March 30, 2007

Entertainment Industry Update

This note is a combination of some technical and fundamental side of the entertainment industry, which like the rest of the industries has had a strong correction in the recent slide. This is a continuation of my earlier article ( )

What is interesting is the selective discount that I see in this sector. It looks like I am missing some important point here. The correction for PVR and Inox is relatively the same, wheras the correction for Adlabs has been insignificant. The listing of Cinemas is quite new and though it has seen some correction, I am not able to distinguish the reason as it could be a factor of IPO get repriced in the market or it could be a normal correction as witnessed by the rest of the stocks. However, the point to be looked at is in Inox. I have been to all these cine theaters and am personally unbiased to all of them. The movie experience remains the same for all these and my friends and myself do not see any reason to have any loyalty to any one theater. Given this, why is there such a discount to Inox. The P/BV is on the lower side inspite of showing better ROE simply amazes me.

While there seems to be some reason, I am not committing that Inox is undervalued as the rest could be over valued and poised for a correction. The reason is because of something that I read in a recent analyst report, think it was Motilal Oswal. The case was in the Cement Industry and it focussed on the second rung cement companies and their expansion and EV/EBITDA and EV/Per Bag being on the lower side when compared to their larger peers and hence there should be a revaluation in this sector despite customs reduced to zero and on and on. What ultimately happened is something that we all are seeing today. The large cap cement stocks seem to have been at the receiving end more than the small caps cement stocks, something that can happen in the entertainment industry too. Hence the small disclaimer.


My Space.The Voice In My Head said...

Hi Mahesh,

Good Analysis.I totally agree with you that there is not much bias towards which multiplex a crowd is attracted to or compelled to go to (except probably for IMAX).The choice usually depends upon the proximity ,price,movie and show timings.The standards are pretty much the same everywhere nowadays and one usually goes to the multiplex which is within the mall complex or nearby the location he/she is out with friends/family.

I think while all the multiplex stocks are almost overvalued,expecially PVR and might find some value in Shringar Cinemas after the results come out.This is because it has turned around from loss to profit in last 3 quarters .Also, for the 3 quarters in FY07 it has a EPS of arnd 2.34 and if you consider an approx EPS for the whole year to be arnd the current price it would be available at a P/E of arnd 14-15.

What do you think?

M B Mahesh said...

Thanks for checking Shringar out for me. I have not tracked that stock for a long time now. Shall do it in a couple of days. Also, as I have not been to any of the Shringar theatres, I could not comment on them.
1. Probably the discount was for the movie experience it is providing.
2. Turnaround stocks have been a fancy for some investors. Ceat, for example , a classic turnaround, is still trading at some phenomenal P/E in the same tyre space.
3. Or as you mentioned, this stock has not been tracked by all :D

My Space.The Voice In My Head said...

Shringar Cinema's Fame brand of multiplexes are primarily based in Western part of India just as PVR is in northern India.But they are now concentrating on pan-India presence with emphasis on states with provide E-Tax exemption.

The movie going expereince in par with Adlabs,PVR,Inox etc.Let me know when you check it out and what do you think of it.

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