live kitchen counter, increased point
regional, which postponed their release to 2017 are likely to of sales distribution all over cinema and deployment of latest
contribute to the revenues of 2017 along with the originally technology has eased the overall F&B buying process.
planned releases. Overall, the industry is projected to grow at a
CAGR of 7.7 percent till 2021 to be worth Rs. 206.6 billion. In-cinema advertising
Currently, it constitutes 1 per cent of the total advertising
Domestic box office has remained the main source of revenue revenue pie but has huge growth potential. This growth can be
with a 70 per cent share in the total revenues of the Indian film attributed to expansion of multiplexes in metro/ non metro cities
industry. This segment is expected to grow at a CAGR of 5.6 per and nearly 100 per cent digitisation of screens. Digitisation has
cent over the next five years This is likely to be a combination resulted in an increase in the volume of ad inventory and the
of expansion in the exhibition sector –addition of multiplex ability to geographically target advertisements with multi lingual
screens and conversion of single screens into multiplex along with support. At the same time, the exhibition industry has become
increase in average ticket prices (ATPs) - with converted single more organized, technologically advanced, and ensures a high
screen moving into higher ATP brackets level of transparency by providing real time campaign tracking to
advertisers. The number of in-cinema advertisers has grown from

63screens
50-100 in 2010 to over 2,500 in 2016. Sponsorship revenues
for PVR Cinemas increased by almost 19 per cent in 2016 over
previous year.

Innovative models
Recently, PVR Cinemas took the initiative to develop new revenue
Added during Financial Year 2017 stream in the form of On Demand Theatre Service. This service
named as ‘Vakaao’ is an online platform that enables consumers

56 PVR Limited
PVR, in partnership with HP, Penetration into tier II and tier III markets
Tier-II and III cities across the country have witnessed significant
launched Asia’s first Virtual changes over the past three–four years backed by high economic
Reality (VR) Lounge at PVR ECX, growth, infrastructure development, and evolution of the service
Mall of India, Noida. sector. While metro cities witnessed the bulk of development in the
past, future is expected to see the emergence of tier-II and III cities,
which are largely unexplored markets

Demonetisation
Demonetisation negatively impacted revenues of exhibitors.
to watch any movie of their choice at their preferred theatre and The occupancy rate fell down to 5-7 percent and revenue was
works on the concept of crowdsourcing. The platform enables the hit by 20-25 percent in first week post the demonetization effect
consumer to invite enough people to join in for a show to be gradually diminished.
financially viable, and hence watch the movie of their choice at
a theatre. In addition to empowering viewers with greater choice For multiplexes, digital payments contributed significant amount
and convenience, the platform also gives them an option to view (approx. 35 percent) to overall ticket sales before demonetization.
niche movies at a theatre. This resulted in lesser impact on footfalls and revenues. Sales at
theatre concessions were more affected as compared to footfalls.
Vakaao’ currently has more than 122 theatres in 48 cities as a
part of its Prime Theatre Inventory; the platform will be looking Multiplexes extended various discounts and attractive offers to
to expand into 50 more cities by bringing 100 more theatres on encourage audience shift to digital payments. Post demonetization
board by the second half of 2017 as it sets about to change the PVR Cinemas online transactions contribution to total revenues
way entertainment is delivered and consumed in India. Some (Box Office & F&B) increased from 34 percent to 43 percent
multiplexes are also working on a blanket permission from whereas offline mode, non-cash transactions increased from
Information & Broadcasting (I&B) ministry to screen concerts, 10 percent to 22 percent.
exhibitions, live matches.
Threats/Risks
Focus on attracting kids Piracy
Kids are an important audience and hence we are customizing Piracy continues to be one of the major issues affecting the Indian
screens to cater to this segment. In 2016, we launched film industry with an annual loss of substantial revenues, to the
“Playhouse”, a space especially designed for kids. It is a 49-seater tune of around INR 180 billion every year accompanied by a loss
movie auditorium, screening children’s movies and animated of 60,000 jobs every year. Over time, movie piracy has shifted
content. Features and facilities include a colorful, themed décor, from CDs and DVDs to online platforms. The modus-operandi
bean bag seating sets, dimmer lights, customized food menu for involves use of sophisticated smartphones and camcorders to
kids, etc. these attributes make for a popular place for play-dates record films in theatres and then publish them on rogue websites.
and birthday bashes. Such websites and their operations are believed to be closely
linked to the spread of malware and cyber-crime. With increased
Online Ticketing & Engagement penetration of smartphone devices and cheaper data charges,
Ticketing – the e-ticketing platforms, such as BookMyShow, PayTm the situation is becoming worse each year. The latest challenge
and Justdial, have witnessed a boost in ticket sales because of the is leakage of pirated copies even before the official release of
user convenience they offer. With cheap availability of internet the the film. Even sophisticated technologies like the watermarking
online penetration has increased by multiple folds. of prints, which allow producers or rights holders to monitor the
usage and movement of each print across the globe, have also
Engagement – Digital apps, social media, e-mails and a not been able to stop piracy
responsive website can communicate a brand’s message effectively
and give its audience a sneak preview of things to come, thereby Slow growth rate of real estate development
driving awareness, interest and desire. E-magazines like movies Development of multiplexes is largely dependent on growth of
first, Movie calendar app have also been creating awareness retail infrastructure. However, limited funding for the real estate
about when a movie is releasing. industry has resulted in slow pace of mall development over the

Annual Report 2016-17 57


Company Overview Statutory Reports Financial Statements
01-24 26-81 82-212

Management Discussion and Analysis

75.2
merchandising as well. Also due to diverse audience, the ‘one size
fits all’ approach does not hold true for India. Absence of iconic
figures, compromising product quality, limited popularity period
and demand of film’s merchandise are various other factors.

million patrons at our cinemas Initiatives required for growth of Exhibition Industry
Single window clearance
during Financial Year 2016-17 Since obtaining various licenses from different authorities by
exhibitors is hampering the growth of screens, it becomes important
past few years. This has led to increase in the acquisition prices that the single window clearance laws should be implemented
of limited retail infrastructure. This trend is even more apparent in by the government. The process of granting permissions/licenses
Tier II and Tier III towns. needs to be expedited to reduce the losses to the cinema owners
through interest cost and cost of keeping the property fully staffed
Non uniformity of regulations in anticipation of the license. At the same time, the time period for
In India, cinema exhibition is a state subject resulting in different license renewal (currently of 1 year) could be increased.
rules for cinemas licensing in each state. One of the biggest
challenges to scalability is the red tape due to multiplicity of Slow Development of Malls
permissions or NOCs (which can go up to 40 in number) and Emergence of multiplex screens in the last decade has dramatically
different approval processes in different states. It can take from changed the film exhibition space in India, however there is still
months to few years for the clearance of these licenses. a huge opportunity to rapidly increase the number of cinema
screens in the next decade without causing oversupply.
Complications in taxation of the film industry have arisen due
to interplay of multiple indirect taxes and frequent changes in Consolidation in the exhibition industry and a positive outlook
taxation law and judicial rulings. In addition, there are restrictions in the economic and social conditions of the country could
imposed by many states such as on the number of shows that see investments being made to improve the infrastructure and
can be played in a day/screen or capping the ticket prices. This increase screen density, but it would be important for both Central
restricts the revenue earning potential of the multiplex. On the and State Governments to update and amend the regulations on
other hand, high entertainment tax and complicated tax structures priority. Currently, it would be easier to open a mall than it is
which vary from state to state also increases the cost of operations. to open a cinema hall, the licenses required to open a cinema
These challenges slow down the pace of new investments from hall are complex and time consuming and often discourage
real estate developers and multiplex operators an investor.

Quality of Content Currently, there are only 4 film cities in the country, located in
Success in the film exhibition business is heavily dependent on the Mumbai, Hyderabad, Noida and Chennai. New film cities will
flow of the content and quality of content being released during not only help increase employment and tax revenue, but can also
the year. The success of a release can be highly unstable and ease the strong pressure on the existing film cities.
seasonal, therefore impacts the performance of the business.
Performance of the Company
With the advent of more and more professional entities into film The Company’s financial performance is discussed under the head
production, the industry is becoming better and organized and “Financial Highlights” in Directors Report to the Shareholders.
is all set to roll out quality movies on a consistent basis thus
producing quality movies for cinema goers. A film that is strong Operating performance
on content is well cast and marketed, can earn good returns. 1. Footfalls & Occupancy
We entertained around 75.2 million patrons at our cinemas
Slow uptake of merchandising in India during Financial Year 2016-17 as compared to 69.6 million
Unlike other countries, India’s merchandizing market is still not patrons during the Financial Year 2015-16, registering a
mature. Most Indian filmmakers have a relatively limited reach growth of 8%. Your Company expects a robust growth in
across the globe with piracy having its spillover effects on film footfalls during the current year 2017-18.

58 PVR Limited
2. Future Outlook commensurate with its size and need. M/s KPMG periodically
Future outlook for the Financial Year 2017-18 is positive review all control systems and assists in monitoring and upgrading
and barring the unforeseen circumstances the company’s the effectiveness of control systems. The Audit Committee also
performance is expected to show continued strong growth. reviews this process.

Internal control systems and their adequacy Material developments in human resources
Your Company believes that sound internal controls and systems Recruitment & Selection
are related to the principle of good governance, and should be At PVR, we believe in hiring potential talent and develop their
exercised within a framework of proper checks and balances. skills further by putting up a structured and extensive training
Accordingly, your Company has devised and implemented such programme to develop them of professionals who would handle
internal control systems as are required in its business processes; patrons by providing highest level of customer services in the
the adequacies of these have been confirmed by the Statutory entertainment world. The stern process of selection encompasses
Auditors in their Report. The Company remains committed to evaluating candidates based on their educational background,
ensuring a reasonably effective internal control environment Skill & Industry experience. Our linkage with best education and
that provides assurance on the operations and safeguarding of training institutes ensures constant supply of resources that are
its assets. The internal controls have been designed to provide industry trained and ready to deliver on the values that govern
assurance with regard to recording and providing reliable the organization.
financial and operational information, complying with the
applicable statutes, safeguarding assets, executing transactions Industrial Relations
with proper authorization and ensuring compliance with corporate With our fair management practices across the board we ensure
policies. The Company has adequate internal control systems a congenial work environment and a good quality of work life.

Annual Report 2016-17 59