MOSL: SPOTLIGHT - INOX LEISURE - Cinema paradise - Exhibiting signs of growth
Motilal Oswal Securities Ltd.
03 Jul 2014
Available for Immediate Download
SPOTLIGHT — INOX LEISURE: Cinema paradiso; Exhibiting signs of growth (INOL IN, Mkt Cap USD0.2b, CMP INR160) INOL is the second-largest multiplex player in India with 79 properties, 310 screens and 83,809 seats with ~15% Bollywood and 25-30% Hollywood market share. Management plans to increase the aggression by opening ~83 screens in FY15, which should lead to faster growth, going forward. We expect INOX (Global) to improve its key matrices like ATP and SPH going forward, with increased focus on North India market (only 9% of revenue), which should help to drive growth and market share. Management expects ad revenue/screen to grow at 50% over the next two years, thereby leading to higher growth and margin expansion. With the expansion into newer geographies like North India, higher number of movie releases per annum and improved content, we expect an occupancy rate of 29% by FY16E. INOL's management expects GST implementation to result in 200bp margin expansion. We expect INOL to post a revenue CAGR of 25.5% and PAT CAGR of 46% over FY15-17E, primarily due to newer screen additions and higher growth in ad revenue. The stock trades at 19.3x FY16E and 13.4x FY17E earnings. Pure play focus on exhibition business, aggressive expansion Movie exhibition industry is highly concentrated with three large focused players, namely PVR, INOL and Big Cinemas, which are in an aggressive expansion mode and hence the best plays. Historically, INOL has been adding ~29 screens on an average over the last three years, which the management plans to increase the aggression by opening ~83 screens in FY15, which should lead to faster growth, going forward. We expect the gap between PVR to reduce with the expansion, which will lead to a re-rating going forward. Focus to improve presence in North India to drive growth INOL has ~116 screens in west and 45 screens in North India, compared to PVR's 200 screens in west and 125 in north. In our view, this has been the primary reason for higher ATP, SPH and ad revenue/screen for PVR. However, we expect INOL to improve its matrices going forward, with increased focus on North India market (only 9% of revenue), which should help to drive growth and market share. Valuation We expect INOL to post a revenue CAGR of 25.5% from INR11.4b in FY15E to INR17.5b in FY17E, primarily due to newer screen additions and higher growth in ad revenue. PAT is expected to increase from INR0.6b in FY15E to INR1.2b in FY17E, marking 46% CAGR. Inox has treasury stock which comprises of ~21% of total share capital, purchased at a consideration of ~INR75 per share on its balance sheet with debt of INR2.2b at end of FY14. The stock trades at 19.3x FY16E and 13.4x FY17E earnings.