>CINEMAX INDIA (RELIGARE)

Margin pressure continues

Sales in line with estimates: Cinemax India’s consolidated revenues for Q4FY09 rose 34.9% YoY to Rs 334mn, broadly in line with our estimates. The exhibition business was the main revenue growth driver, rising 43.4% YoY to Rs 308.3mn. Income from the retail space stood at Rs 22.5mn, while windmill and distribution/production revenue stood at Rs 3.1mn and Rs 0.3mn respectively.

Exhibition revenues increased because of the addition of 22 new screens during the year along with higher footfalls, although the average occupancy dipped to 25% in Q4 from 29% in comparable properties, and average ticket price (ATP) declined marginally to Rs 129. Occupancy in non-comparable properties was 28% and ATP stood at Rs 118. F&B spend per head at comparable properties increased to Rs 31 from Rs 29 in Q4FY08, whereas it stood at Rs 27 for noncomparable properties.

Lower occupancy rates and decline in ATP lead to margin pressure: Operating profit declined 25.8% YoY to Rs 35mn owing to lower occupancy rates and ATP. Film distribution cost increased to Rs 67.7mn, rising by 70bps as a percentage of net revenue to 20.3%. Other expenses rose by 68% to Rs 182mn, accounting for 54.4% of net revenue (up 1,080bps). F&B cost and employee cost stood at Rs 18.4mn and Rs 30.6mn respectively.

Net profit drops 55.8% YoY: Cinemax reported a PBT of Rs 2mn in Q4FY09 against Rs 37mn in Q4FY08. In spite of a tax write-back of Rs 8mn, PAT declined 55.8% YoY to Rs 10mn.

Operational highlights – 16 new projects in the pipeline: Cinemax is present in 25 locations as of Q4FY09 with 74 screens, including 5 added during the quarter. The number of footfalls has increased from 6.6mn in Q3FY09 to 8.5mn in Q4FY09. The company has a total of 16 new projects in the pipeline which will add 55 screens and 12,678 seats by FY10.

Earnings estimates cut – Hold: The stock is quoting at 10.2x P/E and 7.5x EV/EBITDA on FY10E. We have reduced our net profit estimate for FY10 by 12.4%, on account of lower revenue estimates given the standoff between producers and multiplex owners. In addition, we have switched over from a DCF-based valuation to a P/E model in order to capture the overall re-rating in the media sector. Our revised price target thus stands at Rs 61, based on a P/E of 10x on FY10E. We upgrade the stock from Sell to Hold.

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