ANSHUMAAN SWAMI CEO, Applause Entertainment 'Worldwide, entertainment is the fastest growing sector and we felt that we had to get in"

The word industry has, by some estimates, been used in association with the word film for well nigh three decades in India. Yet, it was only in 2000 that the business of making films was officially granted an "industry" status in India. The move opened up access to organised sector financing, encouraged several companies in the business to tap the stock market with initial public offerings (IPOs), and has, over time, helped Bollywood grow to a stature where it is beginning to attract the interest of private equity firms.

Circa 2005, there are still whispers (loud ones) about Bollywood's underworld connections, especially in the realm of financing, but things are far removed from what they were a mere five years ago. A report on Bollywood, released by Yes Bank earlier this year, mentions that prior to 2000, most Bollywood movies were financed through the producer's contribution, pre-selling the movie to distributors, and money from private film financiers who charged an interest rate of anything between 36 per cent and 50 per cent. Today, says Sunir Kheterpal, Entertainment and Media Banking Group Head at Yes Bank and the author of the report, things are very different. "Last year, 50 per cent of the top 50 films in Bollywood were financed by the organised sector. This year, the number could be upwards of 65 per cent."

ANIL AMBANI Chairman, ADAE After picking up 51 per cent in Adlabs Films, he plans to move from the distribution and of the business to the production one

In some ways, the change in the way Bollywood operates is reflected by the entry of a group as large and respected as the Aditya Birla one into the space, and by the fact that development financial institution IDBI has sanctioned, since 2000, some Rs 300 crore to film makers. "It comes down to how an industry is performing," says Anshumaan Swami, CEO, Applause Entertainment (promoted by the Aditya Birla Group). "Worldwide, entertainment is the fastest growing sector and we felt that we had to get in." He is, however, quick to add that while there is no question of the group's commitment to the industry, it would prefer to take its orientation slow. "That's because this is a high-risk industry," adds Swami. Thus far, Applause has produced two films, the Govind Nihalani directed Dev and one of this year's top-grossers, Sanjay Leela Bhansali's critically-acclaimed Black. "We have sanctioned assistance for 50 films in the last five years and this aggregates to about Rs 300 crore," says Jitender Balakrishnan, Executive Director, IDBI. "We have recently doubled our exposure limit and have increased it to Rs 200 crore." Balakrishnan will not comment on the returns other than to say they have been healthy (and that the company hasn't had problems with defaults). That may have to do with the quality of the institution's screening process; in the mid-1990s, the non-banking finance companies scam in Tamil Nadu was engendered, in part, by indiscriminate loans at usurious rates of interest to film makers. Investors flocked to these firms lured by the promise of high rates of interest (sometimes in excess of 20 per cent); then, the films bombed and they lost their little all. For the record, IDBI adopts a stringent process when it comes to financing films: this includes screening of applications by an Advisory Committee before the money is finally granted. IDBI funds a maximum of 50 per cent of the total cost of a project.

There is also talk of private equity money heading for Bollywood. However Mahesh Chhabria, Co-head (Investment Banking), Enam Financial, believes that this will only happen when the industry boasts several companies that can deliver, not just one or two. "The issue of scalability is important. Apart from Yash Raj, K Sera Sera and Vishesh, there are not too many who are in a position to make four-to-six films each year," he explains. And while several companies have gone in for ipos since 2000 (Mukta and Adlabs are two), issues related to the way the companies are run abound. Chhabria admits that there is still some scepticism in finance and banking circles about companies in Bollywood that are listed.

Even as this magazine goes to press, for instance, the Company Law Board is reportedly investigating Mukta Arts on the grounds that the company has gone beyond the main objectives for which it was set up. This pertains to its investments in the stock markets to the tune of about Rs 80 crore. Mukta Arts CEO Ravi Gupta says his company had not violated SEBI norms and that the allegations are untrue. "We have moved the Bombay High Court," he adds.

"Corporatisation is about a host of issues like raising public money, greater levels of accountability and transparency, and becoming disciplined," adds IDBI's Balakrishnan. However, the institution's decision to double its exposure limit is being viewed by Bollywood as a sign that it is on the right track.

JITENDER BALAKRISHNAN Executive Director, IDBI "Corporatisation is about issues like raising public money, greater levels of accountability and transparency, and becoming disciplined"

Is it too soon (and too fanciful) to speak of Bollywood Inc.? Well, the exit of large groups like the Tatas from the business (Tata Infomedia made one motion pic, Aitbaar, before the group decided to sell the company to ICICI Venture, which has since refocussed it on its core business of printing and publishing) is hard to ignore.

Equally hard to ignore, however, is the presence of groups such as the Aditya Birla one in the business ("We could have a couple of releases next year," says Applause's Swami). And in 2005, shortly after acquiring a 51 per cent stake in Adlabs, Anil Dhirubhai Ambani Enterprises' (ADAE) Anil Ambani articulated his desire to move from the distribution end of the film-making business to the production one. The acquisition is reported to be part of the group's initiatives towards becoming a convergence major. Reliance Infocomm, a group company, will be a key part of this future plan.

The sudden influx of a huge amount of private equity money into India could well prove a catalyst in Bollywood's progress towards becoming a full-fledged industry. Right now, says Enam's Chhabria, "private equity players see the industry as being unorganised". Yet, if some of them decide to take the plunge, "and invest time and money, they could make it organised". Even without that, Bollywood should get there; a helping hand or two may help it do so faster.