The Capital expenditure evaluation of Reliance Media works

Submitted to: Prof. Dr. Paresh Shah

Financial Management

Submitted by:

Prashant Maharshi

ISBE/PGP/SS/2011-13

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Contents• Industry Profile

• Overview of Reliance Media Works

• Capital Expenditure and need for it

• SWOT Analysis

• Growth Analysis

• Financial Profile of RMWL

• Ratio Analysis of RMWL

• Balance Sheet of RMWL for 5 Years

• Conclusions2

Industry Profile• Film Exhibition

1. Single and double screen cinemas

2. Multiplex cinemas• Content production- Film

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2006 Market Size was estimated at Rs. 61,000-crore

Expected to reach Rs. 1,05,200-crore by 2013, at a CAGR of 19%

Maximum growth expected in Television and Film segments

More than 300 national and regional TV channels

Close to 1000 films made every year

Liberal FDI policies across all the segments of the industry

Government is focusing on regulations to give further impetus to the industry.

Overview of RMWL

• Part of Reliance ADA Group

• Established in 1975, as Adlabs Films Limited in Mumbai

• Formed primarily for processing laboratory and catering to the advertising industry

• In 2001, it entered into multiplex business

• Operates Big cinemas with over 543 screens overseas

• RMW’s television venture is among top players in television programming industry

• RMW has presence across three segments film production, exhibition, distribution

• It also works with BPO and is leading global players

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The Network

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London

New York

Mumbai

Chennai

Kolkata

TokyoLos Angeles

Pune

Presence

The company operates the Big Cinemas multiplex chain having over 543 screens across India, the US, Malaysia, Nepal, Japan. .

Off Screen Advertising

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Capital Expenditure

• Is an investment to acquire or upgrade fixed or long lived assets

• Decisions are taken to make profits in future

• It is made up of two processes :

a. Making the decision

b. Implementing it

• It is derived and associated with Strategic Planning

• Is made to maximize shareholder’s wealth

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Evaluation Techniques for CE

• The Net Present Value (NPV)

• The Internal Rate of Return Method (IRR)

• The Equivalent Annual Cost Method

• The Pay Back Method

• The Discounted Pay Back Method

• The Accounting Rate of Return Method (ARR)

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Need for Capital Expenditure

• Expansion

• Maintenance of current level of activity

• Cost reduction or quality achievement

• Replacement

• Modernization

• Research and Development

• Protection of Property

• To meet legal requirements

• Safety and health

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SWOT Analysis of RMWL

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Strengths Weakness Opportunities Threats

Vast customer reach Highly fragmented Emerging concept of movies Piracy

Growing middle class

Lack of cohesive production and distribution infrastructure Poor sections of the society Lack of quality

content

Change in lifestyles

Lack of efforts for media penetration New distribution channels

Technological innovations Rise in viewership

Customer profile and

movie schedule Technological innovations like

animations

Growth Analysis

• Box-office collection of Rs 68,500 million in CY 2009, growing @ 8%

• Growing size of big budget movies, a key revenue driver for multiplexes

• Print size of big budget movies has grown significantly

• Multiplex contribution has gone up from 10% in CY 2006 to around 25 percent of

the total domestic theatrical revenues for the overall Indian film industry and as

much as 60% for Hindi films

• Hollywood : a new source of revenue stream, has grown to 5.5% of Indian box-

office from 2% in 200611

Particulars 2010 2008 IncreaseTop 10 films NBOC (Rs million) 8,080 6,140 32%

No. of big budgets releases 48 35 37%

Growth Analysis cont…..

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Film processing

53%

Cinemas33%

Film prod14%

FY 2006

Revenues: Rs 1,250 million(USD 26.6 million)

Film processing13% DI

2% Eqp rent2%

Restoration6%

TV prod5%

Cinemas72%

Revenues: Rs 6,720 million(USD 143 million)

FY 2010

82% from businesses created in last 4 years 56% from businesses in last 2 years

• Operations in Mumbai only

• 8 theatres (32 screens)

• 14 professionals with > 10 years’ experience

FY 2006 FY 2010 (60% CAGR over 4 years)

• New businesses added, to Yield further results FY 2011 onwards

• Market leader in every business• Operations in 118 cities, 5 countries• 156 professionals with > 10 years’

experienceProjects under implementation in 2011:

• Studios, TV Post

Production Value Chain

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Financial Profile of RMWLKey Financial Indicators

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Particulars Units 2010 2008 Increase

Revenue Rs million 3,157.7 6,918.9 7,310.4

EBITDA Percent 37.6 22.4 9.5

PAT Rs million -428.8 -570.5 -1,447.9

PAT margins Percent -13.6 -8.2 -19.8

Revenue growth Percent 47.1 64.3 5.7

EBITDA growth Percent 39.7 -2.0 -55.2

PAT growth Percent n.m. n.m. n.m.

Gearing Times 1.9 2.7 7.8

RoCE Percent n.m. 3.6 n.m.

RoE Percent n.m. n.m. n.m.

Shareholding Pattern (%)

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Particulars June 2010

Sep 2010

Dec 2010

Mar 2011

Promoters 62.2 62.2 62.2 62.2

FII 2.9 4.2 5.7 4.0

DII 1.6 1.2 0.4 0.3

Others 33.33 32.4 31.7 33.5

Promoters62.23%

Others33.50%

FII3.97%

DII0.30%

Share holding (As on Mar 31, 2011)

Ratio Analysis

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Particulars March 31, 2007

March 31, 2008

March 31,2009

March 31,2010

March 31,2011

A. Profitability Ratios:Operating Profit Margin(%) 40.03 38.89 17.61 19.43 -10.73Gross Profit Margin(%) 48.44 0.64 -6 6.2 -24.56Net Profit Margin(%) 22.42 15.42 -5.71 -20.77 -50.09Return on Total Assets 78.19 147.01 117.59 93.14 36.91Earnings Per Share 21.46 9.95 -6.44 -22.63 -55.55

B. Liquidity Ratios:Current Ratio 0.86 1 1.19 0.86 0.74Quick Ratio 3.03 2.79 6.41 5.88 5.58

C. Leverage Ratios:Debt Equity Ratio 1.87 1.36 2.24 4.18 11.24Long Term Debt Equity Ratio -- 0.59 0.92 1.25 3.17Interest Cover 21.72 2.17 0.09 0.47 -0.55

D. Turnover Ratios:Inventory Turnover Ratio 235.84 183.91 206.5 151.88 132.54Debtors Turnover Ratio 6.09 2.6 2.48 1.97 2.36Fixed Assets Turnover Ratio 1.25 0.65 0.63 0.46 0.46Total Assets Turnover Ratio 0.42 0.22 0.33 0.24 0.27

Balance Sheet of RMWL for 5 years

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(Currency: Indian Rs. In millions)

March 31, 2007

March 31, 2008

March 31,2009

March 31,2010

March 31,2011

Sources of Funds

Shareholder’s Funds 3,111.86 6,780.84 5,548.28 5,464.05 5,432.43

Loan Funds 5,834.17 9,226.85 12,147.30 17,951.27 19,128.80

Deferred tax Liabilities (net) 128.62 - - - -

9,074.64 16,007.69 17,695.58 23,415.32 24,561.23

Application of Funds

Fixed Assets 3,399.45 8,333.48 8,543.72 10,353.74 10,156.43

Investments 816.52 2,441.99 233.46 1,325.18 726.84

Current assets, loans & advances 6,661.49 7,369.59 10,196.17 12,369.49 12,043.92

Less: Current liabilities & provisions - 1,802.82 - 2,137.37 - 1,401.91 - 1,800.93 - 2,095.90

Net Current Assets 4,858.67 5,232.22 8,794.26 10,568.56 9,948.02

Profit & Loss Account - - 124.14 1,167.84 3,729.94

9,074.64 16,007.69 17,695.58 23,415.32 24,561.23

Conclusions

• Fastest growing film and entertainment exhibition & Services Company

• BIG Cinemas has 10 to 15% of Indian box office contributions of big ticket films.

• Big Synergy is the leader in the field of non-fiction programming

• There has been a huge loss to the group of Rs. 2562.10 million this year

• Investment and funds from different sources has decreased to a great extinct

• Need for Capital Expenditure to overcome losses

• Has diversified business into different segments

• RMW is planning rights issue of Rs 500 crore in March 2012

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Thank You