For 3QFY2009, Cinemax reported a robust topline growth of 36.7% y-o-y to Rs37.7 crore (Rs27.6cr) on a consolidated basis, driven by 32.4% growth in revenues from the theatrical exhibition business.
This was largely backed by a strong 36% increase in footfalls to 2.4 million (1.7mn) owing to new property additions (especially new multiplexes at Ahmedabad and Nagpur), as both average spend per head and occupancy declined 1.2% and by 400bp respectively, on a y-o-y basis.
On the operating front, consolidated operating margins contracted marginally by 33bp to 22.9% (23.3%).
Rental cost, which increased by 325bp to Rs4.3 crore (Rs2.2cr, as all properties henceforth are leased except the Nagpur property) and distributor’s share that increased 157bp to Rs9.6 crore (Rs6.6cr) weighed on margins.
However, other expenditure and power and fuel costs as a percentage of sales, declined by 360bp and 189bp, respectively.
Outlook and valuation
During FY2008-10E, we expect Cinemax to register 35.7% CAGR in topline mainly driven by addition in seating capacity as we expect ATP to decline marginally due to expansion in Tier-II and III cities.
We expect the screen count to increase from the current 74 screens (including IMAX screen) to 78 screens in FY2009 and 100 screens in FY2010.
Cinemax has opened two food courts and two gaming zones. We expect the food court and Giggles (gaming business) to clock Rs3-4 crore revenue in FY2009 (as they came in at the end of the year) and Rs7cr for FY2010.
We have factored in Rs8 crore and Rs10 crore as distribution revenue (from its recently incorporated 100% subsidiary – Cinemax Motion Pictures) for FY2009 and FY2010, respectively.
On the Operating front, higher rentals (as all properties henceforth are leased except for the Nagpur property) and staff costs (due to expansion) are expected to weigh on margins that are expected to decline marginally by 35bp over FY2009-10E.
However, as majority of the company’s future expansion is in Non-E-tax exempt areas, additional pressure on Margins cannot be ruled out. We expect Operating Profits to post CAGR of 33.7% to Rs46 crore over FY2008-10E.
Net Profit is expected to remain flat over FY2008-10E largely owing to higher depreciation (on account of windmill power project and Amortisation policy followed by the company on distribution) and interest cost (the company expects to raise Debt to fund its expansion plans).
We have revised our earnings estimate for FY2009 and FY2010 downwards by 23.1% and 23.4%, respectively.
At Rs35, Cinemax is trading at 7.1x FY2010E EPS of Rs4.9. We recommend an ACCUMULATE on the stock, with a revised target price of Rs39 (Rs52).