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All-round beat in 4Q; Maintain ADD
Inox Leisure’s (INOL) 4QFY19 revenues grew ~48% yoy to ~Rs 4.8bn (+13% vs. EE) led by strong performance on all fronts: Box-office (+50% yoy), F&B (+58% yoy) and advertising (+30% yoy). Overall footfalls for the quarter grew ~43% yoy led by comparable footfalls growth of ~26% and healthy footfalls in new properties. EBITDA at Rs 965mn jumped ~120% yoy (+30% vs. EE) as EBITDAM expanded ~660bps yoy/88bps qoq with operating leverage kicking in. We expect revenue/EBITDA CAGR of 21%/17% over FY19-FY21E and upgrade FY20/FY21E EPS by 15%/7% to factor in a strong beat in 4Q. We rollover to June’20 TP of Rs 363 (vs Mar’20 TP of Rs 275 earlier) set at 25x TTM P/E (24x earlier) and upgrade our rating to Long( From ADD earlier).
Record number of screens added, healthy footfalls growth to continue:
INOL saw a sharp ~43% yoy growth in footfalls as comparable footfalls increased by ~26%. Occupancy rates improved to 31% in 4Q (vs 27% last quarter) helped by strong content in 4Q (Uri: The Surgical Strike, Gully Boy, Simmba, Kesari etc). Average Ticket Prices (ATP) grew ~6% yoy to Rs 189(adjusted for GST rate change in base quarter) Given a strong content pipeline (Bharat, Kabir Singh, Spider-man and Avengers which has already created box office records) in 1QFY20, we expect footfalls to remain strong. INOL met its guidance and opened 85 new screens in FY19 and has guided for ~80 screen additions each year going ahead.
F&B revenues and advertising growth remain solid:
F&B revenues jumped ~58% yoy as SPH improved by ~9%. Management is looking to provide a good mix of food offerings to maintain SPH growth in double digits. Contribution margin for F&B declined to ~74.3% in 4QFY19 vs. ~74.9% in 4QFY18. Gross margins declined ~204bps yoy driven by ~200bps increase in distributor share yoy. Advertising growth was strong at 30% yoy
Maintain ADD with a June’20 TP of Rs 363:
Good content and drop in GST rates on movie tickets from 28% to ~18%(for tickets above Rs 100) and 18% to 12%( for tickets below Rs 100) is benefitting multiplex operators with higher footfalls and increased F&B spends. Renewed focus of management in good screen additions and strong executions shall help reduce the valuation discount at which INOL trades in comparison with PVR. We rollover our June’20 TP to Rs 363 (from Mar’20 TP of Rs 292) set at 25x TTM P/E (24x earlier) and maintain our ADD rating. In our view, if INOLcontinues to execute its plans as in last few quarters, its valuation discount to its competitors shall reduce.
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