Buy Inox Leisure; target of Rs 322: Prabhudas Lilladher

Prabhudas Lilladher's research report on Inox Leisure

INOL’s Ind-AS adjusted EBITDA loss of Rs334mn (excluding OI) was broadly in-line with our estimates of Rs378mn as rigorous cost cutting initiatives resulted in fixed opex burn of ~Rs100-120mn per month during the quarter. We expect burn rate to increase in the initial few months post re-opening as fixed costs like rent, CAM, and employee expenses will rise (as compared to the levels prevailing in lockdown) without sufficient corresponding rise in footfalls amid 1) occupancy caps and 2) hesitancy to visit multiplexes. In addition, in the initial phase, ATP & SPH is likely to be lower due to promotional discounts. Consequently, we cut our FY21E EBITDA estimates by 48% but keep our FY22E/FY23E estimates broadly intact as we expect normalcy to resume within the next 6 months given 1) strong content slate and 2) improved visibility on re-opening schedules of various states (Maharashtra, the most critical state with ~20% of screen mix for INOL, has given permission to re-open from 05th Nov).

Outlook

We value INOL at an EV/EBITDA multiple 10x (no change) and upgrade the stock to a BUY (ACCUMULATE earlier) with a revised TP of Rs322 (Rs323 earlier) as current price offers good entry point for long term gains. INOL’s low gearing (net debt of Rs1.2bn) and stringent cost control give us additional comfort until normalcy resumes.

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