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Anand Rathi
Inox Leisure (Buy)
Target: ₹340
CMP: ₹262.05
After trailing PVR for several years, we find Inox best suited to make the most of the situation as it has a strong balance sheet with ₹130 crore net cash(vs PVR’s ₹1,130 crore net debt), less cash burn/month till normalcy returns (₹40 crore vs PVR’s ₹60 crore) and has grown faster over FY17-FY20 on several key operating parameters: ATP, spend/ head and ad revenue/screen.
All these factors enable Inox to expand faster in the next phase of the growth cycle and reduce the gap in the footprint with PVR (nearly 643 screens, vs. PVR’s about 844).
We maintain our Buy rating with a new target price of ₹340 (earlier ₹292, valuing it at 10x FY23 EBITDA).
Gross box-office revenue fell nearly 80 per cent in FY21 and is expected to fully recover only by FY23 subject to the roll-out of an effective vaccination program. We expect occupancy for Inox/PVR to be 22 per cent/24 per cent in FY22 and 29 per cent/34 per cent by FY23, similar to that in FY20. Therefore, we reckon that till a return to normality, PVR’s higher cost/screen because of its premium properties may continue to burn cash faster. Risks: High contingent liabilities (₹260 crore/₹290 crore in FY19/FY20), poor content and closed cinemas.
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