After the delisting of Atlas Copco at a fantastic price of Rs 2750/- @P/E of 35 which was way over market expectations, spotlight may well shift to its MNC twin Ingersoll Rand (India), whose parent is US-based. There is nothing in the air at the moment regarding its delisting and neither is it in the desperate-75 bracket. However, such things happen fast and once the market gets a whiff of it, the stock just zooms out of grip.
Consider the facts:
Ø it is in the same business as Atlas Copco that of making air compressors;
Ø at about Rs 525, quotes @ ttm P/E of about 20.6;
Ø it is debt-free and has cash of about 600 cr. on its books which alone gives a value of 190/share on an equity of 31.6 cr. So the real operating P/E is only about 13-14.
Ø Their new factory is not fully operational yet; once it does, it should boost its bottom-line further leading to an even attractive valuation
Ø Promotes hold 74% in the company, so it is not in the desperate-75 bracket.
Considering all of the above, it should give a steady growth in times ahead. If there is any development on the delisting front, that will be a bonus.
INOX Leisure became the promoter of Fame multiplex when they acquired a 50% stake after fighting a bloody battle with Reliance Capital. Fame recently came out with a rights issue. Before this rights issue, Inox held 50% and Reliance Capital 33% stake in the company. But post the recently concluded rights issue of Fame, they have been able to raise their stake in the company to 68.35%.
Inox is promoted by Gujarat Fluorochemicals which is a cash rich company with decent cash earnings every year, which they deemed fit to invest in the consumer–oriented multiplex business since their own business isn’t really a cash guzzler (it may be an interesting exercise to study the cash flow/operating model of GF, but that’s a separate exercise). Usual all multiplex companies generally go for the lease model but in case of Inox many of their properties are company owned. This would give them dual benefit – low/discounted lease rentals as well as appreciation of the properties owned.
While Fame has moved from 45 to 55 (about 25%) in recent times, this increase in its share price is not reflected in the price of Inox though they hold 68% stake. As per recent reports, Cinepolis, the world's fifth largest Mexican multiplex operator with more than 2,500 screens, is in talk with Reliance to either take a meaningful stake in the BIG Cinemas or buy out some of the latter’s cinema halls. And not too long back, Disney bought out UTV from Ronnie Screwalla & family. So this industry has started to attract the attention of global biggies. Gujarat Fluorochemicals may not necessarily view their stake in Inox as a strategic business and down the line once they reach a critical mass may not be averse to exiting it. So it might be a good time to log into Inox at this time and wait for either a sell off by the promoters at an attractive price or as most analysts are gung-ho about, the great Indian consumption story to play out. Besides Inox/Fame, other significant players in the multiplex business are Cinemax, BIG Cinemas and PVR with an all-India presence.
Related article: http://forbesindia.com/article/boardroom/pvr-vs-cinepolis-the-show-down-is-on/32838/1
ReplyDeleteInox has today moved by about 8% to 61 and about 21% in 4-5 months since I wrote about it when it was around 50 in April '12. The upside is primarily due to the board approval for the merger of Fame India with itself. The merger will create the country’s largest multiplex chain with 257 screens. Apart from the multiplex chain, the subsidiaries of Fame like Fame Motion Pictures Ltd, Big Picture Hospitality Services Pvt Ltd and Headstrong Films Pvt Ltd will also be merged with INOX. Now Inox will truly have a scale of its own which in turn will help it to control and even bargain harder with film producers. With this, INOX group is expected to become an undisputed leader in most regions compared to other national players in the multiplex business like BIG Cinemas, PVR, Cinemax and Fun Republic.
ReplyDeleteThere may be some brand rationalization as it may be an overhead to maintain 2 different brands - Inox and Fame. However, this also gives it an opportunity to have 2 distinct brands - Inox for the premium segment (this is purely my thought since they have only 2 outlets in Mumbai, Wadala and Nariman Point, and that too in tony SoBo and and nowhere in the far-flung suburbs) Fame for others (with a wide presence across Mumbai and neigbouring areas). What strategy they adopt going forward will be interesting to see.
Another story which has played out well is of Inox Leisure, the multiplex chain operator.
ReplyDeleteFrom 61 at end-Aug, it has jumped another 20%+ to 74 today thus moving by a stupendous 50% from the levels it was in April ’12. While this was in line with my thinking, some money can be taken off the table now considering the huge run in a short timeframe. This is not to say that Inox is no longer investment-worthy; it surely is. What I mean is that all the factors mentioned earlier haven’t played out in full yet. For e.g. there is always the possibility that Gujarat Fluoro (its promoter) may sell off its stake in Inox given the right price, since it isn’t its core competency but only a deployment of surplus funds, which have been put to profitable use. In the long run, with its massive reach across the country and given the importance of entertainment in India, it surely would go places, more so with a dedicated owner in that business area, if such an event happens. Given the fantastic run-up in the market in such a short time, a dip may be around the corner where it can be re-looked at.
There is also some clarity on the other part as far as operational issues are concerned. Fame India is going to be merged with Inox in the near future (date, ratio etc to be decided). While that may create ease of operations, clarity on their strategy regarding maintaining 2 brands is still awaited.
The Inox story seems to be well and truly playing out. After hibernating in the 50-90 range for quite some time, from Aug-Nov. '13, it seems to have now broken free and crossed the 100 mark and is now quoting at about 113 . Post the merger of Fame, it seems set to follow the footsteps of PVR which went from 200 to 600 in about a year's time. While I will not hazard a guess as to numbers, it will be safe to assume that along with PVR, it is all set to play a major role as the other big player in the Multiplex space.
ReplyDeleteThe best part is that Inox has a lower amount of debt. They have good presence - about 280 screens, 73 multiplexes in about 84 cities. They have acquired many of the properties on ownership basis and so have a low lease rental which would suit them well in a city like Mumbai. Some analysts have even predicted a price of around 120 for Inox in the medium term.
However, it is not cheap at the current valuations. But then growth stocks never come cheap. So buying now and at further dips may be a good strategy.
Post the merger of Fame, Inox has only gone from strength to strength. It has moved another 20% in the last 6 months and is now quoting around 138. Considering that it has only PVR as a listed competitor, who incidentally gobbled up Cinemax, there is still a lot of scope for the company going forward.
DeleteFII/PE who couldn't jump onto the PVR bandwagon would surely like to look at Inox. Another trigger could be the exit of the current promoters Gujarat Fluorochemicals altogether.
And with the economy expected to look up following positive moves by the govt., acche din should continue for Inox.