Cinemax India: Buy

Investors with a two-year horizon can buy the shares of Cinemax India, considering that the worst may be over for the company and the multiplex industry, with a string of releases charted for the next few months, steep increases in footfalls, and occupancies and increases in food and beverage revenues.

At Rs 50.50, the stock trades at about 14 times its expected 2009-10 earnings and 11 times its next year's estimates; on very conservative assumptions. This is at a discount to Fame India, despite the company's larger scale of operation.

The past two-three quarters were exceptionally challenging for multiplexes with the Mumbai terror attacks reducing footfalls and occupancies, the IPL-2 keeping audience glued to the small screen and the standoff with distributors over quantum of revenue sharing, delaying fresh releases.

For the June quarter, the company's revenues fell by over 18 per cent over June 2008 to Rs 25.3 crore, while EBITDA fell by 88 per cent to Rs 0.53 crore.

Many other multiplex operators incurred losses even at the EBITDA-level.

But with these one-off challenges behind it, the prospects of improvements over the next few months are bright. Recent reports suggest that in July, after the multiplex-distributor tussle ended, there has been a doubling of monthly box-office earnings.

Cinemax, which has 74 screens across 24 locations and many in the lucrative Mumbai market, has benefited from recent releases. Multiplex players have benefited from the large draw such movies as New York, Kambakt Ishq and Love Aaj Kal have had. Over 50 movie releases are expected over the next two quarters (that were held back due to the tussle), starring some big names in Bollywood.

Some big-ticket ones such as Kaminey, 3 Idiots, London Dreams, and Kites are expected to set the box-office ringing. Surprisingly, even English movies such as Terminator Salvation and The Hangover are reportedly running at 60-70 per cent occupancy.

Cinemax has seen its average ticket price decline to Rs 114 in the June quarter from the Rs 125 levels earlier. But the average spends on food and beverages have witnessed an increase to Rs 31 from Rs 29. As occupancies increase to 25 per cent plus levels on the back of higher footfalls and hit movies, the ticket price is set to increase.

The company, despite the slump in the June quarter, hopes to achieve an EBITDA margin of 25 per cent for the full year and an occupancy level of 25-27 per cent.

Source : Hindu business Line.