ECONOMIC REVIEW
GLOBAL ECONOMY
The global economy was seen recovering in 2021 after the high market
volatility and deep recession in 2020. After a strong rebound, global activity slowed
owing to the Russia-Ukraine crisis. At the end of 2021, inflation in several regions
surged to multi-decadal highs. A key driver of inflation across the world has been the
rapid surge in energy, food, and commodity prices. Central banks across the world have
started tightening their stances and others are expected to follow in response to domestic
macroeconomic conditions, including rising inflationary pressures. As per the
International Monetary Fund (IMF), global growth is projected to decline from 6.1% in 2021
to 3.6% in 2022 and 2023.
As countries grapple with higher volatility, spending pressures, and
tighter financial market conditions, the likelihood that some countries will become
financially constrained increases. Notwithstanding the immediate challenges, policymakers
need to focus on longer-term goals.
Growth across Advanced Economies (AEs) is expected to moderate to 3.3%
in 2022 from 5.2% clocked in 2021. The United States (US) economy has been facing
headwinds from surging inflation and gradual withdrawal of fiscal and monetary policy
support. The rebound that was underway in Europe has suffered a setback due to the
Russia-Ukraine conflict with inflation at unpredictable levels.
Emerging Markets and Developing Economies (EMDEs) are expected to grow
at 3.8% as against the 6.8% growth recorded in 2021. The risk of newer Covid-19 variants
in China has led to mobility restrictions and plummeted private consumption. Emerging and
Developing Europe, including Russia and Ukraine will see Gross Domestic Product (GDP)
contract significantly owing to higher energy prices and disruption of trade.
Global Economic Growth: Actual and Projections (%)
| Particulars |
2021 |
2022(P) |
2023 (E) |
| World output |
6.1 |
3.6 |
3.6 |
| Advanced Economies |
5.2 |
3.3 |
2.4 |
| Emerging Markets and |
6.8 |
3.8 |
4.4 |
| Developing Economies |
|
|
|
| (EMDEs) |
|
|
|
P- Projections, E-Estimates
(Source: IMF World Economic Outlook, April 2022)
INDIAN ECONOMY
Indias underlying economic fundamentals remain strong and despite the
short-term turbulences caused by the emergence of geopolitical tensions, supply-chain
disruptions, and rising inflation, the impact on the long-term outlook will be marginal.
The results of growth-enhancing policies and schemes such as production-linked incentives
and increased infrastructure spending will start kicking in from 2023, leading to a
stronger multiplier effect on jobs and income, higher productivity, and efficiency
—all leading to accelerated economic growth.
Indias Gross Domestic Product (GDP) has grown by 8.7% in FY 2021-22,
and growth is expected at 8.2% in FY 2022-23. Growth has surpassed the pre-pandemic levels
on the back of improved performance in the manufacturing and construction sectors. With
this, India continues to remain the fastest-growing economy in the world in FY 2021-22
despite the marginal slowdown in the fourth quarter of the year due to the omicron variant
of Covid-19.
The government expanded infrastructure spending to restore medium-term
demand thereby assisting in overall economic growth. On the strength of several efforts on
the fronts like promoting technology-enabled development, energy transition, and climate
action taken by the government in the Union Budget 2022-23, the Indian economy is prepared
to grow at the fastest rate among the league of large nations. However, continued
geopolitical conflicts, high inflationary pressures, and renewed coronavirus variants pose
significant challenges to the economic outlook.
INDUSTRY OVERVIEW
INDIAN REAL ESTATE SECTOR
The real estate industry contributes a major share to the countrys GDP
as well as is the highest employment generator after the agriculture sector. Indias real
estate sector, specifically the residential segment, has shown a quick recovery from the
pandemic-induced crisis. A number of factors like low interest rates, fall in house
prices, and state governments stimulus has supported the housing market revival in 2021.
Once the unlocking process was initiated, both the residential and office markets started
showing promising signs of revival. With the impact of the second and third waves of the
pandemic waning, an improving business environment, increased understanding of the
pandemic, and focus on vaccinations supported the recovery in the real estate market.
INDIAN RESIDENTIAL REAL ESTATE MARKET
While the operational hurdles triggered by the first and second waves
of the pandemic dented sales volumes during 2020 and the first half of 2021, the Omicron
variant in Q1 2022 had little impact on the residential market which achieved record sales
and launch volumes during the period. Low interest rates, improving affordability, high
savings, and a resurging interest in homeownership due to space constraints imposed by the
pandemic have been the primary drivers of the revival in housing demand.
The residential sector had an unprecedented year of growth with sales
rising by 51% YoY at 232,903 units across the top eight cities of the country. New home
launches also saw a significant rise of 58% YoY with the addition of 232,382 units in
2021.
Affordability Matrix
Affordability has improved over the years across all markets with
growing incomes and housing prices correcting. The Knight Frank Affordability Index, that
tracks the EMI (Equated Monthly Instalment) to income ratio for households, improved
further in 2021 across all cities. Affordability has improved dramatically since 2015 as
the combined impact of slowing price growth and falling interest rates was much greater in
this period. The home loan interest rate is at a decadal low, aiding housing
affordability.
| City |
2010 |
2020 |
2021 |
| Mumbai |
93% |
60% |
53% |
| NCR |
53% |
38% |
28% |
| Bengaluru |
48% |
28% |
26% |
| Pune |
39% |
26% |
24% |
| Chennai |
51% |
26% |
25% |
| Hyderabad |
47% |
31% |
29% |
| Kolkata |
45% |
29% |
25% |
| Ahmedabad |
46% |
23% |
20% |
(Source: Knight Frank Report)
INDIAN COMMERCIAL REAL ESTATE MARKET
2021 began on a positive note with the first quarter of the year
showing encouraging signs of recovery and growth, but the intense second wave of the
pandemic curtailed market traction in Q2 2021. However, improving economic fundamentals
and business environment coupled with a better understanding of the pandemic encouraged
corporate India to gradually return to office in the second half of the year. 2.4 mn sq m
(25.9 mn sq ft) of office space was transacted during H2 2021. Office completions also
picked up significantly with 2.2 mn sq m (23.7 mn sq ft) getting delivered during the
period.
(Source: Knight Frank Report)
RETAIL INDUSTRY IN INDIA
India is the fourth largest retail market in the world, with a size of
about USD 883 billion in FY 2019-20, which is projected to increase to USD 1.7 trillion by
FY 2025-26 at a CAGR of ~12%. (Source: Statista). The retail industry has played a
significant role in transforming the Indian economy. It has a 10% contribution to Indias
GDP and an 8% share in Indias employment. The increase in share of the retail market is
largely driven by the growth of middle-class consumers, increase in working population,
higher consumption in the rural market, and technology adoption by retailers and buyers.
The Covid-19 pandemic has tested the resiliency of retail sales in
Indias smaller cities. The impact of the pandemic on retail activity has been less severe
in tier 2 and smaller cities than in tier 1 and metro cities. With faster reopening of
stores, successful vaccination drives, and increase in travel and tourism, retail demand
is expected to return to normal.
INDIAN MULTIPLEX INDUSTRY
India is the worlds largest film producer and film market in terms of
ticket sales, and the fifth-largest box office market in terms of revenue.
In India, the movie-going experience has changed dramatically in recent
years, with multiplex audiences increasing multi-fold. Footfall at multiplexes has
increased as the lifestyle choices of the young working population have improved. The lack
of out-of-home entertainment options in India, combined with excellent audio and visual
experiences, wide variety of F&B offerings, and comfortable seating, are some of the
factors driving the growth.
FY 2021-22 was marked by the second and third waves of the pandemic
hitting the film exhibition industry hard. Revenues of the multiplex industry fell
dramatically in 2021 as cinemas were shut for a large part of the year and the release of
big-budget films was pushed back. However, the restrictions imposed by various states were
eased and multiplexes started opening in the last quarter of the fiscal year. Given the
consistent flow of strong content and removal of all restrictions across India, occupancy
levels at cinemas bounced back significantly to almost the pre-pandemic levels.
(CRISIL Research)
Multiplex chains are on an expansion spree encouraged by the fast
business recovery, strong patronage for big-screen viewing, and willingness of audiences
to come back to cinemas for high-quality content. Moreover, India is an extremely
underscreened market with only 7 screens per million (people) compared to 50 in Japan and
58 in China. This low penetration, as well as the replacement of single screens in the
market, provide a significant growth opportunity for multiplexes.
COMPANY OVERVIEW
Cineline India Limited is amongst the most prestigious and renowned
real estate players in Mumbai and is a part of the Kanakia Group. The Companys modus
operandi comprises identifying and acquiring commercial properties and renting out
retailing, parking, and advertising spaces across markets such as Mumbai and Nagpur. The
Company has a diverse business model with a presence in the renewable energy business as
well, wherein the Company owns and operates 1 windmill in Gujarat and 1 in Maharashtra
with a power generation capacity of 0.6 MWA and 1.6 MWA, respectively.
Cineline, with a strong history of operating the film exhibition
business, has re-entered the segment with the launch of MovieMax during the year under
review. It plans to hive off its non-core business to become an asset-light company and
grow the cinema exhibition business. The Company intends to create a strong
consumer-oriented brand and become a leading, pan- India film exhibition player.
FINANCIAL OVERVIEW
The Companys revenue during FY 2021-22 stood at Rs. 2,477.60 lakhs
compared to Rs. 4,366.56 lakhs in FY 2020-21, registering a de-growth of 43% y-o-y. EBITDA
of the Company stood at Rs. 1,567.93 lakhs as against Rs. 3,460.40 lakhs in FY 2020-21.
Key Financial Ratios
| Year |
FY 2021-22 |
FY 2020-21 |
| Debtors Turnover Ratio |
5.90 |
7.54 |
| Interest Coverage Ratio |
0.78 |
1.81 |
| Current Ratio |
11.60 |
19.67 |
| Debt Equity Ratio |
1.36 |
1.43 |
| Operational Profit Margin |
58.99% |
73.50% |
| Net Profit Margin |
-29.77% |
18.15% |
| Return on net Worth |
-5.68% |
6.51% |
OPPORTUNITIES AND OUTLOOK
After two years of severe disruptions, 2022 began with the hope that
the worst of the pandemic is over and that the growth of the economy will resume. A slew
of indications points to the recovery, including a rebound in employment, higher wage
growth, and recovery in consumer confidence, among others.
Given the enormous opportunities, the Company has set ambitious growth
plans for the film exhibition business and targets to tie up 300+ screens by FY 2024-25.
It intends to increase penetration in this segment and acquire screens pan- India to
become a prominent player. Towards this, it plans to monetize its non-core business to
reduce debt and become an asset-light company.
RISK MANAGEMENT
Huge capital requirements in the real estate sector may hamper the
continuity of business and pose risks for the Company. Economic slowdown, geopolitical
tensions, rising interest rates, and inflation, and adverse market developments may also
cause demand fluctuations in the market. The Covid-19 crisis has resulted in project
delays, restriction of operations, and unavailability of labour and materials for the
Company. With the recovery in economic activities and diversification of business, the
Company is, however, optimistic of driving incremental revenues and business growth. It
ensures right investments in right assets at right locations, supported by its core
capabilities and highly experienced team.
HUMAN RESOURCES
Employees are the most important asset of the Company. The HR policy of
the Company focuses on fostering a conducive work environment and attracting the best
talent in the industry. The Company provides its employees with an ever-changing learning
environment by way of conducting robust learning and development programs. The Company
adopts a pragmatic approach towards the health and safety of its employees in line with
the prescribed safety protocols and standards. Further, it has in place a well-designed
appraisal system to align individual efforts with the long-term strategy and growth
objectives of the Company. As on March 31, 2022, the Company had a total of 42 employees.
INTERNAL CONTROL SYSTEMS
The internal control systems are adequate for the size and nature of
the Companys operations. Well-documented policies and procedures are put in place for
monitoring business and operational performance and ensuring the safeguarding of assets
and proper reporting of financial transactions. Periodic audits are conducted by the
internal audit team of the Company to ensure the efficacy and adequacy of internal control
systems and appropriate actions are thereafter taken by the management.
CAUTIONARY STATEMENT
The Management Discussion and Analysis contains statements describing
the Companys objectives, projections, estimates and expectations, which may be
forward-looking in nature. These statements are made within the meaning of applicable laws
and regulations and are based on informed judgments and estimates. There cannot be any
guarantee of previous performance continuity as future performance also involves risks and
uncertainties. These may include but are not limited to the general market, macroeconomic,
interest rate movements, competitive pressures, technological and legislative
developments, and other key factors that may affect the Companys business and financial
performance.
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