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Second wave delays recovery...

Inox Leisure continued to report losses as footfalls and revenues remained well below pre-Covid numbers owing to lack of steady flow of new releases (especially in Hindi language). Revenue was at 90.4%, down 75.7% YoY. EBITDA loss (ex-Ind AS116) came in at ~| 89 crore. Inox recognised | 26.3 crore as rent concessions and other income of | 23.8 crore from settlement of old claims. Subsequently, the company reported net loss (ex-Ind AS116) at | 74 crore. On a reported basis, net loss was at | 93.7 crore.

Only 108 screens operational out of total 648 screen

Q4 started on a promising note with a release like Master in southern market. However, desired flow of releases in Hindi languages was absent. ATP during the quarter was | 172, down 15% YoY while SPH was flat YoY at | 78. Inox opened 17 new screens during the quarter. The management said 19 screens are nearly complete and it expects to add 44 screens, if the situation normalises. We note that the second wave of Covid-19 has dampened recovery prospects in the near term. Currently, only 108 screens out of 648 are operational and business in the key areas of Maharashtra and Delhi has been affected due to closure/restrictions. Occupancy revival has been delayed with postponement of some movies. Accordingly, we revise our estimates down and build in 30, 65 screens addition in FY22E, FY23E, respectively. Our estimates now assume recovery from H2FY22 and preCovid number only in FY23E.

Fund raising, re-negotiation of rent on the anvil

Inox’ monthly cash burn increased QoQ as the company incurred higher expenses on all fronts. As April saw shutdown in many states, the company has started re-negotiating rent & CAM deals with landlords and received a positive response. We, however, feel that generous concessions as seen in FY21, may be difficult to receive. The company has a relatively stronger balance sheet with liquidity of more than | 130 crore. The board of Inox has also passed enabling resolution to raise | 300 crore, which, it believed, will be enough in the worst case scenario i.e. full year closure with monthly cash burn of ~| 25 crore.

Valuation & Outlook

While a few successful releases in regional languages along with vaccination drive was expected to initiate recovery, absence of Hindi releases delayed the same. Considering the prevailing Covid-19 second wave, we believe cinemas will see normalised scenario only from H2FY22 onwards. Long term benefit of some single screen closure is also possible (management expects ~8-10% of the overall screen base of 8600-8700 screen to shut down due to Covid pain). However, uncertainty of post Covid behaviour remains. We maintain HOLD rating on the stock considering the delayed recovery prospects. We value the stock at 10x FY23E (ex-Ind-AS) EV/EBITDA with a target price of | 275/share (earlier TP: | 350/share).

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