Having tested success, it wants to grow fast
Inox Leisure is one of India’s larger multiplex cinema operators. It has eight operational multiplexes, with 32 screens across seven cities: Mumbai, Pune, Vadodara, Goa, Jaipur, Kolkata (two multiplexes) and Bangalore.
While consolidating its position in the exhibition business, Inox Leisure has entered the film distribution business, acquiring the distribution rights for certain Hindi film titles in select distribution circuits. It had invested Rs 7.5 crore in financing the film, "The Rising’.
Inox Leisure’s present IPO is to raise finance its expansion. The company is setting up around 11 multiplexes in locations like Hyderabad, Vishakapatnam, Jaipur, Kolkata, and Bangalore at an estimated cost of Rs112.82 crore.
Strengths
- Inox Leisure has developed a strong patronage in the last couple of years. Over 2003-05, the number of patrons has shown a robust CAGR of 52% to 38,88,547 and in the half-year ended September 2005, it touched 80% of the numbers in FY 2005, at 31,25,801.
- The revenue has shown a impressive CAGR of 57% to Rs 61.48 crore over 2003-2005 and touched Rs 50.25 crore in the six months ended September 2005, which was 80% of the full year sales of FY 2005. OPM has grown steadily to 33.6% end FY 2005, from 28.7% in FY 2003. In six months ended September 2005, it stood even better at 40.3%. The bottom line grew from mere Rs 9 lakh in FY 2003 to Rs 8.24 crore in FY 2005. In the six months ended September 2005, the profit after tax was Rs 9.73 crore.
- The Indian multiplex industry is on a high growth trajectory, with its increasing share of the overall box office collections. The growth of multiplexes is fuelled by a rise in disposable incomes, a boom in organised retail, entertainment tax benefits given by several state governments and the corporatisation of the Indian film industry.
Weaknesses
- The promoter of the Inox Leisure, Gujarat Fluorochemicals (GFL), is not related to the film industry and is reducing its stake through offer for sale in the present IPO. About 10% of the total funds raised will go to GFL, and not to the company.
- Over 75% of the revenue comes from box-office collections. The poor success rate of Hindi films, inadequate enforcement of anti-piracy laws in India and increasing home viewing options such as DVD and cable TV may constrain the growth in the number of cinema patrons.
- The multiplex business enjoys relatively low breakeven due to higher ticket rates and entertainment tax benefits. However, tax benefits are for a limited period and ticket rates can be regulated by the states.
Valuation
The nearest comparable companies are PVR Cinema, Adlabs and Shringar Cinemas. PVR Cinemas, which is the largest multiplex cinema operator by number of screens, recently completed its IPO and is trading around 169 times its FY 2005 EPS, Adlabs is trading at a PE of around 60 times its FY 2005 EPS. Shringar Cinemas, which has yet to report profit, is trading around Rs 80.
On an expanded equity of Rs 60 crore, FY 2005 EPS of Inox Leisure works out to Rs 1.26. Based on this, PE stands at 79.4 and 95.2 at the price band of Rs 100 and Rs 120. In the first half, the company has already crossed the FY 2005 net profit. However, first half is the main season and one cannot annualise the figures. Nevertheless, one can expect over 100% growth in net profit in FY 2006, bringing down the PE to below 50.