The show goes on

The spotlight is again on the consolidation of multiplexes, as Kochi-based Carnival Films Pvt Ltd is fighting it out with Cinepolis, a Mexican film exhibitor and the fourth largest film exhibiting chain in the world, to acquire a local multiplex SRS Ltd. Carnival Films had earlier acquired Big Cinemas from Reliance Media Works a few weeks ago. However, a look at the top two listed entities in the multiplex space -- Inox Leisure Ltd and PVR Ltd -- offers a curious picture. Though these two largest multiplex chains have given handsome returns of 63 per cent and 72 per cent in the last three years, their valuations looks really stretched. With a net profit margin of less than three per cent and an EPS growth of -0.58 percent (Inox) and 3.6 per cent (PVR), the high PE of 87 and 90 respectively looks unjustifiable. These companies will have to grow at 90% to justify their current P/E. They seem to be simply riding on the hype about their future potential in a film crazy country like India. For the record, no country is addicted to the silver screen as India. Cinemas sell more than three billion tickets every year, over the double the quantity sold in America, the next biggest market for films. Thanks to the box office pull and a five-year tax holiday, many existing and new players were setting up multiplexes a