Financial Daily from THE HINDU group of publications
Monday, Apr 04, 2005
Money & Banking - Credit Market
Bollywood breaks financing tradition Study finds sharp rise in private equity, dip in institutional lending
Shyam G. Menon
Mumbai , April 3
NON-TRADITIONAL sources of finance have steadily risen in the funding mix of Hindi films, exceeding Rs 250 crore in 2004. What has increased sharply is private equity, according to a recent study by Yes Bank Ltd.
Despite high expectations attached to it, institutional lending for film production declined last year.
While there may be reasons for the dip, it is being perceived as a temporary blip and likely capable of correction as non-traditional fund flows gain overall in 2005.
According to Mr Sunir Kheterpal, Country Head (Entertainment & Media Banking), Yes Bank, the inflow of non-traditional finance should grow further this year, given several big films that feature such funding component.
Black used non-traditional funds. From those yet to be released or in the works, The Rising, Marigold and Krish fall in the same category.
These films alone would account for Rs 50-60 crore of non-traditional financing in 2005, not to speak of Bollywood's smaller films, which is where a chunk of last year's inflows actually went.
Besides, at least one big production house went public this year bringing to the party more IPO funds, which is one of the streams of non-traditional finance.
Film financing sources are categorised into two, traditional and non-traditional.
The former comprises producer's contribution, distribution pre-sales and private financiers.
The latter is made of loans from banks and FIs; companies and production houses funded through IPO, or venture capital and/or institutional private equity; individuals funded through venture capital and/or private equity; music companies and TV broadcasters.
Since 2001, the Hindi film industry had seen a marked increase in non-traditional financing sources.
It was led by IPO funding and institutional debt funding, other streams following in due course.
For purpose of study, Yes Bank has classified films into low, medium and high grades, spanning production budgets of less than Rs 1 crore, Rs 1-2 crore and more than Rs 2 crore respectively.
In 2004, there were 177 Hindi film releases (157 in 2001) composed of 55 low-grade (61), 33 medium-grade (36) and 89 high-grade (60) movies.
Of these, 44 high- and medium-grade films used non-traditional funds last year (six in 2001).
Within that, high-grade films alone were 37 (five in 2001) in number.
As a proportion, non-traditional funding covered 36 per cent (six per cent) of all high- and medium-grade Hindi films in 2004, its growth in high-grade films being sharper, from eight per cent to 42 per cent.
Non-traditional funds for Hindi films are estimated to have risen from Rs 48.5 crore in 2001 to Rs 251.5 crore in 2004.
There is a deceleration here, for the increase was by 191 per cent from Rs 62.1 crore in 2002 to Rs 180.6 crore in 2003, the growth rate of 2004 being lower at 39 per cent. "The lower growth rate is a function of the larger base," Mr Kheterpal said.
Across non-traditional sources in the 44 films, private equity from individual investors topped contribution to Hindi films in 2004 at 64 per cent (from nil in 2001), while IPO funds came second at 16 per cent (83 per cent).
In 2001, five out of six non-traditionally funded films used IPO money. Last year, even as IPO-funded films were seven, the number of non-traditionally funded movies rose to 44, reducing its share.
IPO funding should gain impetus in 2005, with UTV having gone public and Adlabs reported to be funding four films.
What really dipped in 2004 was institutional lending. Its share was zero in 2001, rose to 36 per cent in 2002, fell to 24 per cent in 2003 and touched seven per cent in 2004.
"It could either mean that a larger number of projects are being funded through the equity route or given the need for stringent track record and much paper work the producers are either unable or not very keen on seeking institutional loans," the report said.
Last year, 86 per cent of film projects financed by the non-traditional route had quantum of financing lower than Rs 8 crore, the result of many non-traditional fund sources being new entrants to the industry and hence preferring films with smaller budgets.
These new entrants, mainly equity players, were also forced to opt for small-budget projects because the industry's big producers shy away from taking them aboard as investors.
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