Accumulate Inox Leisure; target of Rs 256: Prabhudas Lilladher

Prabhudas Lilladher's research report on Inox Leisure

INOL's performance was significantly below our estimates (revenue/Ind-AS adjusted EBITDA miss by 4%45% respectively) due to weak content (only 2 movies viz; Tanhaji and Baghi 3 crossed Rs1bn in box office collections during 4QFY20 versus ~4/5 movies in 4QFY19) and COVID-19 led shutdown (complete loss of revenue for 15-20 days). We expect 1HFY21 to be a period of liquidity management as occupancy would remain negligible (NIL in 1Q and 5.5% in 2Q) with gradual recovery in 2HFY21 (average occupancy expectation of 18.8%). Further, risk of rising instances of producers opting for the OTT route (Gulabo Sitabo & Gunjan Saxena are to bypass theatrical release) can further dent the content pipeline which is already in disarray as production schedules have been hampered. We have thus drastically cut our sales/EBITDA estimates as we believe that footfall normalization and gaining consumer confidence will be a gradual process post-COVID. While there are near term headwinds, INOL has a strong BS (D/E of 0.3x) and comfortable liquidity position (real estate of Rs3.5bn and treasury stock of Rs1.25bn on BS) to navigate the current crisis.

Outlook

We continue to maintain our positive stance on the multiplex space (low ticket consumer discretionary play) but given the current environment, recommend a staggered buying approach. As a result, we downgrade INOL to ACCUMULATE (BUY earlier) valuing the stock at EV/EBITDA multiple of 9x (earlier 7.5x; long period average is 10x) with a TP of Rs256 (Rs344 earlier).

Inox Leisure 13062020-prabhu