Buy Inox Leisure; target of Rs 587: Prabhudas Lilladher

Prabhudas Lilladher's research report on Inox Leisure

INOL’s performance was broadly in-line with revenues of Rs5,156mn (PLe Rs5,198mn) and pre IND-AS EBITDA margin of 15.7% (PLe 14.6%). Nonetheless, PAT was a miss led by one-off charge of Rs678mn. We cut our FY23E-FY25E EBITDA estimates by ~1-2% as we marginally downgrade our footfall assumptions. Nonetheless, we remain confident of future prospects given 1) content slate for near term is healthy with movies like Shehzada, Bhola, Selfiee, Ant-Man and the WASP: Quantumania, Shazam, and John Wick in pipeline 2) rising pan-India acceptance of regional content 3) strong screen opening outlook and 4) sustenance of KPIs (ATP/SPH CAGR of 4%/9% respectively in 3QFY23 over pre-COVID base) with the exception of occupancy. In addition, recent success of Pathaan, despite high decibel boycott calls, has alleviated fears surrounding Bollywood underperformance.

Outlook

We expect sales/EBITDA CAGR of 20%/26% over FY23E-FY25E and retain BUY on the stock with a TP of Rs587 (arrived from swap ratio of 3:10 with PVR) after assigning EV/EBITDA multiple of 15.5x (no change) to the merged entity.