The Emraan Hashmi and Abhay Deol-starrer — the political thriller Shanghai — to be released in June, may have a special reference to the corporate history of PVR Ltd.
The Delhi-based company is planning to tighten its purse strings for movie production and focus on its core strength of film exhibition.
“We have lost a lot of money in some of our projects. We have decided to slow down our production business,” said Mr Pramod Arora, group president and chief executive officer, PVR Ltd.
PVR is no exception. Beginning 2008-09, a number of corporate production houses, including Aditya Birla and Mahindra and Mahindra had exited from the production business, said Mr Ajay Rana, chief manager, Export-Import Bank of India. The waning corporate interest is generally attributed to the poor business model and lack of adequate finance options.
Exit of players
“There was anticipation that film production, like the exhibition business, would also get structured and corporatised in India. However, that did not happen. A number of banks and private equity (PE) investors who had invested in the business in anticipation of good returns have burnt their fingers,” Mr Arora told Business Line .
The trend is evident in the exit of JP Morgan Mauritius Holdings and ICICI Venture India Advantage Fund from PVR Pictures, the production outfit of PVR. Together, the two funds held 40 per cent interest.
Bankers blame the spiralling of production costs and the advent of the revenue-sharing model between production houses, artists and distributors for making financing unviable. Production costs have reportedly shot up 2.5-5 times from as low as Rs 20 crore in 2008-09.
The drying up of bank finance is evident from the severe downsizing of portfolios in the segment by IDBI Bank and Export Import Bank of India.
Risk-sharing
IDBI Bank has piled up about Rs 25 crore NPAs in film-financing and has reduced its exposure in the sector from Rs 800 crore in 2009-10 to Rs 100 crore. Exim Bank has also reduced its exposure to Rs 200 crore from Rs 800 crore in 2008.
Banks made an entry into the segment in the middle of the last decade, when distributors used to pay production-houses upfront and financiers were repaid even before the release of the film.
“However, distributors are now asking production-houses to share the box office risk. This has made it difficult for producers to repay loans on time,” said Mr S. K. V. Srinivasan, executive director, IDBI Bank.