Eyeing topline of Rs 80-100 crore going ahead: Cinemax

Cinemax India has demerged its business into two arms, one dealing with the multiplex business and the other having exhibition rights. The company demerged its exhibition business into a separate entity named Cinemax Exhibition India Limited and Cinemax Properties will now deal with the theaters. Jitendra Mehta, Group CFO of Cinemax told CNBC-TV18, the newly formed Cinemax Properties is mainly going to earn via rent on the theaters and the Nagpur mall business.

The company at present is willing to invest only Rs 8 to Rs 10 crore every year in Cinemax Properties. Mehta expects the second quarter topline to be in line with its Q1 performance. Going ahead, he hopes the topline will range between Rs 80 to Rs 100 crore and the margins are likely to stay at 18 to 20%. Here is the edited transcript of the interview on CNBC-TV18. Q: Give us a sense in terms of Cinemax Properties, what exactly does the real estate business contain for Cinemax and what are the projects coming up?
A: It is not really a real estate business. We are operating all the multiplexes and the theaters. Out of these, 9 theaters were owned by us. While the ownership right remained with the company, the entire exhibition business has been demerged to a new company. Therefore, it is not a real estate business at all.
We remain in the multiplex business only. The only thing is, Cinemax Properties is now holding those theaters for which it has ownership rights and the Cinemax exhibition company will be paying rent to Cinemax Properties. The business owns only the theaters and a mall. It is renting out and getting an yield income. Q: That is the only source of income for Cinemax Properties, some in-house income?
A: Yes, there are three sources of income. One is by letting out theaters. The second source of income is from the Nagpur mall which is also owned by Cinemax Properties. We will be earning rent from the Nagpur mall as well. Thirdly, we have a small wind mill business and we derive some income from the power generated by it. Q: But that means it is an in-house company which is paying a group company, will it be arms length, will it be a fair payment? How do we ensure all that for a shareholder would be a question of corporate governance, isn't it?
A: Yes. First we drafted the agreement, we kept the rates blank and then we got it independently weighed by an agency asking them to specify whether these terms are at arms length or not. Only on those certifications we finalized our agreement. We assure you that it will be purely at arms length, any transaction between two group companies will always be at arms length. Q: Why exactly you underwent this restructuring? What is the rationale behind it?
A: The basic rationale was value capturing. When two businesses are combined people get confused, nobody was able to value whether you own the property or you run the multiplex business. The value of the property was not reflected in my valuation at all.
Now, since ownership has remained with one company and the multiplex business is with the other company, both companies will get its own independent right valuation. So to capture value is the only reason why we went for the demerger.
_PAGEBREAK_ Q: What would the growth prospectus for Cinemax Properties be going forward? Would this be the only source of income or would you look to expand under the banner of Cinemax Properties in any way?
A:  It will not be purely a real estate business. We do not want to do much leveraging for Cinemax Properties. Hence, Rs 8-10 crore, whatever the cash generation in Cinemax Property business is will go into investing with not much leverage at all. Q: Give us an idea of Cinemax India. We have had a string of movies that have done very well. Any idea as to what was the revenue growth in the second quarter. What does third quarter look like with movies lined up?
A: God is very kind to the multiplex industry and not only to Cinemax as such. The content is very good, Q1 was fantastic. Surprisingly, Q2 was also fantastic and the way films are lined up in Q3, it also seems to be fantastic and Q4 will not be worst, as it normally used to be. Q: We want numbers, give us numbers.
A: Let me directly talk on the top line and bottom-line. We expect Q2 to be equal to Q1 and we will have a number of turnovers ranging between Rs 80 crore to Rs 100 crore. That will be the topline as far as Q2 is concerned and we see it to be slightly better as far as Q3 is concerned. Going to the bottom-line we expect to maintain that 18 percent to 20 percent EBITDA even in Q2-Q3.
The most interesting thing which I wanted to say is that previously this industry was supposed to be a seasonal and a cyclical industry. Accordingly, Q3 was supposed to be my best quarter and Q4 was supposed to be my worst quarter. Q2 was okay and Q1 was okay. Of late, since last year the trend has almost changed. Now it is no more cyclical as such because Q1 and Q2 are almost same. Q3 is a little better and Q4 is likely to be the same. So the cyclical nature of industry is gradually changing.