BUY Inox Leisure: AnandRathi Institutional Research

Inox Leisure - Revenues fail to impress, margins beat estimates; Buy with a target price of Rs 289

We retain our Buy on Inox Leisure, with a revised price target of Rs. 289. Inox's reported Q3 FY16 figures (13% yoy revenue growth and 17.8% EBITDA margin) beat our estimates. We trim our FY16, FY17 and FY18 revenue estimates marginally. However, we trim our EBITDA estimates 1.5%/3.3%/4.9% due to the slower ramp up in advertising revenues and footfalls per screen.

Revenue grew 13% yoy. Revenue growth mainly came from the 11% yoy growth in footfalls. Despite the release of three blockbuster movies during the quarter, the average ticket price (ATP) grew marginally yoy at 2%. Ad revenues grew a mere 2% yoy; however, it declined 8% on a per-screen basis. Ad revenues declined due to the fall in volumes against price hikes in Dec.

EBITDA rose 14% yoy. Inox positively surprised us on the margins front despite slow growth in ticket prices and a fall in advertising revenue. The EBITDA margin came at 17.8% (260bps higher than we estimated) helped by cost-control measures resulting in savings of Rs. 30m. Employee cost grew 5% despite a 13% increase in the number of screens due to lower corporate salaries, which contracted 50bps yoy (to 6.7% of net revenues, vs 7.2% in Q3 FY15).

44% yoy growth in adj. net profit. Falling interest cost (down 51% yoy) and the higher EBITDA margin led to profit of Rs. 206m. Reported net profit was up only 9% because of an exceptional hit of Rs. 50m (asset write-off: Rs. 35.2m, retrospective bonus paid: Rs. 14.4m, donations: Rs. 6m).

Valuation. In Q3 FY16 Inox's revenues were primarily driven by volumes and the company failed to impress on the advertising front. However, the content pipeline looks robust in FY17, and the GST implementation will offer a further fillip to margin expansion. We are positive on the multiplex sector and retain our Buy recommendation on Inox Leisure, at a price target of Rs. 289. Risks. Poor content, increase in taxes.

Shares of INOX LEISURE LTD. was last trading in BSE at Rs.197.5 as compared to the previous close of Rs. 203.45. The total number of shares traded during the day was 8947 in over 318 trades.

The stock hit an intraday high of Rs. 202.75 and intraday low of 196.5. The net turnover during the day was Rs. 1778532.

Source : Equity Bulls

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