sign in sign up
<<
Home , Aditya Roy Kapur, Golmaal 3, Katti Batti, Riteish Deshmukh, Rocky Handsome, Rowdy Rathore

Visit us at www.sharekhan.com September 28, 2015

INOX Leisure Reco: Buy

Poised to script a blockbuster CMP: Rs219

Company details Key points  Making of a mega show: INOX Leisure Ltd (ILL), ’s second largest multiplex Price target: Rs307 operator with 101 properties and 393 screens across 55 cities accounting for about Market cap: Rs2,112 cr 23% of the multiplex screens in India, is scripting a blockbuster growth story through a mix of inorganic (acquisition of Satyam Cineplexes that provides it a foothold in 52-week high/low: Rs270/145 the lucrative northern market) and aggressive organic expansion plan to scale up NSE volume: 2.4 lakh the total screen count to 565-570 screens over the next 24-30 months. In addition (No of shares) to its aggressive push in the northern region (where it aims to challenge the BSE code: 532706 dominance of PVR Cinemas), ILL is leveraging on its strong brand and balance sheet to increase its presence in tier-II and tier-III towns where the multiplex phenomenon NSE code: INOXLEISUR is gradually catching the mindshare, in line with India’s inclusive growth story. Sharekhan code: INOXLEISUR  Top-class casting and script in place: The ILL mega show is supported by an improving Free float: 5.0 cr content quality in the Indian mainstream and regional cinema with its movies regularly (No of shares) hitting the Rs100-crore or Rs200-crore box-office collection mark. The acceptance of Hollywood movies has also provided another source of quality saleable content for Shareholding pattern multiplexes not just in metros but across cities in the country. The economic conditions are also turning favourable to support a robust uptick in urban discretionary spending, given the sharp moderation in inflation and a steady job market. The urban leisure consumption would also get a boost from the expected 25-30% hike in salaries of the central and state government employees with the implementation of the Seventh Pay Commission’s recommendation.  Recommend Buy with price target of Rs307: ILL’s revenues and net income are expected to grow at a CAGR of 19% and 35.5% respectively over FY2016-18 led by strong box-office revenues (at a 19% CAGR), higher F&B revenues (at a 23% CAGR) and advertising revenues (at a 20% CAGR) over FY2016-18. Further, a healthy balance sheet with a 0.3 debt/equity ratio and treasury shares of 4.3 crore shares provide strength to drive the inorganic growth activities in the coming years. At the current Price chart market price of Rs219, the stock trades at EV/EBITDA of 11x, 9x and 7.4x FY2016E, FY2017E and FY2018E earnings respectively. We believe ILL with its strong brand and extended reach is well poised to leverage the opportunity in India’s under-penetrated multiplex sector. We initiate coverage on ILL with a price target of Rs307, based on 9x FY2018E EV/EBITDA.  Key risk: (1) ILL has accelerated its expansion plan over the next two to three years and any delay in the execution of the plan is a risk; and (2) any pause in the inflow of quality movie content will affect the earnings of the company.

Valuation Particulars FY2015* FY2016E FY2017E FY2018E Total revenues (Rs cr) 1,016.8 1,374.3 1,665.2 1,947.3 EBITDA margin (%) 12.1 14.7 15.1 15.4 Price performance Net profit (Rs cr) 20.0 73.7 104.5 135.4 EPS (Rs) 2.2 8.0 11.4 14.8 (%) 1m 3m 6m 12m PER (x) 100.3 27.3 19.2 14.8 P/BV (x) 3.0 2.7 2.4 2.0 Absolute 2.1 23.8 35.7 22.0 EV/EBITDA (x) 18.7 11.3 9.0 7.4 Relative 1.5 32.1 46.2 24.4 RoE (%) 3.0 9.8 12.2 13.7 to Sensex RoCE (%) 6.9 13.3 15.7 17.6 *FY2015 includes consolidation of Satyam Cineplexes, which will affect the overall profitability Source: Company and Sharekhan Research stock idea INOX Leisure

Investment arguments Making of a mega show: ILL, India’s second largest multiplex operator with 101 properties and 393 screens across 55 cities accounting for about 23% of the multiplex screens in India, is scripting a blockbuster growth story through a mix of inorganic (the acquisition of Satyam Cineplexes that provides it a foothold in the lucrative northern market) and aggressive organic expansion plan to scale up the total screen count to 565-570 screens over the next 24-30 months. In addition to its aggressive push in the northern region (where it aims to challenge the dominance of PVR Cinemas), ILL is leveraging on its strong brand and balance sheet to increase its presence in the tier-II and tier-III towns where the multiplex phenomenon is gradually catching the mindshare, in line with India’s inclusive growth story.

Exhibit 1: ILL has presence across the country, the second largest multiplex operator

Source: Company Exhibit 2: Accelerated screen addition over the next couple of years, to reach 557 screens by FY2018

Source: Company Sharekhan 2 September 2015 stock idea INOX Leisure

Multiplex phenomenon is gradually catching the mindshare and wallet share of tier-II and tier-III towns

Exhibit 3: Retail attractiveness of tier-II and tier-III cities Exhibit 4: Retail attractiveness of tier- cities

Source: Industry reports Source: Industry reports

Exhibit 5: Screen additions by major multiplex chains in 2014 Cinema Number of Number of properties screens Locations Inox Leisure 9 31 Udupi, Jalgaon, Bhilwara, Vizag, Faridabad, Gurgaon, Noida, Delhi, Kolkata PVR Cinemas 5 22 Hubli, Ahmedabad, Mangalore, Bhopal, Jalandhar Cinepolis 3 26 Vijayawada, Vadodara, Thane Carnival Cinemas 1 3 Delhi K Sera Sera Miniplex 3 6 Abohar, Nawanshahr, Hoshiarpur Mukta Arts 4 11 Sangli, Aurangabad, Bhopal, Priya Entertainment 1 3 Haldia Total 26 102 Source: Industry reports

Top-class casting and script in place: ILL’s mega show is supported by an improving content quality in the Indian mainstream and regional cinema with movies regularly hitting the Rs100-crore or Rs200-crore box-office collection mark. The acceptance of Hollywood movies has also provided another source of quality saleable content for multiplexes not just in metros but across cities in the country.

Growing acceptance of quality content across markets

• From one movie in 2008, “Ghajini”, which crossed the Rs100-crore mark in 18 days, there were nine movies in 2014 that made it to +Rs100-crore club.

• It took “Bajrangi Bhaijaan” just three days to reach the Rs100-crore mark as compared with the 18 days taken by “Ghajini” in 2008.

• Even regional movies like “Baahubali” (a Telugu movie dubbed in ) crossed the Rs100-crore mark in 2015.

• Hollywood movie “Furious 7” garnered Rs104 crore in the domestic box office while other Hollywood movies like “Avatar” (2009; Rs145 crore), “2012” (2009; Rs94 crore) and “Life of Pi” (2012; Rs80 crore) were also widely accepted in the domestic box office.

• A higher number of screen releases from 1,600 screen releases of “Dabaang” in 2010 to more than 4,500 screen releases for “Bajrangi Bhaijaan” in 2015 also helped the latter to reach the Rs100-crore mark in just three days, the fastest in Indian film history.

Sharekhan 3 September 2015 stock idea INOX Leisure

Exhibit 6: Rs100-crore break-up year-wise Exhibit 10: Upcoming Hollywood movies in 2015 Year No. of movies Highest (cr) Release date Film name 2008 1 114.0 25-Sep-15 The Intern 2009 1 202.5 2-Oct-15 The Martian 2-Oct-15 Legend 2010 2 138.9 9-Oct-15 Pan 2011 5 148.9 16-Oct-15 Crimson Peak 2012 9 198.8 16-Oct-15 Bridge of Spies 2013 8 284.3 23-Oct-15 The Last Witch Hunter 2014 9 340.8 6-Nov-15 Spectre 2015 4 320.3 20-Nov-15 The Hunger Games: Mockingjay - Part 2 Source: Industry reports 25-Nov-15 The Good Dinosaur A strong content pipeline 18-Dec-15 Star Wars: The Force Awakens Source: Industry reports Exhibit 7: Upcoming movies in 2015 Release date Film name Star cast 2-Oct-15 Singh is Bling , Khan, Amy Jackson 9-Oct-15 Jazbaa , 22-Oct-15 Shahid Kapoor, 12-Nov-15 Prem Ratan Dhan Payo , Sonam Kapoor, Neil Nitin Mukesh 27-Nov-15 Tamasha , 4-Dec-15 Wazir , 18-Dec-15 Dilwale , Kajol, , Kriti Sanon 18-Dec-15 , , Deepika Padukone Source: Industry reports Exhibit 8: Upcoming Bollywood movies in 2016 Release date Film name Star cast 22-Jan-16 Airlift Akshay Kumar 5-Feb-16 Rocky Handsome 12-Feb-16 , 4-Mar-16 Jai GangaaJal Priyanka Chopra 18-Mar-16 Kapoor & Sons , Alia Bhatt 15-Apr-16 Fan Shah Rukh Khan 29-Apr-16 , 13-May-16 Azhar Emraan Hashmi 3-Jun-16 Jagga Jassos Ranbir Kapoor, Katrina Kaif and 3-Jun-16 3 Akshay Kumar, , Riteish 12-Aug-16 Mohenjo Daro 12-Aug-16 Rustom Akshay Kumar 12-Aug-16 Baadshaho Ajay Devgan Source: Industry reports Exhibit 9: Bollywood movies released in Q2FY2015 Release date Film name Star cast 3-Jul-15 Guddu Rangeela , Amit Sadh 10-Jul-15 Baahubali Prabhas, , 17-Jul-15 Bajrangi Bhaijaan Salman Khan, Kareena Kapoor Khan 31-Jul-15 Drishyam , , 7-Aug-15 Bangistan , 14-Aug-15 Brothers Akshay Kumar, Sidharth Malhotra 21-Aug-15 All Is Well Abhishek Bachchan, 21-Aug-15 Manjhi The Mountain Man , Radhika Apte 28-Aug-15 Phantom , Katrina Kaif 28-Aug-15 Baankey Ki Crazy Baraat , 4-Sep-15 Welcome Back John Abraham, 11-Sep-15 Hero Sooraj Pancholi, Athiya Shetty 18-Sep-15 Imran Khan, Kangna Ranaut Source: Industry reports Sharekhan 4 September 2015 stock idea INOX Leisure

Overall consumption capacity set to improve, led by lower inflation and Seventh Pay Commission hike: The economic conditions are also turning favourable to support a robust uptick in urban discretionary spending, given the sharp moderation in inflation and steady job market. The urban leisure consumption would also get a boost from the expected 25-30% hike in the salaries of the central and state government employees with the implementation of the Seventh Pay Commission’s recommendation.

Seventh Pay Commission hike will help improve the wallet of Indian government employees

• The Seventh Pay Commission was set up by the government to revise the remuneration of about 2.5 crore central and state government employees.

• The pay/allowances could rise by 25-30% following the implementation of the Seventh Pay Commission’s recommendation.

• The increase in bonus payments and pay/allowances would cumulatively imply spending of Rs2,60,000 crore, which is to the tune of 1.5-1.7% of the gross domestic product in FY2017.

Exhibit 11: Around 2.5 crore people from central and state government will benefit from the implementation of the recommendation of the Seventh Pay Commission which will lead to an inflow of around Rs2,600 billion by FY2017 and drive the discretionary spending.

Source: Industry reports

Exhibit 13: India’s personal disposable income (PDI) growth Exhibit 12: The India consumption story comparison with other emerging markets

*

Source: Industry reports Source: Industry reports

*Middle class segment expected to India is well placed to have higher grow much faster and form around 59% disposal income growth as compared of the total consumption with other emerging markets

Sharekhan 5 September 2015 stock idea INOX Leisure

Financial positives ILL financials

Revenues (FY2015)* Expenses (FY2015)*

Box-office collection Advertisement F&B revenues Exhibition Cost Cost of F&B Others revenues revenues

1. Gross box-office 1. F&B revenues are 1. Advertisement 1. Exhibition cost as % 1. Cost of F&B as % of 1. Rent expenses is collection (GBOC) is 18.8% of total revenues are 8.0% of GBOC is 37% F&B revenues is 17% as % of total 66.2% of total revenues of total revenues 23% revenues and 25% 2. Distributor’s share revenues as % of total 2. No. of patrons 2. As of FY2015 total as % of exhibition 2. Cost per head is expenses 2. Entertainment tax spending on F&B no. of screens is cost is 97% Rs55 as % of GBOC is was 3.5 crore 372 2. Employee cost is 6% 3. Distributor’s share 3. F&B margin is 77% 18.0% FY2015 as % of total 3. Advertisement as % of GBOC is revenues and 11% 3. Net box-office 3. Spend per head is revenue per screen 35.9% as % total expenses collection is 62% Rs55 is Rs2.3 million (including 3. Others expenses is distributers’ share) 23% as % of total revenues and 36% as % of total expenses

Total revenue is Rs1,016.8 crore Total cost Rs644.7 crore

OPM 12.1%

* FY2015 includes consolidation of Satyam Cineplexes, which will affect the overall profitability Source: Company and Sharekhan Research

Exhibit 14: Revenues to grow by 24% CAGR over FY2015-18

Key segmental revenues FY10 FY11 FY12 FY13 FY14 FY15 FY16E FY17E FY18E CAGR FY15-18E Gross box-office collection 188 254 313 559 597 673 928 1,124 1,306 24.7 Food and beverages 42 54 71 142 162 191 282 351 424 30.4 Advertising revenues 13 14 18 32 50 81 105 126 151 23.0 Total revenues 253.6 337.3 418.7 765.3 868.8 1,016.8 1,374.3 1,665.2 1,947.3 24.2 Source: Company and Sharekhan Research Gross box-office collection to deliver 24.7% CAGR over Exhibit 15: Gross box-office revenue trend FY2015-18 Factors to drive growth • We expect strong screen addition over the next 24-30 months, with the screen count reaching 577 screens by 2018 (management targets). We estimate the company would have 528 screens by FY2018 versus the current screen count of 393 screens. Footfalls are expected to increase at a 21% compounded annual growth rate (CAGR) over FY2015-18 to reach 7.2 crore footfalls by FY2018.

• We have built a 3.9% CAGR in ATP, reaching Rs184 by Source: Company and Sharekhan Research FY2018, led by an increasing contribution of the Food and beverages to grow at a CAGR of 30.4% over Hollywood movies (accounting for around 15% of the FY2015-2018 total revenues) coupled with a higher number of 3D Factors to drive growth movie releases, which command a 15-20% premium • We expect the food and beverage (F&B) business to grow over the regular movies. at a 30.4% CAGR over FY2015-18, led by the company’s Sharekhan 6 September 2015 stock idea INOX Leisure

increasing thrust on stepping up growth in the segment. Exhibit 17: Advertising revenue trend The management has taken initiatives like changing the menu based on a movie, keeping in mind the taste buds of guests; serving a larger menu spread; and providing on-seat delivery. The spending per head (SPH) has increased to Rs55 in FY2015 from Rs41 in FY2011.

• The company also provides a choice of international, Indian and city-centric special cuisines. In order to drive growth in the F&B business and to speed up the transaction time to serve more guests, ILL has invested in technology in concession counters (REFUEL). Guests standing in long queues can place their orders with INOX Source: Company and Sharekhan Research representatives who carry the menu on their tablets. These tablets are used as Queue Busters for taking orders Exhibit 18: OPM to improve by 340BPS over FY2015-18E from guests standing in long queues. This initiative speeds up the transaction time, thereby serving more guests.

Exhibit 16: Food and beverage revenue trend

Source: Company and Sharekhan Research Exhibit 19: Return ratios set to improve

Source: Company and Sharekhan Research

Advertising revenues to grow at a CAGR of 23% over FY2015-18 Factors to drive growth

• As per a FICCI-KPMG report on the Indian media and entertainment industry in 2015, cinema advertising is a Rs490-crore market, projected to reach Rs1,382 crore by 2019. ILL’s advertisement revenue per screen has improved from Rs0.8 million in FY2011 to Rs2.3 million in FY2015. Source: Company and Sharekhan Research • The company is taking several steps to improve its Exhibit 20: Comfortable debt/equity ratio augurs well for growth acceleration advertising revenues including focusing on high-value and long-term deals, innovative transaction structures, expansion of the breadth and depth of marketing teams, and optimisation of the advertisement rates. • An increased screen presence gives multiplexes higher bargaining power with advertisers and drives higher advertisement and other operating revenues per screen. With the screen count reaching close to 530 screens by FY2018, we expect further acceleration in the advertising growth and estimate that ILL’s advertising revenue per screen will increase to Rs2.9

million by FY2018 from Rs2.3 million in FY2015. Source: Company and Sharekhan Research Sharekhan 7 September 2015 stock idea INOX Leisure

Operating metric charts Exhibit 21: Number of screens added during the year Exhibit 23: Total footfalls for INOX (in mn) (in mn) (no. of screen)

Source: Company and Sharekhan Research Source: Company and Sharekhan Research

Exhibit 22: Average ticket price for INOX Exhibit 24: Spend per head for INOX (in Rs) (in Rs)

Source: Company and Sharekhan Research Source: Company and Sharekhan Research

Exhibit 25: Strong brand partnerships

Source: Company

Sharekhan 8 September 2015 stock idea INOX Leisure

PVR Cinemas vs ILL Exhibit 29: Trends in SPH in PVR Cinemas and ILL Exhibit 26: Metric comparison at the end of Q1FY2016 Operating metrics PVR Cinemas ILL Cities 106 52 Screens 474 377

Seats 111,278 99,429 (in Rs) Occupancy 38% 33% Admits (mn) 19.0 14.5 ATP (INR) 183 165 SPH (INR) 74 59 SPH/ATP 40% 36% Ad revenues/screen (Rs cr) 0.36 0.05 Gross revenues (Rs cr) 486 349 Source: Company and Sharekhan Research EBIDTA (Rs cr) 113 66 Exhibit 30: Advertising revenues per screen (Rs mn) EBIDTA margin 23.1% 18.8% PAT (Rs) 61.7 25.26 PAT margin 12.7% 7.24% EBIDTA/seat (Rs) 10,110 6,594 EBIDTA/footfall (Rs) 59.2 45.2 Source: Company & Sharekhan Research (in mn)

Exhibit 27: Screen addition trend PVR Cinemas vs ILL

Source: Company and Sharekhan Research

Exhibit 31: Geographical mix of seats for PVR Cinemas and ILL in Q1FY16 (no. of screen added)

Source: Company and Sharekhan Research

Exhibit 28: Trends in ATP in PVR Cinemas and ILL

Source: Company and Sharekhan Research

(in Rs) Exhibit 32: Trend in debt/equity in PVR Cinemas and ILL

Source: Company and Sharekhan Research

Source: Company and Sharekhan Research Sharekhan 9 September 2015 stock idea INOX Leisure

Valuation Recommend Buy with a price target of Rs307: ILL’s revenues and net income are expected to grow at a CAGR of 19% and 35.5% respectively over FY2016-18 led by strong box-office revenues (at a 19% CAGR), higher F&B revenues (at a 23% CAGR) and advertising revenues (at a 20% CAGR) over FY2016-18. Further, a healthy balance sheet with a 0.3 debt/equity ratio and treasury shares of 4.3 crore shares provide strength to drive inorganic growth activities in the coming years. At the current market price of Rs219, the stock trades at enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (EBITDA) of 11x, 9x and 7.4x FY2016E, FY2017E and FY2018E earnings respectively. We believe ILL with its strong brand and extended reach is well placed to leverage the opportunity in India’s under-penetrated multiplex sector. We initiate coverage on ILL with a price target of Rs307, based on 9x FY2018E EV/EBITDA.

Exhibit 33: Peer comparison Domestic P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) Peer FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E FY16E FY17E FY18E INOX 27.3 19.2 14.8 2.7 2.4 2.0 11.3 9.0 7.4 9.8 12.2 13.7 PVR 30.2 23.1 18.4 5.5 4.7 3.8 13.1 11.0 9.3 20.3 20.4 20.1 Source: Bloomberg and Sharekhan Research

International P/E (x) P/BV (x) EV/EBITDA (x) RoE (%) Peer CY15E CY16E CY17E CY15E CY16E CY17E CY15E CY16E CY17E CY15E CY16E CY17E Regal Entertainment Group 16.5 15.2 13.4 NM NM NM 8.1 7.7 6.9 NM NM NM Major Cineplex Group PCL 22.3 19.3 16.8 4.3 4.1 3.9 12.0 10.7 9.9 20.3 22.4 23.8 Cineworld Group PLC 19.8 18.0 16.3 2.7 2.5 2.2 11.5 10.6 9.7 13.8 14.2 14.7 Source: Bloomberg

Exhibit 34: PER band Exhibit 35: EV/EBITDA band

50 x 13 x

40 x 10 x

30 x 7 x

20 x 5 x

10 x 3 x

Source: Bloomberg Source: Bloomberg

Sharekhan 10 September 2015 stock idea INOX Leisure

Financials Profit & Loss account (consolidated) Rs cr Cash flow statement (consolidated) Rs cr

Particulars FY14 FY15 FY16E FY17E FY18E Particulars FY14 FY15 FY16E FY17E FY18E PAT 36.9 20.0 73.7 104.5 135.4 Total operating income 868.8 1,016.8 1,374.3 1,665.2 1,947.3 Depreciation 50.7 75.8 83.6 94.6 104.5 % Growth 13.5 17.0 35.2 21.2 16.9 Change in WC 1.8 (54.7) (16.5) (57.3) (68.2) Total expenses 523.4 644.7 830.8 994.6 1,160.0 Operating CF 89.4 41.2 140.9 141.9 171.8 % Growth 14.4 23.2 28.9 19.7 16.6 Capex (90.3) (274.5) (128.8) (115.0) (124.2) Operating profit 121.9 122.8 202.0 251.3 300.3 Investing CF (124.9) (274.5) (128.8) (115.0) (124.2) % Growth 24.4 0.7 64.6 24.4 19.5 Dividends - - - - - Other income 9.0 8.3 9.5 9.5 9.5 Debt (38.8) (27.0) 25.0 (20.0) - Equity 64.0 265.2 0.0 0.0 - Interest 27.6 38.6 29.6 23.0 19.8 Deferred tax liabilities 6.2 (4.7) - - - Depreciation 50.7 75.8 83.6 94.6 104.5 Investments (2.6) (3.4) - - - Expectional item 0.4 0.6 - - - Financing CF 28.7 230.2 25.0 (20.0) - Profit before tax 52.2 16.0 98.3 143.2 185.5 Net change (6.8) (3.1) 37.1 6.9 47.6 % Growth 77.7 (69.3) 514.5 45.6 29.6 Opening cash 23.3 16.6 13.4 50.5 57.4 Tax 15.3 (4.1) 24.6 38.7 50.1 Closing cash 16.6 13.4 50.5 57.4 104.9 Net profit 36.9 20.0 73.7 104.5 135.4 Key ratios (consolidated) % Growth 100.2 (45.7) 267.8 41.7 29.6 Particulars FY14 FY15 FY16E FY17E FY18E Margin ratio (%) Balance sheet (consolidated) Rs cr Operating profit margin 14.0 12.1 14.7 15.1 15.4 Particulars FY14 FY15 FY16E FY17E FY18E PBIT margin 9.2 5.4 9.3 10.0 10.5 Equity cap 96.1 96.2 96.2 96.2 96.2 PBT margin 6.0 1.6 7.2 8.6 9.5 Reserves 444.4 612.7 686.4 791.0 926.4 PAT margin 4.3 2.0 5.4 6.3 7.0 Interest in Inox Benefit Growth ratio (%) Trust, at cost (149.7) (32.7) (32.7) (32.7) (32.7) Revenues 13.5 17.0 35.2 21.2 16.9 Net worth 390.9 676.2 749.9 854.4 989.9 Operating profit 24.4 0.7 64.6 24.4 19.5 Borrowings 242.2 215.2 240.2 220.2 220.2 Net profit 100.2 (45.7) 267.8 41.7 29.6 Return ratio (%) Deffered tax liab 29.0 24.3 24.3 24.3 24.3 RoCE 12.4 6.9 13.3 15.7 17.6 Capital employed 662.1 915.7 1,014.5 1,099.0 1,234.4 RoNW 9.4 3.0 9.8 12.2 13.7 Net block 634.7 668.1 713.3 733.6 753.4 Total debt/equity 0.6 0.3 0.3 0.3 0.2 Investments 3.7 7.1 7.1 7.1 7.1 Turnover ratio Goodwill on consolidated - 165.2 165.2 165.2 165.2 Average collection period (days) 15 17 16 16 16 Other Non current assets 2.3 4.0 4.0 4.0 4.0 Average stock velocity (days) 54 59 58 58 58 Inventories 8.6 7.6 11.8 14.7 17.7 Average payment period (days) 50 50 50 45 40 Sundry debtors 33.4 62.3 61.1 74.0 86.5 Per share (Rs) Cash and bank balance 16.6 13.4 50.5 57.4 104.9 Earning per share 4.0 2.2 8.0 11.4 14.8 Cash profit 9.5 10.4 17.1 21.7 26.1 Loans and advances 157.1 192.0 249.6 312.0 374.4 Book value 42.6 73.7 81.7 93.1 107.8 Other current assets 1.8 1.8 1.8 1.8 1.8 Valuation ratios (x) Sundry creditors 72.0 89.3 114.9 124.3 128.9 P/E 54.4 100.3 27.3 19.2 14.8 Other current liabilities 98.8 94.9 109.9 116.6 116.8 EV/EBITDA 19.1 18.7 11.3 9.0 7.4 Provisions 25.2 21.6 24.9 29.8 34.8 EV/Sales 2.7 2.3 1.7 1.4 1.1 NCA 23.7 75.3 128.8 193.0 308.7 Mkt cap/Sales 2.4 2.1 1.5 1.3 1.1 Total Assets 662.1 915.7 1,014.4 1,099.0 1,234.4 P/ BV 5.1 3.0 2.7 2.4 2.0

Source: Company & Sharekhan Research

Sharekhan 11 September 2015 stock idea INOX Leisure

Annexure

Company description

Inox Leisure Ltd (ILL) was incorporated as a public limited company on November 9, 1999. ILL is part of the INOX group, which is diversified across industrial gases, engineering plastics, refrigerants, chemicals, cryogenic engineering, renewable energy and entertainment sectors. The company is the second largest player in the multiplex space with a multiplex screen market share of 23%. It is behind PVR Cinemas, which has about 463 screens in its portfolio and a multiplex screen market share of about 27.2%.

Since the launch of its multiplex in in CY2004, ILL is the venue for the prestigious International Film Festival of India (IFFI) every year. Since its inception in CY1999, ILL has been active in exploring acquisitions and/or expansion opportunities on a continuous basis, with a view to consolidating its position in the multiplex industry. In CY2007, Calcutta Cinema Pvt Ltd, a multiplex cinema theatre company based in West Bengal, was merged with ILL.

In May CY2013, Fame India, another multiplex cinema theatre company having a nation-wide presence, was merged with it. In August 2014, ILL acquired a third multiplex chain, Satyam Cineplexes, thereby strengthening its presence to become a significant player in the Indian multiplex space and redefine the movie going experience in India.

ILL along with Satyam Cineplexes currently operates 101 multiplexes and 393 screens in 52 cities, making it a truly pan-Indian multiplex chain. ILL will continue its expansion into cities like Jammu, Mangalore and Cuttack among others. The management intends to increase the screen count to about 557 screens and the seat count to 138,281 seats across the country in FY2018.

Key management

Pavan Jain, chairman: Pavan Jain, chairman of the INOX group, is a chemical engineer from IIT, New Delhi and industrialist with over 38 years of experience.

Vivek Jain, director: Vivek Jain has over 34 years of business experience. He is currently the managing director of Gujarat Fluorochemicals and has grown the company making it the country's largest manufacturer and exporter of refrigerant gases.

Deepak Asher, director: A commerce and law graduate, Deepak Asher is also a Fellow Member of the Institute of Chartered Accountants of India and an Associate Member of the Institute of Cost and Works Accountants of India. He has more than 25 years of experience in the fields of corporate finance and business strategy. Mr Asher is the president of the Multiplex Association of India and a member of the FICCI Entertainment Committee. In 2002, he won the Theatre World Newsmaker of the Year Award for his contribution to the multiplex sector.

Alok Tandon, CEO: As the chief executive officer (CEO) of ILL Mr Tandon is at the helm of ILL's expansion plans and concentrates on strengthening the INOX brand on a national scale, making it the first choice in the business of cinema exhibition in India. An engineer by qualification, he has been with ILL since its inception and has more than 25 years of varied work experience in companies such as Hoechst, ITC Welcome Group and the Oberoi group.

GST could be a big positive for the sector: The indirect tax structure for the entertainment sector is distorted. The overall tax implication is as high as 40-50% in some states, such as , Uttar Pradesh and Bihar. Subsuming of the entertainment tax with the Goods and Services Tax (GST) will help the industry spur growth. While the rate of the GST is not yet clear, the input tax credit will be available for set-off against the output tax liability, which will help reduce costs. The ILL management expects the margin to improve by 150-200 basis points (BPS) after the roll-out of the GST.

Sharekhan 12 September 2015 stock idea INOX Leisure Entertainment tax rates in India

State Entertainment tax (as percentage of ticket price) Notes Andhra Pradesh 20% 15% for Telugu Flims Bihar 50% Delhi 40% On July 16 2015, entertainment tax in Delhi was increased to 40% from 20% Gujarat 20% Haryana 30% Jharkhand 110% Jharkhand films are tax-free 30% films are tax-free Kerala 30% Madhya Pradesh 20% Maharashtra 45% Marathi films are tax-free Odisha 25% Rajasthan 30% Rajasthani Flims are Tax Free Tamil Nadu 15% Tamil Films are Tax Free Uttar Pradesh 30% - 40% West Bengal 30% 2% E.Tax for Bengali Flims Source: Industry reports Bollywood's Rs100-crore club Sr. no. Movie Name Release Lifetime (cr) Days taken to reach Rs100 cr 1 PK 19-Dec-14 340.8 4 2 Bajrangi Bhaijaan 17-Jul-15 320.3 3 3 20-Dec-13 284.3 3 4 Krrish 3 1-Nov-13 244.9 4 5 Kick 25-Jul-14 231.9 5 6 Express 9-Aug-13 227.1 4 7 25-Dec-09 202.5 9 8 Happy New Year 24-Oct-14 203.0 3 9 15-Aug-12 198.8 5 10 31-May-13 188.6 7 11 Bang Bang 2-Oct-14 181.0 5 12 2 21-Dec-12 155.0 6 13 Tanu Weds Manu Returns 22-May-15 150.8 11 14 Bodyguard 31-Aug-11 148.9 7 15 Returns 15-Aug-14 140.6 5 16 Dabangg 10-Sep-10 138.9 10 17 1-Jun-12 133.3 11 18 12-Nov-12 120.9 11 19 Ready 3-Jun-11 119.8 14 20 Bahubali 10-Jul-15 118.7 24 21 Goliyon Ki Raasleela Ram-Leela 15-Nov-13 116.3 10 22 Jai Ho 24-Jan-14 116.0 10 23 Agneepath 26-Jan-12 115.0 11 24 RA.One 26-Oct-11 114.3 11 25 Ghajini 24-Dec-08 114.0 18 26 Holiday - A Soldier Is Never Off Duty 6-Jun-14 112.2 15 27 Barfi! 14-Sep-12 112.2 17 28 12-Jul-13 108.9 24 29 Don 2 23-Dec-11 106.7 16 30 3 5-Nov-10 106.3 17 31 6-Apr-12 106.0 17 32 ABCD - Any Body Can Dance – 2 19-Jun-15 105.7 17 33 27-Jun-14 105.6 14 34 12-Nov-12 105.0 16 35 6-Jul-12 102.9 45 36 2 States 18-Apr-14 102.1 24 37 Grand 13-Sep-13 102.0 23 38 Race 2 25-Jan-13 100.5 63 39 Singham 22-Jul-11 100.3 50 Source: Industry reports Sharekhan 13 September 2015 stock idea INOX Leisure

For Private Circulation only

REGISTRATION DETAILS Regd Add: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), – 400042, Maharashtra. Tel: 022 - 61150000. Fax: 67481899; E-mail: [email protected]; Website: www.sharekhan.com; CIN: U99999MH1995PLC087498. Sharekhan Ltd.: SEBI Regn. Nos. BSE- INB/INF011073351 ; CD-INE011073351; NSE– INB/INF231073330 ; CD-INE231073330; MCX Stock Exchange- INB/INF261073333 ; CD-INE261073330; DP-NSDL-IN-DP-NSDL-233-2003 ; CDSL-IN-DP-CDSL-271-2004 ; PMS-INP000000662 ; Mutual Fund-ARN 20669 ; Commodity trading through Sharekhan Commodities Pvt. Ltd.: MCX-10080 ; (MCX/TCM/CORP/0425) ; NCDEX-00132 ; (NCDEX/TCM/CORP/0142) ; NCDEX SPOT-NCDEXSPOT/116/CO/11/20626; For any complaints email at [email protected] ; Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and Do’s & Don’ts by MCX & NCDEX and the T & C on www.sharekhan.com before investing.

Disclaimer This document has been prepared by Sharekhan Ltd. (SHAREKHAN) and is intended for use only by the person or entity to which it is addressed to. This document may contain confidential and/or privileged material and is not for any type of circulation and any review, retransmission, or any other use is strictly prohibited. This document is subject to changes without prior notice. This document does not constitute an offer to sell or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. Though disseminated to all customers who are due to receive the same, not all customers may receive this report at the same time. SHAREKHAN will not treat recipients as customers by virtue of their receiving this report. The information contained herein is obtained from publicly available data or other sources believed to be reliable and SHAREKHAN has not independently verified the accuracy and completeness of the said data and hence it should not be relied upon as such. While we would endeavour to update the information herein on a reasonable basis, SHAREKHAN, its subsidiaries and associated companies, their directors and employees (“SHAREKHAN and affiliates”) are under no obligation to update or keep the information current. Also, there may be regulatory, compliance, or other reasons that may prevent SHAREKHAN and affiliates from doing so. This document is prepared for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as he deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and should consult his own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. We do not undertake to advise you as to any change of our views. Affiliates of SHAREKHAN may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject SHAREKHAN and affiliates to any registration or licencing requirement within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such restriction. Either SHAREKHAN or its affiliates or its directors or employees/representatives/clients or their relatives may have position(s), make market, act as principal or engage in transactions of purchase or sell of securities, from time to time or may be materially interested in any of the securities or related securities referred to in this report and they may have used the information set forth herein before publication. SHAREKHAN may from time to time solicit from, or perform investment banking, or other services for, any company mentioned herein. Without limiting any of the foregoing, in no event shall SHAREKHAN, any of its affiliates or any third party involved in, or related to, computing or compiling the information have any liability for any damages of any kind. The analyst certifies that all of the views expressed in this document accurately reflect his or her personal views about the subject company or companies and its or their securities and do not necessarily reflect those of SHAREKHAN. Further, no part of the analyst’s compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this document. Please refer the Risk Disclosure Document issued by SEBI and go through the Rights and Obligations and Do’s and Dont’s issued by Stock Exchanges and Depositories before trading on the Stock Exchanges. Please refer disclaimer for Terms of Use. Sharekhan Compliance Officer: Ms. Namita Amod Godbole; Tel: 022-6115000; e-mail:14 [email protected] • Contact: [email protected] September 2015