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Post reopening line-up to drive recovery…

About the stock: Inox Leisure is the second largest player in terms of multiplex screen count in India. Currently, the company operates 648 screens in 153 cinemas in 69 cities in India with an aggregate seating capacity of ~1.47 lakhs seats.

* It is the only multiplex, which enjoys a net debt free balance sheet

Q1FY22 Results: Inox reported weak Q1FY22 results as expected.

* Reported revenue was | 22.3 crore (75% QoQ de-growth). The company reported box office revenue of | 12 crore while F&B revenue was | 6 crore

* EBITDA loss (without impact of Ind-AS116) came in at ~| 107 crore. On a reported basis, EBITDA loss was | 51.6 crore

* Inox recognised | 22.6 crore as rent concessions. Subsequently, the company reported net loss (without impact of Ind AS116) at | 101 crore. On a reported basis, net loss was at | 122.3 crore.

What should investors do?

Inox’ share price has grown by ~18% over the past five years (from ~| 267 in August 2016 to ~| 316 levels in August 2021).

* We upgrade the stock from HOLD to BUY rating

Target Price and Valuation: We value Inox at | 365 i.e. 10.5x FY23E EV/EBITDA

Key triggers for future price performance:

* Reopening of theatres post the lockdown, which should drive releases and subsequent in recovery in footfalls/revenues

* Release of big budget Hindi movies from festive season onwards

* Consolidation (10-15% single screens may be shut permanently), which will drive increased market share of multiplexes

Alternate Stock Idea:

Apart from Inox Leisure, we like PVR in the multiplex space.

* A play on reopening and improving market share of multiplexes

* BUY with a target price of | 1610

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