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Quarter marked by recovery…

About the stock: Inox Leisure is the second largest player in terms of multiplex screen count in India. Currently, the company operates 667 screens in 158 cinemas in 70 cities in India with an aggregate seating capacity of ~1.51 lakhs seats.

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

Q3FY22 Results: Q3FY22 saw a strong recovery led by healthy content slate.

* Reported revenue was | 296.5 crore (up by ~5x QoQ). The box office revenue was | 177 crore while F&B revenue was | 84 crore with ad revenues at | 20 crore. In Q3FY22, ATP was at | 226, up ~27% QoQ, while SPH was at | 97, up ~5.4% QoQ. Footfall was at 9.4 million (mn) (4x QoQ)

* EBITDA (ex- Ind AS116) came in at ~| 49.6 crore (margin of 16.7%). On reported basis, EBITDA was | 84 crore

* Inox recognised | 47.8 crore as rent concessions. On reported basis, PAT loss was lower at | 1.3 crore, largely due to rent concession recognition. ExInd AS116 basis, PAT was | 17.4 crore

What should investors do? Inox’ share price has grown by ~67% over the past five years (from ~| 227 in January, 2017 to ~| 380 levels in January, 2022).

* We maintain BUY rating on the company

Target Price and Valuation: We value Inox at | 495 i.e. 11.5x FY24E EV/EBITDA.

Key triggers for future price performance:

* Reopening of theatres post Omicron restriction to drive recovery in footfalls/revenues with strong content slate lined up

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

* Benefits of permanent saving in costs (ex-rental) by 8-10%, given the rationalisation measures

Alternate Stock Idea: Apart from Inox Leisure, we like PVR in the multiplex space.

* A play on recovery of earnings of multiplexes

* BUY with target price of | 1870

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