Cinemax India Ltd. (CIL) is an emerging brand in the entertainment sector with its prime focus on movie exhibition and gaming business with some limited interest in mall development. The company is one of the largest exhibition theatre chains in India operating 10 properties with 33 screens and 9,220 seats. It is also one of the largest owners of multiplex properties in India with 21 screens spread over approximately 146,000 square feet area. The company is a part of the Kanakia group which has an experience of 20 years in real estate development.
The Indian entertainment and media (E&M) industry has out performed the Indian economy and is one of the fastest growing sectors in the country. Historically the E&M industry grows at a faster pace when the economy is booming. India is a tremendous growth phase with real GDP growth likely to touch double digits in the years to come
Robust real GDP growth has translated into rising disposable income of Indians over the last few years. With an urge to improve the standard of living the marginal propensity to consume has also increased. People are now prepared to spend more on quality cinema viewing experience than in the past.
Considering H1 FY07 annualized FY07 earnings, the average P/E works out to be 29x. CIL, on post issue equity, trades will be available at 45.3x on lower price band of Rs135 and at 52x on upper band of Rs155. However, if we consider Market Capitalization to sales, the industry average works out to 11.1x, whereas on lower band of Rs135 the ratio for CIL is 7.6x and at upper band it is 8.8x. We feel that the industry is in a growing phase and with aggressive capex planned by CIL, it can see strong revenue and profitability growth in the years to come. Also by FY09 we believe that the company will attain a sustainable size. We recommend investors to Subscribe to the issue.