Inox Leisure share price: Sharekhan maintains Buy rating with an unchanged price target of Rs 400

The film exhibition industry has been one of the worst impacted industries during the pandemic, owing to shut down of cinema halls, a staggered resumption of operations, absence of new releases, and weak consumer demand even post opening of theatres due to COVID-19. Most states (except few states, including Maharashtra) have permitted cinema halls to operate at full capacity.

Inox Leisure management remains confident that impactful movie content would pull audiences back to cinemas. This was aided by packed cinema halls with the release of Tamil movie, Master, in January 2021 amid online leak, stringent 50% occupancy rule in some states, and COVID-19 scare, which crossed Rs 250 cr in worldwide collections.

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The box-office success of Master has provided hope among film producers and exhibitors to release big ticket movies. With the permission for 100% occupancy in cinema halls and success of South Indian Movies, filmmakers have started announcing the release dates for movies, which were shifted owing to the pandemic.

Given the rush to book a release date by movie producers, Sharekhan believes there will be at least two big-starrer movies being released in every month of 2021 and it looks there is going to be clashes on the release dates of big-ticket movies, which could impact collections. Inox Leisure management indicated that some selected big-budgeted movies (including Sooryavanshi) being released in next 2-3 months will have higher distributor revenue share (by 2%-3%) and lower window period restriction to release in OTT platforms.

Inox Leisure has done a commendable job in curtailing fixed expenses. Inox Leisure management confirmed that reduction in fixed costs (lean manpower, reduction in repair and maintenance, etc.) would sustain going ahead and it expects saving 10%-12% on its pre-COVID fixed costs. New big budgeted movies would be released in cinema halls from April 2021, which is expected to drive ATP to pre-COVID level in Q1 FY22. However, Inox Leisure management expects occupancy would reach pre-COVID level during Q4 FY22. Sharekhan expects strong recovery in FY2022 with the anticipated release of much-awaited big-budget movies and closure of single screens across India.

Inox Leisure Key Risks:

(1) Deterioration of content quality might affect footfalls and advertising revenue growth
(2) inability to take adequate price hikes at the right time might affect earnings given rising input cost
(3) delay in return of normalcy