Inox Leisure an outperformer; target of Rs 160: Karvy

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Inox Leisure an outperformer; target of Rs 160: Karvy

Karvy Stock Broking has recommended an outperformer rating on Inox Leisure with target price of Rs 160 as against their earlier price target of Rs 170.

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Karvy Stock Broking has recommended an outperformer rating on Inox Leisure with target price of Rs 160 as against their earlier price target of Rs 170.

Karvy Stock Broking report on Inox Leisure:

The company's 4Q FY07 results were broadly in line with our expectations. Net sales grew 29.3% Y-o-Y. This was on the back of increase in number of properties under operations. The company operated 14 properties and 51 screens in 4Q FY07 as against 9 properties and 35 screens in 4Q FY06.

On account of the increase in proportion of leased properties as well as an increase in distributors share the company's margins took a hit from 30.4% in 4Q FY06 to 17.9% in 4Q FY07. The increase in distributors cost was beyond our expectation resulting in operating margins of 25.3% for FY07 as against our expectation of 27%.

The company reported net profits of Rs 46.4 million, growth of 5.9% over 4Q FY06. Sequentially, the company's earnings witnessed a decline as the content flow in the fourth quarter is normally lower on account of school and college examinations resulting in lower occupancies.

On account of the higher distributor share, we are reducing our operating margins estimate for FY08 and FY09 by 80bps and 90bps respectively. Our operating margin estimates stands at 26.2% for FY08 and 26.5% for FY09 respectively. Corresponding we are reducing net profit estimates by 5% and 4% for FY08 and FY09 respectively. Our target price on the stock is Rs 160 as against our earlier price target of Rs 170. We rate the stock Outperformer.