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Buy Inox Leisure, target Rs 279: Emkay Global Financial Services

Emkay Global Financial Services has a buy call on Inox Leisu..

Emkay Global Financial Services has a buy call on Inox Leisure with a target price of Rs 279.

The current market price of Inox Leisure is Rs 208.45.

Time period given by the brokerage is one year when Inox Leisure price can reach the defined target.

View of the brokerage on the company:
In-line operating performance: Net revenue of Rs 3.7bn grew 17.4 per cent yoy, coming in above our estimates marginally. Net ticket revenue was up 11.2 per cent yoy at Rs 2.1bn. F&B revenue increased 41 per cent yoy to Rs 949mn, thanks to the lower GST rate. Ad revenue saw 18 per cent growth yoy to Rs 378mn, despite the impact on footfalls. ATP of Rs 195 was up 4.8 per cent yoy, while footfalls increased 7.2 per cent yoy to 13.7mn. EBITDA of Rs 448mn grew 2.4 per cent yoy (Emkay estimate Rs 430mn), with an EBITDA margin of 12.3 per cent (-179bps yoy). F&B gross margin stood at 73.3 per cent vs. 75 per cent in Q2FY18, which was adversely affected by lower input tax credits. RPAT stood at Rs 120mn versus Rs 117mn in Q2FY18.

Outlook: Content performance in the coming quarters is expected to be strong, led by a few big budget Bollywood and Hollywood movies. We estimate footfall growth of 5 per cent/8 per cent for FY19/20E. We remain conservative on SPH increase as the company is expected to rationalize prices in various locations, in line with competitor PVR. We are forecasting an SPH increase of 12 per cent/7 per cent for FY19/20. Incremental convenience revenues from the deal renewal with ticket aggregators should improve operating leverage. Valuations are expected to rebound with a favorable verdict on the F&B issue. The continuation of healthy ad revenue growth should help improve operating leverage, and we estimate 20 per cent ad growth for FY19. Premium screen launches should help drive the already strong ad growth further with onboarding of more advertisers. We see Inoxs strategy to bridge the screen gap with PVR by launching premium screens as a move in the right direction, and the company has been benefiting from this strategy. We believe that better guidance on screen addition is a positive and we now estimate 77 screen additions in FY20 vs 55 earlier.

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