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H1FY22 looks like a washout

INOX Leisure’s Q4FY21 print has little relevance on limited opening of theaters; it incurred cash EBITDA loss of Rs887mn. H1FY22 will be a washout and losses may continue, but the company plans to raise equity of Rs3bn, which should ease its balance sheet pressure. Rent renegotiation holds key in curtailing cash losses. The company has already started discussions with mall owners. ATP and SPH continue to remain encouraging, though on low admits, giving us the confidence of faster recovery on lifting of restriction and release of fresh content.

INOX has strong new screen addition pipeline and healthy balance sheet, which should help it grab higher market share. We are factoring in a complete washout in H1FY22, thus, the company will be reporting EBITDA loss in FY22; we cut our FY23 EBITDA estimate by 6%. Our target price reduces to Rs362 (from Rs424). Reiterate BUY.

* Back to square one – rental negotiations. In FY21, INOX’s losses (on cashflow basis) got restricted (Rs2.2bn) due to rental waiver and concession till Mar’21. INOX is back to negotiation table as its screens are shut again (only Bengal and AP/Telangana operating). INOX’s rental settlement for FY21 is complete, and it has again requested for concession in rentals considering screens are shut due to government order or on low demand. Annual rental cost is ~Rs4bn and even if we assume the next two quarters will be washout, and the company gets 50% concession, we are looking at Rs1bn saving.

* Fund raising is key. INOX’s fixed overheads slipped to just Rs300mn / quarter in the previous lockdown; we assume it will higher in H1FY22 due to partial operations of theaters and vaccination drive raising hope of faster lifting up of restrictions, keeping the screens running. INOX has board approval to raise Rs3bn equity, and if it succeeds, it would significantly ease its balance sheet pressure.

* Screen addition continues. INOX has added 22 screens in FY21; it plans to add 49 screens in FY22, of which, 90% of capex on 19 screens has already been incurred and it will need additional sum of only Rs80-100mn for commercialisation. The remaining screens will see ramp up on normalisation likely in H2FY22.

* Other highlights: 1) Post the reopening of screens, movie release may take 4-5 weeks due to lead time for marketing; 2) at least 45 movies in Hindi are ready to release in theaters and with international market also reopening, it sees movie release in Hindi to expedite with the easing of the lockdown. The company does not see any challenge in slotting even if movies get released in bunches; 3) INOX estimates only 6,000 screens opened during the previous lockdown; and multiplexes were >3,000 screen. It sees post normalisation, at least 8-10% screens will shut permanently shut; and 4) it is not worried about movies releasing simultaneously on OTT platform, as these are exceptional.

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