25 February 2021 India | Media | Company Update
Inox Leisure | BUY
Strong content lined-up; will we get a full house?
An interesting development in Multiplex industry at present is that the much awaited Vicky Punjabi Bollywood content release calendar is now firming up with a great line-up (see Exhibit 1 for [email protected] | Tel: (91 22) 66303065 details) despite few regions seeing a spike in pandemic. A part of it is attributable to better Nikita Maheshwari consumer sentiment and positive impact from the vaccine rollouts that is currently underway [email protected] | Tel: (91 22) 66303077 but, in our view, this also signifies that content owners continue to believe that exhibition Richard Liu [email protected] | Tel: (91 22) 66303064 through cinemas remains the best way for monetisation of content. Our analysis indicates that, in case of a blockbuster movie, exhibition through cinemas can help content provider achieve a disproportionately high ROIC despite high cost of production (analysis of War movie implies 100% ROIC). With release of Bollywood content, we expect investor sentiment to turn positive for multiplexes especially given it could be one of the many beneficiaries of increased discretionary consumption. We reiterate Inox Leisure as our favoured pick given its Recommendation and Price Target attractive valuation (discounting c.75% of its current stores in operation), conservative stance Current Reco. BUY on growth financing and single-minded focus on screen expansion. Steady releases should Previous Reco. BUY Current Price Target (12M) 450 also ensure that cash burn from operations would have peaked at around INR 850mn in Dec- Upside/(Downside) 42.4% Q. Risks here, in the near term, relate to the extent of resurgence in the pandemic. Previous Price Target 450 Change 0.0% Bollywood movie release calendar getting firmed up; disproportionate returns on
blockbuster movies through theatrical platform quite possible: With the lack of content Key Data – INOL IN releases over the past 12 months, we are seeing a bunching-up of movie releases over Current Market Price INR316 the next 6-12 months with quite a few of them having a strong star cast. This should help Market cap (bn) INR36.5/US$0.5 attract audiences in large numbers, in our view, and could be one of the best years for Free Float 38% the multiplexes unless we see a sharp resurgence in the pandemic. Compression of Shares in issue (mn) 112.5 theatrical windows and changes in profit sharing remains the near-term risk but, given Diluted share (mn) 112.5 the high monetisation potential through theatrical exhibition, we see these normalising to 3-mon avg daily val (mn) INR391.8/US$5.4 52-week range 512/158 levels seen pre-Covid. For this purpose, we have tried to work out economics of a Sensex/Nifty 50,890/14,982 blockbuster movie like ‘War’. Its world wide box office collections stood at INR4.8bn INR/US$ 72.7 implying production house share of INR 1.9bn which coupled with INR 1.5bn earnings through sale of digital and satellite rights (earnings here gets bumped up by strong Price Performance performance at the box-office) ensured that content providers realised INR 3.4bn. Given % 1M 6M 12M the total cost of production of INR 1.7bn, ROIC was a disproportionate 100% Absolute 2.1 6.7 -33.5 Relative* -2.0 -19.4 -46.2 establishing the importance of theatrical releases (refer exhibit 2 for details). * To the BSE Sensex Inox Leisure remains our preferred pick given lean cost structure and healthy balance sheet: A part of the sharp cost reduction achieved by Inox Leisure during lockdown should be sustainable and help improve the margin outlook for the company in a normalised environment, in our view. Even on operating cash burn, while it did increase from INR 340-380mn in Jun-Q and Sep-Q to INR 855mn in Dec-Q on resumption of rental payments, it remains well-below average SG&A of INR 2.4bn per quarter in FY20. With movie releases now firming up, we expect the cash burn to be near peak levels and with INR 2.3bn in liquidity as on Jan’21 (can suffice atleast for six months), Inox is well- positioned to capture the benefits from content releases. Inox Leisure’s prudent capital allocation, conservative funding of growth and reasonable valuation (discounting c.75% of the screens in operation at CMP) makes it one of our preferred picks in the discretionary space.
Financial Summary (INR mn) Y/E March FY19A FY20A FY21E FY22E FY23E Sales 16,796 18,871 675 15,754 24,054 Sales growth (%) 26.1 12.4 -96.4 2,232.9 52.7 JM Financial Research is also available on: EBITDA 3,092 5,968 -2,000 4,536 7,618 Bloomberg - JMFR
JM Financial Institutional Securities Limited Inox Leisure 25 February 2021
Exhibit 1. Strong pipeline of Bollywood movies lined-up over next six months
Release Date Movie Name Star cast
11-Mar-21 Roohi Rajkummar Rao, Janhvi Kapoor, Varun Sharma 12-Mar-21 Fauji Calling Sharman Joshi 19-Mar-21 Mumbai Saga John Abraham 19-Mar-21 Sandeep Aur Pinky Faraar Arjun Kapoor and Parineeti Chopra 02-Apr-21 Sooryavanshi Akshay Kumar, Katrina Kaif, Anupam Kher 23-Apr-21 Bunty aur Babli 2 Rani Mukherji, Saif Ali Khan, Siddhant Chaturvedi, 30-Apr-21 Chehre Emraan Hashmi and Amitabh Bachchan 13-May-21 Satyameva Jayate 2 John Abraham, Divya Khosla Kumar 13-May-21 Radhe Salman Khan, Disha Patani 04-Jun-21 83 Ranveer Singh, Deepika Padukone 18-Jun-21 Jhund Amitabh Bachchan 25-Jun-21 Shamshera Ranbir Kapoor, Vaani Kapoor, Sanjay Dutt 02-Jul-21 Shershaah Siddharth Malhotra 09-Jul-21 Chandigarh Kare Aashiqui Ayushmann Khurana and Vaani Kapoor 30-Jul-21 Gangubai Kathiawadi Alia Bhatt 06-Aug-21 Atrangi re Dhanush, Sara Ali Khan, Akshay Kumar 13-Aug-21 Attack John Abraham, Jacqueline Fernandez, Rakul Preet 27-Aug-21 Jayeshbhai Jordaar Ranveer Singh, Shalini Pandey 10-Sep-21 Bhoot Police Saif Ali Khan, Arjun Kapoor, Jacqueline Fernandez, Yami Gautam 17-Sep-21 Anek Ayushmann Khurana Source: Company, Media articles, JM Financial. Note: Strong star cast movies that could receive healthy openings are marked in bold.
Exhibit 2. War movie earned ROIC of 100% which reflects that blockbuster movies can drive disproportionate earnings through theatrical release
Particulars INR mn
Cost of Production 1,700
Worldwide Box office Collections 4,755
Share of Production house 40.0%
Earnings from box office 1,902
Satellite and Digital Rights Sale 1,500
Total Earnings for Production House 3,402
Net Earnings for Production House 1,702
ROIC 100.1% Source: Company, Media articles, JM Financial
JM Financial Institutional Securities Limited Page 2 Inox Leisure 25 February 2021
Exhibit 3. Cash burn for Inox was stable in Jun-Q / Sep-Q while spiked Exhibit 4. Inox’s stable debt levels over Fy09-20 despite acquisitions up in Dec-Q on partial resumption of rental costs and capex is a testimony to its prudent capital allocation policies Cash burn - INR mn Inox capital allocation - INR bn 0 25.0 13.8 2.6 13.1 20.0
-300 15.0 -338 -379 10.0 2.7 -600 5.2 1.6 5.0 2.1 1.1 0.4 0.0 -900 -855 Net debt - Acquisitions Capex Interest paid CFO Sale of Preferential Others Net debt - 1QFY21 2QFY21 3QFY21 FY09 treasury issue FY20 shares Source: Company, JM Financial Source: Company, JM Financial
Exhibit 5. Operational fixed cost steadily increasing with resumption of operations but still remain well below pre covid levels; some sustainable cost-savings here could drive improved profitability in future
Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 3 Inox Leisure 25 February 2021
Exhibit 6. At current market price, the company is discounting mere 75% of its screens in operation Inox
Per Screen Economics INR Mn Capex cost per screen 27.5 No. of seats per screen 230 Occupancy 28% No. of shows per day 4.8 No. of days 365 No. of admits per annum 112,829 Average ticket realisation - INR 167 Exhibition revenue 19 F&B spends per head (net) 75 F&B Revenue 8 Online Ticket booking - % 55.0% Fees per ticket 19 Convenience Fees 1.2 Advertisement spends per screen - FY19 3.3 Total Income per screen 32 Gross margin in Exhibition 55.1% Gross Margin in F&B 74.6% Gross Profit 21 GPM - % 66.6% Employees per screen 16 Average Employee Cost - INR 143,562 Employee cost per screen 2.3 Rentals per screen 5.9 CAMS per screen
Electricity & Water charges per screen 1.9 Repairs & Maintenance 0.7 Movie distribution & Print
Other expenses 4.6 EBITDA 5.8 EBITDA margin 18.1% Depreciation 2.8 EBIT 3.0 Tax - 25% 0.8 NOPAT 2.3 FCFF 5.0 Enterprise Value 106 EV net of capex 79 No. of screens 641 Enterprise Value of all screens 50,494
CMP - INR 316 No. of shares - mn 112 Market Cap 35,535 Net Debt 1,884 Enterprise Value 37,419 No. of screens discounted 475 Screens not discounted 166 % of total screens 25.9% Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 4 Inox Leisure 25 February 2021
Exhibit 7. Our DCF based target price is INR 450/share implying 42% upside from current levels (INR mn) FY17 FY18 FY19 FY20 FY21E FY22E FY23E FY24E FY25E FY26E FY27E FY28E FY29E FY30E FY31E FY32E CAGR FY20-32E Revenue 12,207 13,481 16,922 18,974 679 15,840 24,185 26,850 29,407 32,083 35,242 38,536 42,029 45,761 49,746 53,969 9.1% yoy growth 5% 10% 26% 12% -96% 2233% 53% 11% 10% 9% 10% 9% 9% 9% 9% 8% EBITDA (Pre Ind As 116) 1,448 2,073 3,092 3,393 -2,442 1,795 4,788 5,503 6,043 6,631 7,363 8,165 9,001 9,941 10,814 11,755 10.9% EBITDA margin - % 12% 15% 18% 18% -360% 11% 20% 20% 21% 21% 21% 21% 21% 22% 22% 22% EBIT 607 1,207 2,137 2,245 -3,704 408 3,233 3,704 3,970 4,265 4,669 5,106 5,553 6,069 6,483 6,935 EBIT margin - % 5% 9% 13% 12% -546% 3% 13% 14% 13% 13% 13% 13% 13% 13% 13% 13% Tax Rate 35.0% 37.6% 35.2% 35.2% 25.2% 25.2% 25.2% 25.2% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% 25.5% NOPAT 395 753 1,384 1,454 -2,771 305 2,418 2,771 2,957 3,177 3,478 3,804 4,137 4,521 4,830 5,166 11.1% Depreciation 841 867 955 1,149 1,262 1,387 1,555 1,799 2,073 2,366 2,694 3,059 3,448 3,872 4,331 4,820 Capex -1,411 -1,293 -2,446 -2,003 -799 -2,043 -2,584 -3,086 -3,086 -3,519 -4,106 -4,382 -4,674 -5,171 -5,507 -5,860 Net working capital investment -397 26 9 349 136 -207 -248 -3 -3 -38 -47 45 -55 -71 -45 -51 Free Cash Flow -573 353 -98 949 -2,171 -557 1,141 1,480 1,941 1,986 2,020 2,526 2,856 3,151 3,609 4,075 12.9% YoY Growth - % -74.3% -304.9% 29.7% 31.2% 2.3% 1.7% 25.0% 13.1% 10.3% 14.5% 12.9% Discounting Factor 0.97 0.88 0.79 0.71 0.64 0.58 0.52 0.47 0.42 0.38 0.34 Pres ent Value of FCF -543 1,001 1,169 1,381 1,273 1,166 1,313 1,337 1,328 1,370 1,393
Fade period forecast FY33E FY34E FY35E FY36E FY37E FY38E FY39E FY40E FY41E FY42E FY32-42 Cagr FCF 4,577 5,114 5,683 6,282 6,908 7,555 8,217 8,890 9,564 10,234 9.6% Discounting Factor 0.31 0.28 0.25 0.22 0.20 0.18 0.16 0.15 0.13 0.12 Present Value of FCF 1,409 1,418 1,419 1,413 1,399 1,378 1,350 1,315 1,274 1,228
12M Forward Equit y Valuat ion WACC computation PV of Cash Flow - Explicit Period 12,188 Pre-tax Cost of Debt 8.5% PV of Cash Flow - Fade Period 13,601 PV of Terminal Value 27,232 Risk Free Rate 7.0% Ent erprise Value 53,021 Risk Premium 5.0% Company Beta 0.8 Debt - Mar'22 2,759 Cost of Equity 11.1% Cash - Mar'22 312 Net Debt 2,447 WACC used 11.0% Terminal Growt h Rat e 6% Equit y value 50,574 Mn no of shares 112 12M Target (DCF value) - Rs per share 450 EBITDA - 1 yr fwd 4,040 EV/EBITDA 13.1 Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 5 Inox Leisure 25 February 2021 Financial Tables (Consolidated)
Profit & Loss Sta te me nt (INRmn) Balance Sheet (INRmn) Y/E Ma rc h FY19A FY20A FY21E FY22E FY23E Y/E Ma rc h FY19A FY20A FY21E FY22E FY23E Net sales (Net of excise) 16,796 18,871 675 15,754 24,054 Shareholders' Fund 9,638 6,219 5,123 4,547 5,954 Growth (%) 26.1% 12.4% -96.4% 2232.9% 52.7% Share capital 1,026 1,026 1,125 1,125 1,125 Other Operating Income 126 103 4 86 131 Reserves & Surplus 8,612 5,192 3,999 3,423 4,830 Tota l Re ve nue 16,922 18,974 679 15,840 24,185 Preference Share Capital 0 0 0 0 0 Cost of Goods Sold/Op. Exp. 5,567 6,227 241 5,199 7,885 Minority Interest 0 0 0 0 0 Personnel cost 1,152 1,421 883 1,226 1,596 Total Loans 1,100 1,576 2,207 2,759 1,793 Other expenses 7,111 5,359 1,555 4,879 7,086 Def. Tax Liab / Assets (-) -529 -1,773 -2,984 -3,178 -2,704 EBITDA 3,092 5,968 -2,000 4,536 7,618 Total - Equity & Liab 10,210 6,022 4,346 4,128 5,043 EBITDA (%) 18.4% 31.6% -296.2% 28.8% 31.7% Net Fixed Assets 9,861 5,666 4,233 3,809 3,530 EBITDA Growth (%) -34.4% 93.1% -133.5% -326.8% 67.9% Gross Fixed Assets 12,333 14,120 14,919 16,961 19,546 Compa ra ble EBITDA 3,092 3,393 -2,442 1,795 4,788 Intangible Assets 0 0 0 0 0 Comparable EBITDA (%) 18.3% 17.9% -359.7% 11.3% 19.8% Less: Depn. & Amort. 3,109 4,107 5,369 6,757 8,311 Depn & Amort 955 2,642 2,847 2,956 3,234 Capital WIP & Net lease assets 637 -4,347 -5,316 -6,395 -7,705 EBIT 2,137 3,327 -4,847 1,580 4,384 Investments 12 12 12 12 12 Other Income 149 172 2,297 113 150 Current Assets 4,386 4,085 3,266 3,537 6,183 Finance Cost 237 2,212 2,257 2,462 2,654 Inventories 122 136 111 108 165 PBT before Excep & Forex 2,049 1,286 -4,807 -770 1,881 Sundry Debtors 882 627 74 518 791 Excep & forex Inc/Loss(-) -58 0 0 0 0 Cash & Bank Balances 137 447 312 312 1,259 PBT 1,991 1,286 -4,807 -770 1,881 Loans & Advances 1,939 2,132 2,026 1,812 2,766 Taxes 656 1,136 -1,211 -194 474 Other Current Assets 1,306 742 743 788 1,203 Extraordinary Inc/Loss(-) 0 0 0 0 0 Current Liab. & Prov. 4,050 3,740 3,165 3,230 4,682 Assoc. Profit/Min. Int.(-) 0 0 0 0 0 Current Liabilities 3,705 3,340 2,936 2,911 4,267 Reported Net profit 1,335 150 -3,596 -576 1,407 Provisions & Others 345 401 230 319 415 Adjuste d Ne t Profit 1,328 833 -3,596 -576 1,407 Net Current Assets 336 344 101 307 1,501 Net Margin (%) 7.9% 4.4% -532.5% -3.7% 5.8% Applic a tion of Funds 10,210 6,022 4,346 4,128 5,043 Diluted share capital (mn) 102.6 102.6 112.5 112.5 112.5 Source: Company, JM Financial Diluted EPS (Rs) 12.9 8.1 -32.0 -5.1 12.5 Diluted EPS Growth 75.4% -37.3% -494.1% -84.0% -344.3% Total Dividend + Tax 0 119 0 0 0 Dividend Per Share (Rs) 0.0 1.0 0.0 0.0 0.0 Source: Company, JM Financial
Note: 1) Financials from FY20 onwards are on Ind-AS 116 basis - this has a distortive impact on reported EBITDA and hence comparable EBITDA is separately stated.
Ca sh Flow Sta te me nt (INRmn) Dupont analysis Y/E Ma rc h FY19A FY20A FY21E FY22E FY23E Y/E Ma rc h FY19A FY20A FY21E FY22E FY23E Profit before Tax 1,991 1,286 -4,807 -770 1,881 Net Margin 7.9% 4.4% -532.5% -3.7% 5.8% Depn. & Amort. 955 2,642 2,847 2,956 3,234 Asset Turnover (x) 1.8 2.3 0.1 3.7 5.2 Net Interest Exp. / Inc. (-) 88 2,041 -40 2,350 2,504 Leverage Factor (x) 1.2 1.0 0.9 0.9 0.9 Inc (-) / Dec in WCap. 88 -726 136 -207 -248 RoE 16.3% 10.5% -63.4% -11.9% 26.8% Others 44 13 0 0 0 Ke y Ra tios Taxes Paid -369 -513 -27 0 0 Y/E Ma rc h FY19A FY20A FY21E FY22E FY23E Ope ra ting Ca sh Flow 2,797 4,742 -1,891 4,329 7,371 BV/Share (INR) 93.9 60.6 45.6 40.4 52.9 Capex -2,492 -2,132 -799 -2,043 -2,584 ROIC (%) 14.4% 1.7% -10.4% 3.2% 8.3% Free Cash Flow 305 2,610 -2,690 2,287 4,786 ROE (%) 16.3% 10.5% -63.4% -11.9% 26.8% -Inc/dec in investments 104 -11 0 0 0 Net Debt-equity ratio (x) 0.1 0.2 0.4 0.5 0.1 Other current assets 32 14 27 113 150 PER 24.4 38.9 -9.9 -61.7 25.3 Inve sting Ca sh Flow -2,356 -2,130 -771 -1,930 -2,434 PBV 3.4 5.2 6.9 7.8 6.0 Inc/(dec) in capital 1,594 1 2,500 0 0 EV/EBITDA 10.8 5.6 -18.7 8.4 4.7 Dividend+Tax Thereon 0 -119 0 0 0 EV/Net Sales 2.0 1.8 55.4 2.4 1.5 Inc/dec in loans 0 0 0 0 0 Debtor days 19 12 40 12 12 Other assets -2,050 -2,209 28 -2,400 -3,989 Inventory days 3 3 60 3 3 Fina nc ing Ca sh Flow -456 -2,328 2,528 -2,400 -3,989 Creditor days 98 94 400 94 94 Inc / Dec (-) in Cash -16 284 -134 -1 947 Source: Company, JM Financial Opening cash balance 152 163 447 312 312 Closing cash balance 137 447 312 312 1,259 Source: Company, JM Financial
JM Financial Institutional Securities Limited Page 6 Inox Leisure 25 February 2021
History of Earnings Estimate and Target Price Recommendation History Date Recommendation Target Price % Chg.
23-Dec-20 Buy 450
4-Feb-21 Buy 450 0.0
JM Financial Institutional Securities Limited Page 7 Inox Leisure 25 February 2021 APPENDIX I
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Additional disclosure only for Canadian persons: This report is not, and under no circumstances is to be construed as, an advertisement or a public offering of the securities described herein in Canada or any province or territory thereof. Under no circumstances is this report to be construed as an offer to sell securities or as a solicitation of an offer to buy securities in any jurisdiction of Canada. Any offer or sale of the securities described herein in Canada will be made only under an exemption from the requirements to file a prospectus with the relevant Canadian securities regulators and only by a dealer properly registered under applicable securities laws or, alternatively, pursuant to an exemption from the registration requirement in the relevant province or territory of Canada in which such offer or sale is made. This report is not, and under no circumstances is it to be construed as, a prospectus or an offering memorandum. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon these materials, the information contained herein or the merits of the securities described herein and any representation to the contrary is an offence. If you are located in Canada, this report has been made available to you based on your representation that you are an “accredited investor” as such term is defined in National Instrument 45-106 Prospectus Exemptions and a “permitted client” as such term is defined in National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations. Under no circumstances is the information contained herein to be construed as investment advice in any province or territory of Canada nor should it be construed as being tailored to the needs of the recipient. Canadian recipients are advised that JM Financial Securities, Inc., JM Financial Institutional Securities Limited, their affiliates and authorized agents are not responsible for, nor do they accept, any liability whatsoever for any direct or consequential loss arising from any use of this research report or the information contained herein.
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