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Hopeful of normalcy by H2FY22

INOX’s Q3FY21 performance has little relevance considering its restricted operations and limited content release. However, the company continues to keep tight leash on costs at least until end-FY21 with rent waivers from most landlords during the lockdown and discounted rents subsequently, and lower CAM. Government notifying 100% occupancy from Feb’20 is the first step towards normalcy and the company remains confident on content pipeline. It sees occupancy reaching pre-Covid levels in H2FY22 and has already seen ATP and SHP at pre-Covid rates for new movie releases, which is comforting. We maintain our estimates and keep the target price unchanged at Rs424. Reiterate BUY.

* Cinemas allowed to open at 100%. Government has issued a notification allowing cinemas to operate at 100% seating capacity from Feb’20. Eight states have already allowed full occupancy – including large markets like Delhi, Karnataka and Tamil Nadu, and we believe others may follow soon. The success of ‘Master’ with global collection of Rs2.5bn should pave the way for other big-budget movie releases, particularly Hindi movies where producers have shied away since Oct’20. Company sees occupancies reaching normalcy (pre-Covid levels) in H2FY22. We draw comfort from the fact that its average ticket price (ATP) and F&B revenues were at pre-Covid levels during new releases in Q3FY21, and that of strong movie pipeline.

* Early Master release on OTT: Company sees this as a one-off event, where a movie released in theatres was also put on OTT in 16 days, with distributors sacrificing their margins. Generally, exhibitors have agreement with producers in the Hindi market for eight weeks gap to release on OTT, while they don’t have any such agreement in the South. We consider the early release of Master on OTT as a oneoff, which may not be repeated on normalisation.

* Costs under control. 1) Rent cost (including CAM) during the quarter was down 52% YoY due to concession on rentals. INOX has reached agreements with most of its landlords on waiver during lockdown and discounts till Mar’21. 2) Other overheads were down 66%. 3) Employee costs were cut by 65% YoY. The average monthly cash burn is Rs250mn-300mn (vs Rs850mn pre-Covid). Cash loss stood at Rs0.83bn in Q3FY21. INOX is debt-free and has a net cash balance of Rs220mn.

* Other highlights: 1) Company expects to close FY21 with 655 screens in 155 properties. 2) It is not keen on acquiring single screens due to lack of programming flexibility, and regulatory hurdles in converting them into multiplexes. 3) Company is hopeful of opening of 1,000 screens in next 5-6 years, with large cinema theatre opening in later years.

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