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Encouraging signs; gearing up for a blockbuster FY23 

Inox Leisure results indicate momentum is coming back into multiplexes sector backed by a strong movie pipeline and improving trajectory of ticketing and non ticketing revenues. In Mar’22, Inox reported highest ever monthly collection (box office + F&B) of INR 1.98bn (Jan’20 was INR 1.67bn; higher than pre-Covid) as restrictions have been lifted and movies releases are bunched up from previous years. Intrinsic EBITDA (without IND AS 116) declined sequentially to INR 140mn (down 72% QoQ) majorly on account of higher rental and CAM charges as all rental negotiations / waivers have concluded and normalcy has returned Mar’22 onwards. Overheads as well as employee expenses have also started inching upwards as Inox gears up for screen addition (+77 in FY23) and movie releases. While 4QFY22 saw six blockbuster films being released, pipeline remains extremely healthy for FY23. We continue to believe that relevance of multiplexes remains high even in a post pandemic world and early trends seem to indicate in that direction. Inox remains a key beneficiary of bunching up of movie pipeline, recovering footfalls and aggressive screen addition. Impending merger with PVR is currently awaiting approvals from regulatory authorities

* Property rentals and CAM normalise thereby impacting profitability: For 4QFY22, revenues stood at INR 3.17bn (+2.5x YoY; + 7% QoQ), while intrinsic EBITDA (without IND AS 116) stood at INR 140mn (INR 500mn in 3QFY22) mainly on account of property rentals waivers ending (Rentals and CAM expense of INR 890mn in 4QFY22; INR 510mn in 3QFY22). Overheads as well as employee expenses have also started inching upwards. As a result, Loss came in at INR 120mn (compared to profit of INR 177mn in 3QFY22).

* Recovery visible: Footfalls recovered during the quarter to 11mn (24% occupancy; 23mn in whole of FY22). Box office collections grew to INR 2,020mn (INR 1,770mn in 3QFY22) while F&B revenue showed a minor recovery to INR 870mn (840mn). Advertisement revenue declined to INR 130mn (200mn) on account of seasonality / Covid uncertainties. Jan-Feb’22 were weak months and majority of the revenues were booked in Mar’22 indicating a healthy exit run rate. Management expects advertisement revenues to hit precovid levels in two quarters (earlier expectation of 4 quarters). Spend per head (SPH) stood at INR 86 in 4QFY22 (97 in 3QFY22; INR 91 in FY22; INR 77 in FY21) while Average Ticket Price (ATP) stood at 218 (226 in 3QFY22; 217 in FY22; 170 in FY21) declining QoQ on account of large chunk of South based movie releases (price restrictions in South Indian markets). During FY22, 32 screens were opened (highest in the industry) and Inox now operates 161 multiplexes with 681 screens across 72 cities with further plans to add 77 screens in FY23, out of which, 6 screens have already been added

* Key management commentaries: i) Plans to open 77 screens and all of the upcoming screens would be funded through internal accruals. Liquidity position remains healthy and as on 30Apr’22, stood at INR 3.8bn, including undrawn limit of INR 1.2bn, ii) Negotiations on rental and CAM have concluded and Mar’22 saw full rental outflow as per contractual agreement, iii) INOX launched a cinema wallet – INOX InstaPay – enabling users to make quick & safe transactions in a rewarding manner, iv) the success of South Indian movies in other languages is likely to be the trend going forward. More movies are likely to get dubbed and increase the total addressable market per movie, v) ATP and SPH are expected to grow by 8-10% YoY (broadly in-line with inflation).

* Awaiting regulatory clearances for the merger: Currently, Inox and PVR are awaiting approvals for the proposed merger (Surprising merger but makes lot of sense). Under the scheme of arrangement, combined entity (Inox-PVR) will issue 3 new equity shares of the combined entity for every 10 equity shares held by the shareholders of Inox. As per the swap ratio Inox shares are currently trading at a c.10% discount (assuming CMP of PVR)

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