Cineline India (NSE:CINELINE)
Since my last post in November, I have exited 7 stocks - Rajesh Exports, Sandesh, Ambika Cotton, Everest Kanto, Jindal Polymers, Maithan Alloys and Geojit Financial Services. I have entered one new investment, at a price of ₹125/share, which I am writing about today.
Date: 17 June, 2024. CMP: ₹131/share. Market Cap: ₹456cr.
Disc. : Not a recommendation.
My latest investment, now the largest position in my portfolio, is a micro-cap company that has failed to turn a profit in the last 3 years, carries significant debt, and competes against a giant in its industry. Despite these challenges, I see a compelling investment opportunity. Here's why:
The Company: Cineline
Cineline is in the business of building, owning, and operating multiplexes, theatres, and entertainment centres. Since 2022, it has operated a chain of multiplexes under the brand name ‘Moviemax’ and is currently the fourth-largest player in the Indian movie exhibition space.
Company History
Though it appears to be a recent entrant into the film exhibition space dominated by PVR-INOX, Cineline was actually one of the earliest players in India's multiplex business. Originally operating under the brand ‘Cinemax’, the company operated 138 screens across several cities. In 2012, it sold the entire operation to PVR and simultaneously entered into a 10 year non-compete clause. During this period, the company shifted to the lease rental business, generating stable income from leasing properties including malls, commercial units, cinemas, and a hotel. With the expiry of the non-compete clause in 2022, Cineline re-entered the movie exhibition business under the new brand ‘Moviemax’.
Since its re-launch under Moviemax in 2022, Cineline has not yet achieved net profitability. However, a closer look at its financials reveals a clear path to profitability driven by growing revenues, improving operating profitability, and a restructuring of its balance sheet through asset sales.
Revenue Growth
Re-entering the film exhibition business significantly boosted Cineline's top-line. In its first full year of operations under Moviemax (FY23), revenues grew by 212% to ₹140 crore, and in FY24, they grew a further 76% to nearly ₹250 crore as a result of rapid expansion and introduction of new cinemas and screens across the country. This growth is impressive, especially considering that the majority of screens owned by the company are yet become operational. Of the 167 screens the company presently owns, only 76 are operational with a further 91 to soon be operational. The company plans to expand to over 300 screens in the coming years, suggesting continued revenue growth.
Crucially, growth in revenues isn’t coming solely from the addition of new screens. The company has also been able to eke out more money per visit from customers. Here, two metrics come into play: Average Ticker Price (ATP) and Spend Per Head (SPH). ATP is self-explanatory and tends to fluctuate based on a number of factors. Since its launch, Cineline’s ATP has increased from ₹180 to over ₹200. However, since Cineline offers a more budget friendly alternative to multiplex chains such as PVR-INOX, there isn’t much room for growth in ATP beyond a certain point.