A full house?

IPO REVIEW

Focused expansion and rapid growth could help Cinemax put up a good show.

The boom in consumption has set the stage for the lifestyle and leisure industry in India to scale new heights over the past few years. The multiplex industry constitutes a large portion of this leisure industry, riding on the back of the surging entertainment industry and the film-crazy audience.

Entertainment companies, large and small alike, including Adlabs, PVR, Inox Leisure and Shringar Films are out to grab their share of this market.

While these companies have turned to the capital markets to fuel their growth plans, Cinemax India too, is about to take the same route, to expand its scope of operations across the country. 
 

BLOCKBUSTERS AHEAD
	PVR		Adlabs		Inox		Cinemax
	Screens	Seats	Screens	Seats	Screens	Seats	Screens	Seats
FY06	62	12800	34	11500	41	10400	33	9220
FY07E	120	28500	68	21300	73	19000	44	12120
FY08E	165	39900	135	41700	115	29950	94	24320
FY09E	225	54900	NA	NA	163	41600	141	35320
Source: Companies

Cinemax India is coming out with an IPO of 8.92 million shares in the price band of Rs 135-155 aggregating between Rs 120 crore and Rs 138 crore. Of the 8.92 million shares, 7 million are being issued as fresh capital, while the rest is an offer for sale from the promoters.

Cinemax, a part of the Kanakia real estate group, is among the large multiplex operators with 33 screens and over 9,000 seats at 10 locations across Mumbai, Thane and Nashik. Of these, 30 screens are housed at nine locations in Mumbai, Thane and Mira Road. Twenty-one of the 30 screens are multiplex properties, spread across an area of over 155,000 square feet.

Cinemax has its arena of operations concentrated mainly in Mumbai which is the largest contributing market to box-office revenues of Bollywood movies. Mumbai accounts for about 15 per cent of the total box-office collections of all Bollywood movies released.

This helps Cinemax to gain the most out of this market since Cinemax has the widest presence in this market, as compared to all its competitors. The film exhibition business of Cinemax accounted for 62.70 per cent of revenues in FY06. Cinemax had 3.67 million footfalls in FY06, up from 3.33 million in FY05 while in H1 FY07, there were 2.73 million footfalls.

The Indian film exhibition industry scaled up to Rs 5,300 crore in 2005 according to a FICCI-PWC report. The domestic box office market is expected to grow at a CAGR of 14 per cent, and by 2010, the industry is expected to grow to twice its present size. 
 

IT'S SHOWTIME...
Rs crore	FY06	FY07E	FY08E
Revenues	74.60	100.90	182.00
PAT	7.70	18.20	32.60
EPS (Rs)	3.70	8.70	11.60
P/E @ Rs 135 per share		15.50	11.60
P/E @ Rs 155 per share		17.80	13.40

"Of the 12,000 odd screens in India, only about 400 are multiplex screens, while multiplexes draw about 65 per cent of the revenues for all the movies", says Rasesh Kanakia, chairman, Cinemax.

Of these 400 multiplex screens, almost 60 per cent are located in the western part of India, followed by about 30 per cent in the north. As the economy grows, the disposable incomes of people grow and a large demand is set to be triggered off for such leisure activities.

Cinemax also has interests in mall development and gaming. The mall development business is limited to its properties in Thane and Nagpur.

In gaming, it has a branded initiative called Giggles Gaming Zone, which is under operation at one of its Thane properties.

The company has been experimenting with technology and formats of multiplexes, and has come up with innovations like The Red Lounge, which is a luxurious multiplex with reclining seats and massage-chairs with an average ticket price (ATP) of Rs 300-450. Its other multiplexes command an ATP of Rs 100 to Rs 120. The average occupancy ranges between 30 to 32 per cent for Cinemax.

"Our ATP has grown from Rs 86 to Rs 120 in the first half of FY07, while the spend per head (which includes food and beverages and other activities like gaming) has grown from Rs 106 to Rs 146 during the same period," says Mayur Parekh, general manager-finance and accounts, Cinemax.

After ticket sales, the second largest source of revenues for multiplex companies is sales of food and beverages (F&B), which generally amounts close to 30 per cent of the ATP.

In contrast, the F&B revenues for Cinemax have remained a little lower at about 18 to 20 per cent over the past few years.

The management is concerned about this figure and is bringing in some changes such as introduction of non-vegetarian food at the F&B counters in order to increase revenues from the segment.

Cinemax has aggressive expansion plans in the pipeline, over the next three years.

"In Mumbai, Cinemax is the only player with presence at nine locations and 30 screens. We are now looking for a pan-India presence starting in the north and north east regions, since we are already increasing our presence in the west. We plan to add 11, 50 and 47 screens which would mean a corresponding increase in the number of seats of 2,900, 12,200 and 11,000 seats over 2007, 2008 and 2009 respectively, taking the total to 108 screens and almost 27,000 seats", says Kanakia.

"In the next two years, we expect Cinemax to grow at a rate of 200 per cent a year," he adds. This translates into an increase in the number of seats from the existing 9,000 to 36,000 over two years.

The expansion plans of Cinemax are highly focused on the film exhibition business only, and the management intends to concentrate in establishing a pan-India presence in film exhibition, and then look for other avenues of growth.

This decision differentiates the company from the other players in the market, who have interests in film production and distribution along with exhibition.

The model chosen for expansion is a fixed lease and rental based model instead of an ownership model, which would reduce the capital expenditure and fixed investments in land and multiplex properties.

"In the price band of Rs 135 to Rs 155, the stock appears to be fairly valued, at par with other players in the industry," says Gaurav Chugh of IL&FS Investsmart.

"The earnings for FY08 is estimated to be about Rs 8 to Rs 9, with a P/E multiple of 15 to 17 times estimated FY08 earnings, which is similar to that of comparable companies in the industry," adds Chugh.

"In the long run, the valuations will largely depend upon the pace of execution of its expansion plans," suggests Dipti Solanki of Pioneer Intermediaries.

Issue opens: January 18
Issue closes: January 24