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Cinemax IPO is Expensive

January 24, 2007

I had a closer look at Cinemax IPO just last night and I am personally not subscribing to the issue though investors with the ability to take some risk can apply and SELL on allotment.

Background & Business: Lifestyle and Leisure space is changing rapidly in India. Multiplex entertainment is seeing wider acceptance among large cities. Cinemax is a leader in the western markets and has an ambitious plan to quadraple its seats from 9,000 to 36,000 by 2009.
Mumbai accounts for 15% of all box office collections and Cinemax being a leader in this market, it helps them. Some analysts wrote about the promoters family being into Real Estate which will also help [Yes everybody wanst to be a Realty king now, just like IT in 1999-2000]

Post IPO Equity – Rs 28 crore or 2.8 crore equity shares of Rs 10 each [None of the folks mention this. This is very important as all your future EPS figures are based on fully diluted equity]

Financials:
Cinemax had a Total Income of 15.4 [2005] 43.8 [2006] and 34.7 [First Half 2007]
Cinemax had a PAT of 4.698 [2005], 12.1 [2006] and 3.1 [First Half 2007]
-All figures in Rs crore

It is hard to understand how Cinemax will outperform in another 3 months [Read Income from Screening 60% and F&B 30% in RHP], anyway, even on an optimistic basis if its profits stand at Rs 12.1 crore, then one can expect an EPS of mere Rs 4.3 for FY2007.

At IPO price band of Rs 135 – Rs 155, it translates into P/E of 31.3 to 36.3. This implies it is fully priced. [Broker manipulation is a separate story] However, the growth of Multiplex entertainment is pegged at mere 14% for the next 4 years and valuations look stretched. Cinemax also trails behind PVR, Adlabs, and Inox in the total number of screens and seats.

Always remember, stick to the market leader in any particular growth segment and you will make money. When I can get Adlabs at similar valuations, would rather BUY it than Cinemax.

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