INOX Leisure Limited ratings upgraded to 'CRISIL AA-/CRISIL A1+'

CRISIL Ratings has upgraded its ratings on the bank facilities of INOX Leisure Limited (INOX) to 'CRISIL AA-/CRISIL A1+' from 'CRISIL A+/CRISIL A1'. The long-term rating continues on 'Rating Watch with Positive Implications' and short term rating removed from 'Rating Watch with Positive Implications'.

The rating action follows the strong operating performance reported by the company during Q1FY23 and visibility of continued healthy operating performance in 2HFY23 (after a temporary blip seen over past 2 months because of weaker content and social media protests around some content). Strong content pipeline and festive season should support the healthy operating performance. This along with screen additions and sustained higher average ticket prices (ATP), spend per head (SPH) on food & beverages and recovery in advertisement income should aid revenue and operating profits in surpassing pre-pandemic levels during fiscal 2023. As a result, financial risk profile too is expected to see continued improvement, aided by strong cash accruals and maintenance of healthy liquidity.

The watch continuation factors in pending approvals for proposed merger of INOX and PVR Ltd. CRISIL Ratings believes that amalgamation of these entities would help the merged entity to lead the multiplex sector with a significant scale and market share. Moreover, expected revenue and cost synergies post-merger should benefit operating efficiencies in both operational as well as capital expenditure. As a result, the business as well as financial risk profiles of the merged entity is expected to improve significantly. CRISIL Ratings will continue to closely monitor the said transaction and will remove the ratings from watch and take a final rating action once the transaction is concluded.

The company's liquidity benefitted significantly from the various equity raises undertaken over the past two years. Cash and bank balance and other liquid investments stood at above Rs 210 crore as on August 31, 2022. Healthy cash accruals along with strong liquidity position should sufficiently cover minimal debt obligation and capital expenditure (capex) in fiscal 2023. Sustained improvement in revenue and operating margin, along with maintenance of healthy liquidity, will continue to be monitored.

The ratings continue to consider strong market position and established brand of INOX, improving operating efficiency, and healthy financial risk profile and liquidity. These strengths are partially offset by exposure to risks inherent in the film exhibition business.

Source : Equity Bulls

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