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Balanced view on ATP – unlike PVR’s view

INOX’s Q3FY22 result has many positives though company performance was significantly below pre-covid levels. Its ATP and SPH was 10.8% and 19.7% higher compared to Q3FY20, which shows the strength of cinemas to make a comeback. However, the rise was relatively lower compared to PVR. INOX has a balanced view where it sees Q3FY22 ATP having benefited from higher mix of blockbuster movies where prices are typically higher. It remains hopeful of ATP growth, and expects prices to increase in line with inflation (3-4% p.a.) unlike the bullish view shared by PVR. However, INOX’s efforts to increase SPH continues, and it anticipate higher SPH to sustain. We have cut our EBITDA estimate by 31% and 7% for FY23E and FY24E respectively. Accordingly, we reduce our TP to Rs474 (from Rs492) and increase the EBITDA multiple to 13x (from 12x). Maintain BUY.

* INOX remains hopeful, but has a more balanced view on ATP. INOX’s ATP rose to Rs226 vs Rs204 in Q3FY20, an improvement of 10.8%. However, the company remains hopeful of higher ATP in post-covid world, but it attributed the Q3FY22 ATP growth to higher mix of big budget (blockbuster) and Hollywood movies, which have higher ATP (there was lower contribution from popular movies). It sees no reason to believe movie and customer mix will change significantly from pre-covid times. Thus, ATP should normalise at lower levels as more movies and higher occupancies are achieved. Further, INOX has relatively low presence in south India where ATPs are capped though it has recently been increased. PVR has larger contribution from south India. Multiplexes have not taken any price increase, and INOX is of the opinion that prices will grow at 3-4% p.a. going forward.

* Efforts on way to drive higher SPH. In Q3FY22, INOX’s SPH was Rs97, up 19.7% from Q3FY20. Company has not taken any price increase, but the rise could be from certain efforts by it in terms of increasing menu choices, selling more products per head, technology with integration with apps, etc. Company sees itself continuing to increase SPH going forward, and believes the Q3FY22 levels are sustainable.

* EBITDA performance relatively better. INOX’s EBITDA performance has been relatively better compared to PVR, and its cost structure has always been more efficient. Adjusted for Ind-AS impact, the company has achieved EBITDA of Rs540mn and net profit of Rs170mn. It sees fixed costs (excluding rental and CAMs) to witness structural saving of 8-10% from the restructuring done during covid.

* Expansion plan intact. INOX has opened 24 screens in 9MFY22 and plans to add another 17 in Q4FY22. Its screen addition plan of 80-90 p.a. remains on track for post-covid world, and it already has ~1,000 screens in the pipeline. These screens are to be spread across India. Company’s balance sheet remains comfortable with nil net debt and should help accelerate screen expansion.

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