Investors can accumulate the SCL stock at this level and add more on declines in the range of Rs 40- Rs 45 with a price target of Rs 73-Rs 75 in the medium-long term.
Incorporated in 1999, Shringar Cinema(SCL) is in the business of Film distribution, production and food court. Distribution is the core business with more than 70% revenues coming from the segment. This business is conducted by its 100% subsidiary Shringar Films Ltd. The company started of its presence in the multiplex business through a Joint venture "Fame Adlabs" at Versova, Mumbai. The company owns a chain of multiplexes under the Fame brand. Recently, the company launched its first single screen cinema Fame Nakshatra in Dadar, Mumbai. SCL is planning to open nine multiplexes in a year. The company currently has 8 theatres with 32 screens. Shringar Cinema came out with an IPO in April 2005 at Rs 53 per share. The proceeds of the issue are being used to set up multiplexes in Thane, Hyderabad, Aurangabad and Kolkata. Currently, SCL operates eight theatres with 32 screens.
Due to higher share of disposable income in per capita income there have been significant rise in the spending of the consumers towards the lifestyle products. Multiplex is also categorized as one of the lifestyle products, which commands premium compared to single screen theatre. SCL has set out an aggressive expansion plan that will propel to second place making it the second largest multiplex co. by 2010. Going forward the multiplex business will drive revenues. The company is looking at having a pan India presence by adding 9-10 multiplexes every year. In addition to the rapid pace of expansion the company is also growing in a margin accretive manner. It is using a lease model, which will bring better margins on capital employed. By 2010 the company is looking at 226 screens spread all over the country. During the next three years, the company intends to operate 169 screens, with more than 45,000 seats. SCL would be funding this expansion from the money raised through public issue, Rs 90 cr. FCCB issue and internal accruals. SCL is likely to benefit in the long term from its expansion plans and the increasing popularity of movies as a preferred source of leisure and entertainment..
SCL has been in the investment mode, adding new screens and scaling up the exhibition business. This is clearly reflected in the robust topline growth. For Q2 ended Sept. 2006, SCL reported net sales of Rs 12.5 cr., an increase of 45% YoY. This growth was driven by the addition of new multiplexes and incremental revenue growth from existing multiplexes. SCL’s EBITDA increased 113% to Rs 1.84 cr.. Lower staff costs and other expenses (as a % of sales) improved the company’s EBITDA margins from 10% to 14.7% during the same period. SCL made a net profit of Rs 2.7 cr. in Q2FY07, as against a loss of Rs 39 lakhs in the corresponding quarter last year. The growth in the company’s EBITDA and EBITDA margins is expected to continue, going forward, due to its ongoing efforts to reduce costs. For the half year ended Sept. 2006, SCL’s net sales stood at Rs 23.09 cr. and net profit at Rs 3.92 cr.. For the year ended March 2006, SCL’s net loss stood at Rs 4.9 cr. on net sales of Rs 29 cr.
Segmenting its business of running multiplexes, SCL is looking at going down the price value chain with a new brand of theatres. The exhibition division of the company plans to launch a new brand of `no frills' theatres with tickets priced at nearly half that of its Fame brand of multiplexes. SCL is exploring new options of going down the price value chain by launching a new brand of theatres, which would cater to the audiences who cannot afford multiplex prices. SCL has recently diversified into the food court business through wholly owned subsidiary, Big Picture Hospitality Services Private Ltd. starting with its own multiplexes. The food courts will operate under the brand name, Via 1 Food Street. This business is a high margin business with margins ranging around 50%. It has set up its first food court at the Surat and Howrah. This is part of a de-risking strategy, which would arrest revenue volatility of the film exhibition business and maximise the return on investments. The food court foray will compliment the multiplex business as the two generally go hand-in-hand, besides helping SCL to register a steady revenue flow.
Shringar Cinemas' performance appears to be turning the corner, reversing losses in the first two quarters. Additional screens could result in a substantial improvement in revenues and earnings. Shringar's long experience in the distribution business will also be to its advantage once it gains scale. The movie exhibition sector is poised for strong growth during the next five years, driven by the changing lifestyle of the Indian consumer and increased spending on leisure and entertainment activities. SCL’s proposed expansion plans, if successfully executed, would make it one of the largest players in the Indian movie exhibition sector, going forward. The stock currently trades at 25x FY07E EPS of Rs.2.5 and 10x FY08 E EPS of Rs. 5.
Investors can accumulate the SCL stock at this level and add more on declines in the range of Rs 40- Rs 45 with a price target of Rs 73-Rs 75 in the medium-long term.
