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New multiplex is sound business Wednesday, August 1, 2001

A STAFF REPORTER, THE TIMES OF INDIA NEWS SERVICE
AHMEDABAD: On the face of it, E-City Entertainment (I) Pvt Limited's Fun Republic in Ahmedabad may seem like yet another extravagant project on the lines of Crossroads in Mumbai, which left its tenants high on snob-value but low on returns. But a bit of number crunching splits open a sound revenue model that lies beneath the ambition extravaganza (again a deception) by the Essel Group.

According to E-City Entertainment (I) Pvt Limited president and CEO Sanjay Das the company was able to bring down the capital cost of the project by almost 25 per cent with the huge discount on its bulk purchase of building equipment like escalators, elevators, lighting and fitting which were used in the construction of the building.

Considering the scale of investment, 25 per cent saving on the capital cost would work out to a huge sum. According to Das, in the first phase the company is planning multiplexes in 14 centres of the country. So with four escalators being used at each centre, it would be using 56 escalators, which is bulk consumption by any single buyer.

According to market sources, at the cost of Rs 35 lakh each, the 56 escalators would cost around Rs 19.60 crore. But with a 25 per cent discount on them, the company spendings on escalator must have come down by Rs 4.50 crore, a huge saving.

The company has marked an investment of Rs 325 crore for its 14 multiplexes, and is expecting a return of Rs 40 crore from its Ahmedabad centre itself with a general rate of return of 25 per cent and its pay-back period would be four to five years.

E-City Entertainment (I) Pvt Limited chief officer-finance Sanjay Kabra says even though the six cineplexes would be the main draw of the Fun Republic, the company would be finally relying on retailing to contribute around 50 per cent of its total revenue.

Of the total constructed area of 1.5 lakh sq feet, Kabra says retail counters - which would be driven by some franchisee model - cover around 40,000 sq feet.

The six fast-food outlets - Indiyum (their own joint), Vadilal, Upper Crust, Colour of Spice, Dominos and Sukh Sagar - at its food court called Food Federation would be run by the franchisee on a revenue-sharing basis. Their share of revenue from these food outlets would be anywhere between 15 per cent to 30 per cent.

Starz and DeThale, the two fine-dine restaurants on the third floor, are again expected to offer good returns. But its Hours, a departmental store with a wide range of brands in garments and accessories, which is expected to bring huge returns.

"After a two-month market research, we found that Ahmedabad has around one million people in the middle and high-income group. We are targeting these. The per family spending on entertainment including movies, restaurants, video games, garments, accessories, books and music ranges between Rs 25,000 to Rs 40,000 per year. This ensures a decent annual return for us from the retailing business at the Fun Republic," say Kabra.

Again, what is strongly supporting this revenue model is the five-year tax holiday given by the Gujarat government under the incentives provided in its tourism policy to promote investment in this sector. "This is major relief as entertainment tax ranges between 60 per cent to 100 per cent in different parts of the country, and will help us achieve early break-even for the project," says Das.

News Source : Times Of India News Service [ Lightning News ]

 

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