Cinemax

A dominant position in Mumbai and on-track expansion across the country gives Cinemax an edge over others. Over the past few weeks, the stock markets are reverting to the great Indian growth saga and those companies and sectors which are driven by the growth in domestic consumption are back in the limelight.

As disposable incomes rise in the deep pockets of the country, the resulting spending spree is envisaged to be an unparalleled opportunity for sectors such as consumer goods, apparels, leisure and lifestyle. Among others, the multiplex players too are investing big bucks across the country to reap the resulting riches.

Players like Adlabs, Cinemax India, Inox Leisure and PVR Cinemas – all are racing to gain presence town and country. Cinemax India, which raised around Rs 138 crore via an initial public offering in order to expand its footprint out of Mumbai, appears to be well on track. A part of the Kanakia real estate group, the company is among the large multiplex operators with 39 screens and over 11,000 seats at 13 locations across Mumbai, Thane, Nashik, Himmatnagar (Gujarat) and Guwahati.

Mumbai magic

Mumbai is the largest contributing market to box-office revenues of movies in India, accounting for over 15 per cent box-office collections of all the Bollywood movies released. Cinemax is the largest operator in this regional market, as it has a majority of its operations concentrated in and around Mumbai and hence, stands to gain the most from its continuing demand. Of the total 39 screens, 31 are housed at 10 locations in Mumbai, Thane and Mira Road. Twenty-eight of the 31 screens are multiplex properties, spread across an area of over 155,000 square feet.

Beyond Mumbai, the company has plans to expand its reach in the northern and eastern parts of the nation.

Realty blues?

Over the past 12-18 months, real estate prices across the country have zoomed out of the roof. The rise in real estate prices caused concerns of cost overruns of the rapid expansion plans of multiplex companies. "We have already signed up our properties for expansion well in advance," claims Rasesh Kanakia, chairman, Cinemax. "Even though the overall property rates have gone up by about 10-25 per cent across different locations, we gain from a lag effect in the rates, from the time we sign up a property until the time a multiplex is launched. In addition, being an anchor tenant in a property, we can benefit from preferential rentals offered in the form of prime mover discounts, which ranges between 50-60 per cent," adds Jitendra Mehta, chief financial officer, Cinemax. "So far, we have already signed up properties for 425 screens, which are expected to be up and running by FY11," he adds.

Numerically strong

Over the past year, Cinemax has witnessed average ticket prices (ATPs) rising by nearly 19 per cent from Rs 105 in FY06 to Rs 125 over FY07. The average spend on food and beverages increased from Rs 21 to Rs 26 over the two fiscals. As a result, the average spending per head rose almost 20 per cent in a year. "We expect the ATPs to rise by about 15 per cent over the next year," says Mehta. Further, footfalls too, are on a rise. For Q1 FY08, the footfalls increased by 7.1 per cent to 1.5 million over previous corresponding period. However, the average occupancy levels dipped during the quarter from 35 per cent over the same period last fiscal to 30-31 per cent. In defence, Mehta says: "During the first quarter this year, there were hardly any blockbuster releases. Further, with a greater number of Hollywood releases, the number of shows per day has gone up to five. If we calculate the occupancy rates in the traditional manner, considering the average number of shows to be four a day, the occupancy has actually risen."

Cinemax has come up with the innovative Red Lounge, which is a theatre with reclining seats and massage chairs, clocking an ATP of almost Rs 450. At present, there are two operational Red Lounges in Versova and Bandra in Mumbai. Now, the company plans to install one or two rows of reclining seats in each of its multiplexes, across all properties in order to boost its top line growth as well as profitability.

Valuation

At present, the Cinemax stock trades at Rs 136 which is nearly 19 times estimated FY08 earnings, and around 14 times estimated FY09 earnings (See table: Running full house). With the demand going strong for all the multiplex players, and Cinemax's execution of expansion well exceeding its plans, the company is on a good footing. The dominant position of the company in the Mumbai region gives it an edge over its peers such as PVR Cinemas and Inox Leisure, which trade almost at similar or slightly higher price-earnings multiples. While the global markets are in turmoil, Cinemax appears to be a good bet considering that the sector is entirely dependent on domestic demand and the widening middle class of the country