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History and Business Model
Cinemax India Ltd, a part of the Kanakia Group is one of the most prominent
entertainment companies in India. Cinemax India Ltd was incorporated in the year 2002
as Cineline Entertainment (India) Pvt Ltd to carry on the business of building owning and
operating Multiplexes Theatres and entertainment centers. The company is currently
operating in the film exhibition and gaming business. They run one of the largest film
exhibition chains in the country with 118 screens having a capacity of ~29800 seats out
of 35 locations. They also operate in the gaming business under the brand name
'Giggles'. There are four Giggles outlets in the country Eternity Mall, Thane; Eternity
Mall, Nagpur; Iscon Mall, Rajkot and Dev Arc Mall, Ahmedabad.
Financials
The Company has been growing at a steady rate with revenue CAGR of 17% over
2007-2011. The company’s exhibition business was the biggest contributor to the
revenues followed by sale of food and beverages, revenue from advertising and
revenues from gaming segment. For the year FY11, net sales of Rs 216.6 crores was
reported, i.e. a Y-o-Y increase of 13%. Net profit increased to Rs 5.5 crores over a net
Profit of Rs 17crores reported in FY10, a decrease of 68%. Net sales Q1FY12 grew by
29% at Rs 60crores against Rs 46.6crores in Q1FY11. Q1FY12 reported better numbers
after Q4FY11 which was one of the weakest quarters. Occupancy improved from 14% in
Q4FY11 and 22% in Q1FY11 to 26% this quarter. The ATP has declined to Rs 132 from
Rs 139 in Q1FY11. In Q1FY12, Cinemax launched two properties, six screens in New
Delhi with a capacity of 1,116 seats and another four screen property in Bangalore, with
a capacity of 795 seats. The company is expected to report a CAGR growth of 17% over
FY11-FY13E.
Growth Drivers
• High Quality Content expected: After the lull owing to lack of good content available
due to the Cricket World Cup, high quality content releases are expected for FY12 and
FY13E. This in turn would lead to higher footfalls which would translate into better
numbers for the company and enhancing its profitability. Cinemax currently reports an
occupancy rate of 26% and ATP of Rs 132 which would improve with the improvement
in releases.
• Diversified Revenue model: Though the core business of Cinemax has been
exhibition with two main revenue generation streams from sale of tickets and food &
beverages; Cinemax has planned to diversify its business. It has entered into gaming
under the brand name “Giggles”. These outlets are either located within the theatre or
flanking the theatre premise. This would not only ensure more footfalls at the theatre
property but also make room for sales opportunity through cross selling.
• Upcoming properties: It plans to expand its properties by setting up 34 screens with a
total seat capacity of ~6800 in FY12 with majority of the properties opening in H2FY12.
• Plan to expand Gaming Business: The Company plans to expand its gaming
business by setting up few more zones with an average area of 10,000sq ft.
• Shift from Owned to Leased model: Over the last 3-4 years, the Company has
shifted to lease model as against ownership strategy. This asset light strategy is
expected to rein in capital commitment. It incurs a capital cost of Rs 60,000-75,000 per
seat for building the entire set up. This is expected to improve the return ratios.
Valuations:
Based on Bloomberg estimates for FY12 & FY13, at current level of 34.4, stock trades at
PE of 8.5x and 6x respectively. We expect high quality content and entertaining movie
releases in FY12 and FY13. This should place the exhibitor in a good position and
should lead to an improvement in occupancy and ATP. This should in turn improve its
cash flow as well as return ratios. Also the widening of its property portfolio would aid in
increasing its profitability. It provides margin of safety at current levels with the scrip
quoting below its book value.
Technicals
It has been almost two years this stock has not seen light of day. A consistent decline
and multiple halting points gives key support/resistance levels as Rs 25, Rs 45 and Rs
75. Current prices of Rs 34 give an opportunity to go long for a target of Rs 45. Break
beyond which would open doors for a larger up move in this scrip.
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