Post GST, entertainment tax to boost Cinemax's margins      

The GST draft paper indicates that those who are not specifically excluded could go into GST and one of them could be entertainment tax. Multiplex chain Cinemax India with a pan-India presence and with plans to have 100 screens before calendar 2009 expects entertainment tax's inclusion in GST to give a boost to its EBITDA.

In an interview with CNBC-TV18, Devang Sampat, Senior Vice President, Cinemax said, "The entertainment tax which currently stands at 31%, if that goes down to 16.5%, then that is a straight 50% saving on entertainment tax, means a big saviour for the company. A 50% reduction on entertainment tax will definitely help our EBITDA. The company expects to clock in Rs 200 crore in revenues in FY10.

Q: Cinemax is largely a Maharashtra operator at the moment, and you said that the entertainment tax in Maharashtra is high. So would its inclusion in GST mean some relief for you?

A: As you said in Maharashtra we are biggest, not only in Mumbai but we have a few properties in Nashik and Nagpur also. So the entertainment tax which is currently standing at 31% if that goes down to 16.5% then straight 50% saving on entertainment tax means a big saviour for the company.

Q: Are you planning to stick to Maharashtra?

A: Cinemax already is pan India. As an approach we have started with a ‘clutter approach’, being the base city of Bollywood we have expanded big in Mumbai. We are already there in other states and cities as well like Kolkata, Hyderabad and we are soon starting in Cochin, Bangalore and we are there in Guwahati. So we have already expanded in the East.

We are there in Panipat with North expansion and we have launched a 3-screen multiplex in Kanpur as well. So expansion is already on. As of now we are fourth largest in the country and have a plan of making it 100 screens by December of current financial year.

Q: When we spoke to PVR in the morning, they said that they expect entertainment tax to be part of GST and expected a tax rate of 12-18%. Do you have similar expectations?

A: Yes, when we talk about entertainment tax though we currently also have entertainment exemption property. But a 50% reduction on entertainment tax will definitely help our EBITDA.

Q: What are your fund raising plans? You have a land bank, don’t you?

A: Yes. We own 11 properties, owned, and 225,000 sq ft owned in the company.

Q: Are there any fund raising plans? What are your debt and equity plans from hereon?

A: As of now till March whatever screens we are expanding, those funds are already in place. So from April onwards we have to decide how we raise the funds. We will take an internal call by year end.

Q: Could you confirm if you have raised ticket prices over the last one month from Rs 250 to Rs 300 that is for the weekends and if this GST regime goes through then would you be passing on some of that tax relief to the cinema goers?

A: Ticket pricing varies from location to location. Our average ticket pricing, if you take Cinemax as a chain is Rs 130. So though few people might be paying Rs 250 on weekend, but if you want to see on weekend the average ticket pricing is always higher and that is where we make money. Tax exemption is already there in a few properties and considering that the ticket pricing is decided.

Ticket pricing is not what I decide; we let the consumer decide what they want to pay. So we have ticket pricing from Rs 70 to Rs 280. So it depends on what time you want to watch a movie and you pay accordingly. We expect year on year escalation on ticket pricing. The incremental in ticket prices will always be there.

Q: What have been the occupancy levels for Q3, half of which is now over; as well what is the average ticket price? Can you compare it to year or a quarter ago?

A: Average ticket prices have remained at Rs 130 compared to the last quarter as well. The reason was we have expanded in a couple of properties where the average ticket pricing was lower. Like we have expanded in B and C town cities like Red Carpet in Ahmedabad, we have expanded in Nashik, which was our third property. But if you compare on comparable property the ticket prices have increased and so has the occupancy. In fact this quarter so far has been the highest quarter of the year. Till date Cinemax has generated the highest occupancy.

Q: What would that be?

A: It would be around 34% if you consider five shows a day.