The company at present is willing to invest only Rs 8 to Rs 10 crore every year in Cinemax Properties. Mehta expects the second quarter topline to be in line with its Q1 performance. Going ahead, he hopes the topline will range between Rs 80 to Rs 100 crore and the margins are likely to stay at 18 to 20%.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Give us a sense in terms of Cinemax Properties, what exactly does the real estate business contain for Cinemax and what are the projects coming up?
A: It is not really a real estate business. We are operating all the multiplexes and the theaters. Out of these, 9 theaters were owned by us. While the ownership right remained with the company, the entire exhibition business has been demerged to a new company. Therefore, it is not a real estate business at all.
We remain in the multiplex business only. The only thing is, Cinemax Properties is now holding those theaters for which it has ownership rights and the Cinemax exhibition company will be paying rent to Cinemax Properties. The business owns only the theaters and a mall. It is renting out and getting an yield income.
Q: That is the only source of income for Cinemax Properties, some in-house income?
A: Yes, there are three sources of income. One is by letting out theaters. The second source of income is from the Nagpur mall which is also owned by Cinemax Properties. We will be earning rent from the Nagpur mall as well. Thirdly, we have a small wind mill business and we derive some income from the power generated by it.
Q: But that means it is an in-house company which is paying a group company, will it be arms length, will it be a fair payment? How do we ensure all that for a shareholder would be a question of corporate governance, isn't it?
A: Yes. First we drafted the agreement, we kept the rates blank and then we got it independently weighed by an agency asking them to specify whether these terms are at arms length or not. Only on those certifications we finalized our agreement. We assure you that it will be purely at arms length, any transaction between two group companies will always be at arms length.
Q: Why exactly you underwent this restructuring? What is the rationale behind it?
A: The basic rationale was value capturing. When two businesses are combined people get confused, nobody was able to value whether you own the property or you run the multiplex business. The value of the property was not reflected in my valuation at all.
Now, since ownership has remained with one company and the multiplex business is with the other company, both companies will get its own independent right valuation. So to capture value is the only reason why we went for the demerger.
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