Business of Cinemax India
Cinemax is part of the Kanakia real estate group and is a large multiplex operator with 33 screens and 9000 seats at 10 locations across Mumbai. Cinemax is largely concentrated in Mumbai which gives it an advantage in terms of Mumbai contributing to 15% of all box office sales across the country. Apart from multiplexes the company also has interest in gaming and mall development. The majority of the revenue however does come from film exhibition and for the year 2006 it stood at 62.7% of the total revenues.
Financials
The company has seen its average ticket price increase from Rs. 86 to Rs. 120 in the first half of FY 07 and expects the spend on food and beverages to increase as well. The spend on food and beverages has been lower at around 20% when compared to other multiplexes and the management has decided to take care of this by introducing non vegetarian food and therefore is expecting a jump in this segment as well.
The revenues for the year FY06 have ben Rs. 74.6 with profit after tax at Rs.7.7 crores and EPS at Rs.3.70. The IPO opens on January 18th and closes on the 24th with an offer price between Rs. 135 and Rs. 155. While the price band looks expensive if one considers the valuation of the year 2006 the analysts expect the P/E to be around 15 to 18 times estimated FY 07 earnings which may be a better figure to look at.
Expansion Plans
The company has got expansion plans to make it a pan India player and it plans to add 11 screens in the north region, 50 in the north-east region and 47 in the western region which means a corresponding increase in the seats of 2900, 12,200 and 11,000 over a period of the next three years. This expansion would help the company take advantage of the lifestyle boom across the country but it would also mean that the company would have to compete with other players like PVR, Adlabs and Inox which would be already present in some of those regions.
Conclusion
While the company is in a sector that is doing well and the Cinemax itself has got considerable experience in the industry to grow and manage that growth properly, going forward it will face more competition and also will have to operate in geographic regions in which it was not present earlier.
Another factor to keep in consideration while investing in the stock is that most of the investment has been chalked out for the next three years and the returns to that are likely to come in a more longer term horizon and therefore this stock is not suited for investors who take a shorter term view of less than an year or so of their investments.
