Renuka Ramnath’s “Incentive” Strategy Yields Mega Gains For Multiples Equity. Will She Be As Lucky The Second Time?

PVR constitutes one of Renuka Ramnath’s successful investments. In November 2012, she got Multiples Equity to invest Rs 153 crore in PVR to acquire a 15.8% stake at Rs. 245 per share.

However, because she was jittery that Ajay Bijli, MD and promoter of PVR, could leave the Company high and dry, she got Bijli to sign an “incentive” agreement under which he promised to serve the company diligently and achieve prescribed targets. Multiples agreed to pay Bijli a large sum of money in return for his services.

The conditions were quite tempting and also difficult. Ajay Bijli was promised 20% of the excess profits earned by Multiples over an above a 30% internal rate of return it generated on its investment in PVR.

Renuka Ramnath need not have worried so much because under Ajay Bijli’s dynamic leadership, PVR has grown by leaps and bounds. PVR used the funds received from the investors to acquire Cinemax India. This move catapulted it to the enviable position of the “largest multiplex operator” in India with 351 screens across 85 locations and a total seating capacity of 84,190 chairs.

Predictably, PVR’s stock price soared like a rocket. Here, it is important to note that Renuka Ramnath was not content to rest on her laurels. Instead, she decided that some part of the gains deserved to be encashed. So, in July 2014, Multiples sold about 9.34 lakh shares of PVR at Rs 667 per share. This earned it a magnificent return of 172% for the investment of less than two years. Ajay Bijli received an “incentive fee” of Rs 3.64 for his brilliant efforts in steering PVR to an unassailable leadership position.

Now, the significant aspect from our perspective is that Renuka Ramnath has decided that PVR is good for more mega bucks. In July 2015, Multiples agreed (in association with foreign pension funds and other investors) to subscribe to 50 lakh shares of PVR through a preferential allotment. The investment was at Rs. 700 per share and absorbed Rs. 350 crore (aggregate for all investors).

The funds are to be utilized by PVR to acquire 39 screens of DT Cinemas (a DLF entity) with a total capacity of around 9,000 seats. As a result of the proposed acquisition, PVR will have a presence in 44 cities with 115 multiplexes and 506 screens.

PVR Cinemas’ arch rivals, Inox and Carnival Cinemas, have long lost their lead in the business and are in no position to challenge PVR’s dominance.

Interestingly, the investment is already in the green. While the shares were subscribed to at Rs. 700 each, the CMP of Rs. 834 means that about 20% gains are on the table for just a couple of month’s investment.

However, the larger issue that we have to watch out for is whether Multiples Equity and the other investors will be able to take home another 175% gains from PVR in a couple of years’ time? We shouldn’t be surprised if that happens given Renuka Ramnath’s wizardry in investments and deal making!