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Private equity major Actis has joined the race to buy Cinemax India Ltd, a multiplex chain put up for sale by its promoters, expecting a valuation of close to Rs 700 crore, including a debt of Rs 100 crore.
The proceeds of the sale will be invested by the Cinemax promoters, the Kanakia family, in their core business — real estate development. The promoters’ demand is almost double the market capitalisation of the company at Rs 368 crore. The promoters are of the opinion that the company is undervalued compared to its peers like PVR and, hence, should get a significant premium to the current market price, the source said, requesting anonymity. The Kanakias own close to 70 per cent stake in the company.
Cinemax currently has a 39 properties with 138 screens and 33,535 seats, whereas its competitor PVR Ltd has 44,196 seats in 40 properties. PVR’s market cap is close to 634 crore on the Indian stock exchanges. Actis is interested in Cinemax as it expects the Indian consumer story to play out in the future in a big way. Its previous investments in the Niligiris store chain was also based on the same principle. The private equity player has started due diligence on the company, the source said.
When contacted, an Actis spokesperson said: "Actis is unable to comment on deal speculation."
Two days back, the company, in a clarification to BSE, had said it was not aware of any stake sale/takeover to/by any other multiplex chain. It added the company had also checked with the promoters of the company and had been informed that there was no transaction that had been executed in relation to stake sale. An email sent to the company did not elicit any response till press time.
Cinemax India reported a net revenue of Rs 96.4 crore and a profit after tax (PAT) of Rs 9.3 crore in the June quarter. The multiplex business was recently demerged, with the parent company Cinemax Property having interest only in the real estate business. The company’s exhibition business was also hived off into Cinemax Exhibition India Ltd.
The multiplex company’s PAT margins are almost double of PVR at 9.7 per cent, thus making it attractive for buyers. What is interesting is that Anil Ambani’s Reliance Group’s mutual fund has also bought some shares in Cinemax.
The Indian film industry was estimated to be Rs 9,300 crore in 2011, indicating a growth of 11.5 percent vis-à-vis 2010. Of this, 74 per cent revenue came from domestic theatrical releases.
According to the Ficci-KPMG Indian Media and Entertainment Industry Report 2012, multiplex chains continued to grow through 2011, despite representing less than 15 per cent of the total screens in India.
Multiplex screens accounted for a third of the total box office collections in 2011. Larger chains such as PVR, INOX and Cinemax added about 7,018 screens in 2011 with significant investments under way over the next few years. Mexican multiplex chain Cinepolis is planning to introduce 14-screen megaplexes in India.
The industry is expected to double the multiplex screens over the next five years, taking the total tally to 2,200 screens in 2016. Although tickets account for the majority of total revenues, contributions from food and beverages and advertising has increased substantially over the past three years. The year 2011 saw an increase in the average number of purchase incidences and the average ticket size of the from food and beverages purchase at multiplexes.