Buy This Small Cap Entertainment Sector Stock For 27% Returns: Prabhudas Lilladher

Sharekhan retains the "Buy" call on Inox Leisure Limited with a target price of Rs 652 apiece. According to the given target price, investors buying the stock at the current price are likely to get a potential return of 27%. Inox Leisure is a media & entertainment sector company & one of the largest multiplex operators in India. It is a small-cap stock having a market cap of Rs 6,252.75 crore.

Stock Outlook & Returns

On 20 October, Thursday, the shares of Inox Leisure closed at Rs. 513.05 per share after sliding 0.46% from its previous close. The stock in the past 1 week has given 2.44% positive returns, whereas, in the past 1 month, the stock surged 4.6%. Over the past 1 year, the shares gave 24.88%. In the past 3 years, it has given 45.82% positive returns. In terms of multibagger return, the stock has given 124.78% in the past 5 years.

Its ROE is negative 34.57%, Its 52-week low level is Rs 337.70 and its 52-week high is Rs 619.35, respectively.

Topline/footfalls 28%/39% lower over pre-COVID base

Top-line increased 689% YoY to Rs3,741mn (PLe Rs3,630mn) in 2QFY23 on a lower base but declined 36% on sequential basis and 28% over pre-COVID base due to weak content. ATP/SPH stood at Rs215/Rs102 respectively with footfalls of 11.6mn (PLe of 11.5mn) and occupancy of 17% (30% in 2QFY20).

 

Pre IND-AS EBITDA at breakeven levels

Ind-AS adjusted EBITDA loss stood at Rs32mn (PLe loss of Rs50mn) as against Ind-AS adjusted EBITDA loss of Rs644mn in 2QFY22 and profit of Rs1,235mn in 1QFY23. Ind-AS adjusted loss stood at Rs214mn (PLe Rs242mn) as against Ind-AS adjusted loss of Rs677mn in 2QFY22 and profit of Rs741mn in 1QFY23.

 

Con-call highlights

1) SPH increased 6% QoQ to Rs102 largely on account of introduction of season special items, marketing initiatives and interactive culinary session across India with chefs.

2) Shareholders' approval has been obtained for amalgamation scheme with PVR and merger is expected to be completed by 4QFY23.

3) Inox entered the Srinagar market by opening 3 screens with 522 seats on management contract basis. The company will receive management fees while capex is incurred by the owner.

4) Acquired Luxe Cinemas with 11 screens and 2,688 seats in Chennai on a slump sale basis. Transaction will be culminated in FY23E. It is an EBITDA positive property.

5) Tie-up with ICC to showcase WC-T20 matches is on revenue sharing basis (no fixed fee outgo) but not an exclusive one. These matches generate higher ATP and occupancy as compared to movies.

6) Ad-revenue recovery over pre-COVID base was at ~65%. Although ad-yields are improving volumes have been lower due to lesser footfalls.

Prabhudas Lilladher retains buy with Rs 652 target price

The brokerage said, "In-line with our expectations, Inox Leisure reported weak performance and managed pre IND-AS EBITDA break-even with losses of Rs214mn (PLe Rs242mn) at bottom-line level due to weak content. Except for Thor and Brahmastra, no movie was able to breach the Rs1bn NBOC barrier in 2QFY23."

It added, "Despite subdued performance, as content slate for near term is healthy with releases like Ram Setu, Thank God, Drishyam-2, Avatar and Black Panther in pipeline we anticipate strong back-ended recovery and expect footfalls in FY23E to be at par over pre-pandemic base. We increase our FY24E/FY25E EBITDA estimates by ~4% odd as we re-align our cost assumptions given strong fixed cost control post COVID. Except for rental obligations which were up 3% on per screen basis as escalations kicked in, employee cost, power & fuel and other overheads have declined by 27%/3%/21% respectively over pre-pandemic base in 2QFY23. We expect sales/EBITDA CAGR of 21%/25% over FY23-FY25 and retain BUY on the stock with a TP of Rs652 (arrived from swap ratio of 3:10 with PVR) after assigning EV/EBITDA multiple of 15.5x (no change) to the merged entity."

Disclaimer

The stock has been picked from the brokerage report of Prabhdas Lilladher. Greynium Information Technologies, the Author, and the respective Brokerage House are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before making any investment decision.