Stock Update

Inox Leisure
Growth outlook healthy despite short-term hiccups

We interacted with Mr. Kailash Gupta, Chief Financial Officer of Inox

Sector: Consumer Discretionary
Leisure Limited (IIL) to discuss i) the outlook on average ticket price
Company Update (ATP) and spend per head (SPH), ii) outlook on movement in advertising
revenue growth, iii) pace of screen additions and lastly iv) the time frame
Change by when the company will adopt the lower tax regime.
Reco: Buy  The management guided that though seasonal factors are no more visible
during the last couple of quarters as quality of content drives footfalls
CMP: Rs. 495 and performance, Q4FY2020E performance is expected to be muted
Price Target: Rs. 575 á owing to weak content for most part of the quarter and one-time non
cash hit on the tax front (adoption of new tax regime). The start of the
á Upgrade  No change â Downgrade quarter was encouraging owing to healthy content on display along with
some spillover impact from December, which attracted footfalls. Though
the situation is not the same in current month, as occupancy level has
Company details declined owing to dull content. However, the management expects a
gradual pick-up in March. Q4FY2020 will be the first comparable quarter
Market cap: Rs. 5,085 cr
after the reduction in GST rates and a 6-7% increase in ATP is expected.
Moreover, SPH is expected to increase moderately owing to a favourable
52-week high/low: Rs. 509/249
alteration in food menu and lower food inflation. On the advertising front,
NSE volume: (No of
moderate low- single digit growth is expected as there has been a slower
shares)
2.3 lakh recovery in demand offtake in customers’ industries (taking longer time
than anticipated). It also expects that the pace of screen addition is set to
BSE code: 532706
accelerate in FY2021E, as 80 screens (4-5 properties with ~20 screens to
be added in Delhi NCR region) will be added as compared to expectation
NSE code: INOXLEISUR
of 70 screen additions during FY2020E. However, we believe some of
these planned new screen additions would spill over to Q1FY2021E owing
Sharekhan code: INOXLEISUR
to real-estate challenges and delays in regulatory approvals.
Our Call
Free float: (No of
shares)
4.95 cr Maintain Buy with a revised PT of Rs. 575: We re-work our estimates
for FY2020E to factor in the expectation of soft Q4 performance coupled
with adoption of lower tax regime from Q4FY2020E; hence numbers for
FY2021E and FY2022E are adjusted for taxation accordingly. We remain
Shareholding (%) Positive on Inox, as it has a strong balance sheet (net-debt free) along with
healthy cash-flow generation profile. Moreover, a healthy content pipeline
Promoters 52
along with strategies to increase footfalls (loyalty program, non-movies
contents, enhancing experience of cinema goers, etc.) and increasing
DII 22
footfall monetisation efforts coupled with improving operating metrics are
expected to bode well for the company. At CMP, the stock is trading at
FII 11
27.0x and 22.3x its FY2021E and FY2022E earnings respectively. Hence,
we maintain our Buy rating on the stock with a revised PT of Rs. 575.
Others 15
Key Risks
ŠŠ Delay in screen additions and deterioration of content quality might
Price chart affect footfalls and advertisement revenue growth rates.
525
ŠŠ The inability to take adequate price hikes at the right time might affect
475
margin in the F&B segment on account of rising input cost.
425
375
325
Valuation Rs cr
275 Particulars FY18 FY19 FY20E FY21E FY22E
225 Revenues 1,348.1 1,692.2 2,029.8 2,391.0 2,815.4
Feb-19

Feb-20
Jun-19

Oct-19

OPM (%) 15.6 18.3 32.0 32.1 32.3

Adjusted PAT 123.2 138.5 134.5 180.8 219.1
% y-o-y growth 302.5 12.4 -2.9 34.5 21.1
Price performance Adjusted EPS (Rs.) 12.8 14.1 13.6 18.4 22.2
P/E (x) 38.7 35.2 36.3 27.0 22.3
(%) 1m 3m 6m 12m
P/B (x) 6.8 4.7 6.0 4.9 3.9
Absolute 23.6 35.2 72.6 77.6 EV/EBITDA (x) 23.9 16.6 7.6 6.0 4.6
RoNW (%) 18.4 14.4 17.8 19.3 19.0
Relative to RoCE (%) 13.4 20.9 22.7 15.1 17.0
24.7 33.5 56.2 52.6
Sensex Source: Company; Sharekhan estimates
Sharekhan Research,
Research, Bloomberg
Bloomberg *Treasury shares excluded while calculating EPS *FY2020E/FY2021E/FY2022E numbers are
Sharekhan based on Ind AS 116 and lower corporate tax rate.

February 24, 2020 7

 Stock Update
Lower footfalls to impact occupancy levels in Q4FY2020E: The management highlighted that the start
of the of the quarter was encouraging owing to healthy content on display such as i) Tanhaji – The Unsung
Hero and ii) Darbar along with some spillover impact from December (Dabangg3 and Good Newwz) which
attracted footfalls. However, the situation is not the same in current month as has occupancy level has seen
a downtrend owing to dull content but at the same time expects a gradual pickup in the month of March led
by movies such as i) Baaghi 3 and ii) Sooryavanshi. Overall management believes that Q4FY2020 would
see a muted performance on y-o-y basis led by lower occupancy and slower pace of screen additions (base
quarter was a one-off strong quarter owing to robust content and healthy screen addition). However, on
sequential basis the company is likely to report moderate growth.

Average ticket price (ATP) and Spend per head (SPH) continues to remain healthy: Q4 will be the first
comparable quarter posts the reduction in GST rates and a 6-7% increase in ATP is expected. Moreover,
SPH is expected to see moderate increase owing favourable alteration in food menu coupled with lower
food inflation. New initiatives such as tie-up with online delivery chain (currently Mumbai and Bengaluru, to
expand pan-India gradually), experiment with introduction of new cuisine, addition of new order modes to
lower delivery time, etc are not meaningful at this juncture, however, would help in higher conversions and
improved profitability in the food & beverage (F&B) segment in the long run.

Pick-up in advertising taking longer than anticipated: Though advertising environment has not improved
significantly owing to slower demand offtake in customers industries (taking longer time than anticipated),
however we believe that the company will be able to deliver low single digit growth in advertising revenues
during Q4FY2020E. The management guided that the advertising revenue growth rate in FY2020E should be
near the 9MFY2020 average and expects a gradually recovery in FY2021E.

Onetime impact on profitability in Q4FY2020E owing to adoption of new tax regime: The management
also guided that though the seasonal factor is no more visible during the last couple of quarters as quality
of content drives footfalls and performance, however Q4FY2020E performance is expected to be muted
owing to weak content in most part of the quarter coupled with one-time non cash hit on the taxation front
(write-down of deferred tax asset of ~Rs. 60 crore and write-off of MAT credit entitlement of ~Rs. 20 crore).
Moreover, adoption of the new tax rate will help the company to conserve cash of Rs. 25-30 crore from
FY2021E onwards.

Management confident to meet screen addition guidance for FY2020: Though screen addition during the
year remains 46 till date (similar number as at the close of Q3FY2020), the management is confident that the
total screen addition during FY2020 will inch up to 70 (most of the screens which are expected to be added
are almost at the handover stage and commercial operations would start soon). However, we believe some
of these planned new screen additions would spill over to Q1FY2021E owing to real-estate challenges and
delays in regulatory approvals. Moreover, the screens added during Q4FY2020 will contribute meaningfully
from Q1FY2021E and onwards. It also expects that the pace of screen addition is set to accelerate in 2021E, as
80 screens (4-5 properties with ~20 screens to be added in the Delhi-NCR region) will be added as compared
to expectation of 70 screen additions during FY2020E.

February 24, 2020 8

 Stock Update
Financials in charts

Revenue growing at a healthy pace Healthy margin profile (Ind AS impact from FY20E)
2,815 90
3,000 30
2,391 75 66.4 66.6 67.2 67.1 67.1 66.8 66.7
2,500 25
2,030
2,000 20 60
1,692
1,500 1,348 15 45
1,161 1,238 32.8 32.7 32.8
1,000 10 30
17.0 16.7 19.2
14.0
500 5 15 7.0 9.1 8.2 6.6 7.6 7.8
2.5
0 0 0
FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY16 FY17 FY18 FY19 FY20E FY21E FY22E
Revenue (Rs crores) Growth (%) Gross Margin (%) EBITDA Margin (%) PAT Margin (%)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

RoCE to moderate due to Ind AS 116 RoE to improve marginally

25.0 25.0
22.7
20.9
19.3 19.0
20.0 20.0 18.4 17.8
17.0
15.1 15.5
14.4
15.0 13.0 13.4 15.0

10.0 7.9 10.0

5.5
5.0 5.0

- -
FY16 FY17 FY18 FY19 FY20E FY21E FY22E FY16 FY17 FY18 FY19 FY20E FY21E FY22E

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

Q1 seasonally strong quarter Price hikes usually seen in Q1

20 40 250
206

204
199

199

198

196
195
193

193

189

31 31 31
186
183

182

29 30 30
174

174

16 32 200
26 26 27 26 27 27
25 24 25
12 24 150
81

81
79

100
76

8 16
74
73

73
70

67
65

65

65
63
61

59

4 8 50
15.5

12.7

12.5

13.0

15.8

12.8

12.1

12.6

15.6

13.7

15.3

18.0

17.3

19.0

16.9

0 0 -
Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20
Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Q2FY18

Q3FY18

Q4FY18

Q1FY19

Q2FY19

Q3FY19

Q4FY19

Q1FY20

Q2FY20

Q3FY20

Quarter footfalls (mn) Occupancy (%) Average Ticket Price (Rs) Spend Per Head (Rs)

Source: Company, Sharekhan Research Source: Company, Sharekhan Research

February 24, 2020 9

 Stock Update
Outlook
Strong balance sheet, growing at a healthy pace: A healthy content pipeline along with strategies to
increase footfalls (loyalty program, non-movies contents, enhancing experience of cinema goers, etc.) and
increasing footfall monetisation efforts and better improving operating metrics are expected to bode well
for the company. The management guided that the advertising growth rate in FY2020E should near the
9MFY2020 average and expects a gradually recovery in FY2021E. Moreover, the pace of screen addition is
expected to accelerate in 2021E, as 80 screens (4-5 properties with ~20 screens to be added in Delhi-NCR
region) will be added as compared to expectation of 70 screens during FY2020E. Moreover, adoption of a
new tax regime will help the company to conserve cash amounting to Rs 25-30 crores from FY2021E and
onwards. Hence, we expect the company to post a revenue and earnings CAGR of 18.5% and 16.5% over
FY2019-2022E.
Valuation
Maintain Buy with revised PT of Rs. 575: We re-work our estimates for FY2020E to factor in the expectation
of soft Q4 performance coupled with adoption of lower tax regime from Q4FY2020E; hence numbers for
FY2021E and FY2022E are adjusted for taxation accordingly. We remain Positive on ILL, as it has a strong
balance sheet (net-debt free) along with healthy cash-flow generation profile. At CMP, the stock is trading at
27.0x and 22.3x its FY2021E and FY2022E earnings respectively. Hence, we maintain our Buy rating on the
stock with a revised price target (PT) of Rs. 575.
One-year forward P/E (x) band

70

60

50

40
P/E (x)

30

20

10

0
Feb-14

Feb-15

Sep-15

Sep-16

Feb-20
Nov-13

Nov-14

Jun-16

Jun-17
May-14

May-15

Dec-15

Dec-16
Mar-16

Mar-17
Oct-11

Oct-12

Oct-17

Oct-18

Oct-19
Aug-13

Aug-14
Apr-11

Apr-12

Apr-13

Apr-18

Apr-19
Jan-12

Jan-13

Jan-18

Jan-19
Jul-11

Jul-12

Jul-18

Jul-19

P/E (x) Avg. P/E (x)

Source: Sharekhan Research

Peer valuation
CMP O/S P/E (x) EV/EBIDTA (x) P/BV (x) RoE (%)
MCAP
Companies (Rs / Shares
(Rs Cr) FY20E FY21E FY20E FY21E FY20E FY21E FY20E FY21E
Share) (Cr)
Inox Leisure 495 10.3 5,085 36.3 27.0 7.6 6.0 6.0 4.9 17.8 19.3
PVR* 2,046 5.1 10,504 53.4 38.5 14.6 12.7 6.9 5.9 13.0 15.9
Source: Sharekhan Research, * denotes Bloomberg estimates

February 24, 2020 10

 Stock Update
About company
Incorporated in 1999, ILL is one of the largest multiplex operators in India. The company currently operates
146 properties (614 screens and over 1.42 lakhs seats) located in 68 cities across India. ILL is the only multiplex
operator having diverse presence across India. The company accounts for 20% share of multiplex screens in
India and ~11% share of domestic box office collections.

Investment theme
ILL has aggressively scaled up through organic and inorganic expansion over the past decade, growing
from two properties – eight screens – in FY2003 to 146 properties – 614 screens – at present, on an average
adding eight screens every quarter since inception. The ILL mega show is supported by improving content
quality in the Indian mainstream and regional cinema, with its movies regularly hitting the Rs. 100 crore or Rs.
200 crore box-office collection mark. Management expects to deliver a strong performance going forward
based on healthy footfalls due to property additions coupled with passing on of reduction of GST rates and
a strong content pipeline.

Key Risks
Delay in screen additions and a drop in the quality of content might impact the foot falls and advertisement
revenue growth rates. Inability to take adequate price hikes at the right time might impact the margins in the
F&B segment on account of rising input cost.

Additional Data
Key management personnel
Pavan Jain Non-Executive - Non Independent Chairperson
Vivek Jain Non-Executive - Non Independent Director
Siddharth Jain Non-Executive - Non Independent Director
Deepak Asher Non-Executive - Non Independent Director
Alok Tandon Chief Executive Officer
Kailash B Gupta Chief Financial Officer
Parthasarathy Iyengar Company Secretary & Compliance Officer
Source: Company Website

Top 10 shareholders
Sr. No. Holder Name Holding (%)
1 HDFC Asset Management Co Ltd 7.51
2 JAIN PAVAN KUMAR 4.23
3 Sundaram Asset Management Co Ltd 4.11
4 Aditya Birla Sun Life Trustee Pvt Ltd 2.62
5 DSP Investment Managers Pvt Ltd 2.03
6 Aditya Birla Sun Life Asset Management 1.71
7 TAIYO GREATER IN FUND LTD 1.66
8 Franklin Resources Inc 1.45
9 Reliance Capital Trustee Co Ltd 1.37
10 BNP Paribas Asset Management India Pvt Ltd 1.35
Source: Bloomberg

Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

February 24, 2020 11

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