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With Strong Potential Recovery, This Entertainment Stock Is A Good Buy For Target Price Of Rs 675

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Inox Leisure is the second-largest player in the entertainment industry in terms of multiplex screen count in India. Currently, the company operates 681 screens in 161 cinemas in 72 cities in India with an aggregate seating capacity of ~1.53 lakhs seats. On May 05, 2022, the stock of the company closed at Rs 472.05 after falling 1.15%. Sharekhan has put a buy rating for a target price of Rs 675 per share.

 

Why should you buy Inox Leisure Ltd?

Why should you buy Inox Leisure Ltd?

In the report, the brokerage has stated, "The film exhibition industry showed a strong recovery in admissions, average ticket prices (ATP), spend per head (SPH), movies releases, higher demand for dubbed movies in other Indian languages and healthy line up of movies to be released. The strong growth in ATP and SPH shows the strong underlying demand for the good content. Further, the management indicated that the company is well-positioned to show 20 unique titles in a week. This along with expansion of market because of emerging trend of dubbed movies provide strong footfalls visibility in the medium term. Further, the screening of movies per day is expected to reach at pre-pandemic level in April 2022. Given a strong movie pipeline, robust consumer demand for good content, potential recovery in advertising revenue, strong traction for regional movies and market expansion because of dubbed movies, we believe Inox Leisure is well placed to report strong growth in FY2023E. Further, savings in fixed costs per screen would help in improving its profitability in FY2023E."

Q4FY2022 Performance
 

Q4FY2022 Performance

The Inox Leisure witnessed a strong bounce back in footfalls in Q4FY2022 given a short-lived COVID-19 wave3, ease of COVID-19 related restrictions and strong box office collection for blockbuster movies. According to the brokerage, "The company reported a strong revenue growth of 251% y-o-y to Rs. 317.7 crore, led by a sharp recovery in occupancy rate, healthy growth in ATP (up 26.7% y-o-y) and SPH (up 10.3% y-o-y) and good content. However, ATP/SPH declined 3.5%/11.3% sequentially, on the expected lines, due to change in footfall mix (lower premium screen contribution), lower revenue from 3D content and a cap on ticket prices in South India. EBITDA stood at Rs. 98.3 crore, above our estimates, aided by strong revenue growth, successful negotiation of common area maintenance (CAM) and rent with landlord and lower employee expenses (down 12.8% y-o-y) despite operational of cinemas. Fixed cost per month (Rs. 76 crore in March 2022 versus Rs. 82 crore during pre-pandemic) is expected to increase to pre-pandemic levels in coming quarters given addition of screens (added 49 screens in last two years) during pandemic times. A strong bounceback in footfalls, higher ATP and SPH versus pre-pandemic levels and huge content pipeline would help Inox Leisure to report strong revenue growth in FY2023E."

Valuation

Valuation

The brokerage expects a strong recovery in the Financial Year. The company has a significant recovery in footfalls at 11 million in Q4FY2022 versus 9.4 million/3.4 million in Q3FY2022/ Q1FY2021. The brokerage has said, "Given a healthy movie pipeline, robust consumer demand for good content and success of dubbed Southern movies across the country, we believe that the revenue recovery of Inox Leisure would be strong in FY2023E. Though fixed costs would increase with the full-fledged operation of cinema halls, the savings in fixed costs per-screen basis would help the company to post higher profitability as compared to pre-COVID levels. Given potential strong recovery in FY2023E, we have maintained a Buy rating on Inox Leisure with an unchanged price target (PT) of Rs. 675,"

Disclaimer

The stock has been picked from the brokerage report of Sharekhan Ltd. Greynium Information Technologies, the author, and the 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 taking any investment decisions.

Story first published: Thursday, May 5, 2022, 18:26 [IST]
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