Cinemax India, the leading theatre-chain operator, is promoted by the Kanakia group, with a track record of over 20 years in real-estate development. It operates six multiplexes, two multi-screen theatres, and two single-screen theatres. Of the 33 screens and 9,220 seats in its 10 properties, Mumbai and Thane accounts for 30 screens. With 21 screens spread over 146,242 sq ft area, the company is the largest owners of multiplexes.
Cinemax has forayed into the gaming business, under the brand name, Giggles-The Gaming Zone, at Eternity Mall, Thane. The 13,000 sq-ft area offers around 50 state-of-the-art games. It intends to open seven new gaming zones at its multiplexes by FY 2009. Further, the company has developed over 200,000 sq ft at the Eternity mall, Thane. The company is currently, developing a 100,000 sq-ft mall at Nagpur and 30,000 sq-ft phase-II of Eternity mall at Thane. Both are expected to become operational by FY 2007 and FY 2008, respectively.
The net proceeds of the issue are to be utilized for setting up 19 new theatres at identified key locations with approximately 63 screens and 15,864 seats at an estimated cost of Rs 110.69 crore. The theatres will be in Indore, Guwahati, Nagpur, Nashik, Faridabad, Panipat, Hyderabad, Kolkata, Ahmedabad, Ghaziabad, Siligudi, Ludhiana, Bangalore, Pune and Mumbai.
Strengths
- Cinemax India has developed a strong patronage in the last couple of years. The number of patrons has grown from 2.40 lakh in FY 2004 to 3.67 million in FY 2006. The figure has reached 2.73 million in the half-year ended September 2006. From one screen in 2004, the company is adding 11 screens at five properties by March 2007, 50 screens at 15 locations by March 2008, and another 47 screens at 12 locations by March 2009. The number of screens is to grow from 33 screens at 10 locations to 141 screens at 42 locations by FY 2009.
- The Indian multiplex industry is on a high-growth trajectory, with its increasing share of the overall box office collections. The growth of multiplexes is fuelled by the rise in disposable incomes, a boom in organized retail, entertainment tax benefits given by several state governments, and the corporatisation of the Indian film industry.
- From an ownership model, Cinemax India is switching over to a lease model, which would lead to a lower capital expenditure, going forward. The company expects to break even at 20% occupancy.
Weaknesses
- The multiplex business enjoys a relatively low breakeven due to higher ticket rates and entertainment tax benefits. However, tax benefits are for a limited period and ticket rates can be regulated by the states as has been done recently in Tamilnadu.
- The poor success rate of Hindi films, inadequate enforcement of anti-piracy laws in India, and increasing home viewing options such as DVD and cable TV/DTH may constrain the growth in the number of cinema patrons. Also, the company will face competition from established companies such as PVR, Adlabs Films, and Inox Leisure.
Valuation
The consolidated FY 2006 EPS on the post-equity of Rs 28 crore works out to Rs 2.7. At the price band of Rs 135 – Rs 155, PE works out to 49.2 – 56.5. For the first half of FY 2007, the consolidated non-annualised EPS is Rs 1.5. Due to the seasonality of the business, the EPS cannot be annualised. However, in view of the big releases since September 2006, the second half will be much better.
Also by FY 2009, Cinemax India plans to quadruple the number of screens from the current 33 in 10 locations to about 141 across 42 locations. Also, the company has a 1,00,000 sq-ft mall under construction at Nagpur. It will be leased out going forward as also 30,000 sq ft of property at Eternity Mall, Thane (phase II).
The companies in the peer group, i.e., PVR, INOX Leisure and Adlabs Films, are trading at 101.1, 50.8 and 64.7 times their FY 2006 EPS.