Inox Leisure Initiating Coverage Oct 19 EDEL

INITIATING COVERAGE
INOX LEISURE
Setting the screen ablaze
India Equity Research| Media
Inox Leisure (INOX), India’s second-largest multiplex operator, is an

EDELWEISS 4D RATINGS
attractive play owing to its aggressive expansion plans, premiumisation,
Absolute Rating BUY
and ramp-up of margin-accretive ad and F&B revenues, not to mention
Rating Relative to Sector Outperform
the closing gap with market leader PVR. With a healthy balance sheet and
Risk Rating Relative to Sector Medium
negative working capital, the company is well placed to expand. We
Sector Relative to Market Overweight
estimate INOX would clock CAGRs of 19% in revenue and 35% in EPS over
FY19–21, and are initiating coverage on the stock with a ‘BUY’ at a PE of
20x (33% discount to PVR) December 2020E EPS (ex-IND AS 116), which MARKET DATA (R: INOL.BO, B: INOL IN)
yields a target price of INR475. CMP : INR 334
Target Price : INR 475
Blockbuster prospects: Low penetration, robust expansion 52-week range (INR) : 382 / 189
Share in issue (mn) : 102.9
Given the low multiplex screen penetration in India – 8 per million against 37 in China
M cap (INR bn/USD mn) : 34 / 482
– multiplexes account for only about 30% of the screen count (25% in CY15), implying Avg. Daily Vol.BSE/NSE(‘000) : 246.2
ample scope for expansion. Moreover, a robust content pipeline (India produces the
highest number of movies in the world), rapid urbanisation, and the ongoing shift
SHARE HOLDING PATTERN (%)
from unroganised to organised retail provide strong tailwinds to the multiplex industry.
Current Q4FY19 Q3FY19
We expect INOX to add 80 screens each in FY20 and FY21 (574 in FY19). The
Promoters * 51.9 51.9 51.9
company’s low gearing implies ample firepower for its expansion plans.
MF's, FI's & BK’s 19.5 19.5 21.0
FII's 12.2 12.2 12.1
Higher-margin businesses likely to grow faster
Others 16.4 16.4 15.1
F&B and advertisement revenue streams deliver superior margins and are likely to * Promoters pledged shares : NIL
outgrow net box office revenue. F&B contributes 26% to revenue, yielding a gross (% of share in issue)
margin of 72–75%. Ad revenue, which makes up 10% of total revenue, too generates a
RELATIVE PERFORMANCE (%)
superior margin of 85–90%. We estimate revenue CAGRs of 26% in F&B and 18% in ad
over FY19–21E would drive margin growth. Moreover, we expect a profitable scale-up Stock over
Sensex Stock
Sensex
of the premium format (from 4% in FY17 to about 9% in FY19) going ahead.
1 month 2.8 8.4 5.6
3 months (1.6) 5.2 6.7
Outlook and valuation: Bright prospects; initiate with ‘BUY’
12 months 9.8 50.6 40.9
We estimate INOX would clock revenue, EBITDA and EPS CAGRs of about 19%, 24% and
35%, respectively, over FY19–21 underpinned by: i) aggressive expansion; ii) uptick in
F&B and ad revenues; and iii) ramp-up of premium formats. Key risks: i) slower
commercial real-estate development; and ii) shrinking time windows between
theatrical and digital releases. We value the stock at 20x (33% discount to PVR)
December 2020E EPS (ex of IND AS 116 impact), which yields a TP of INR475.
Currently, the stock trades at ~16x/13x FY20/FY21E EPS (ex-IND AS 116 adjustment).
Financials
Year to March FY18 FY19 FY20E FY21E Abneesh Roy
Revenues (INR mn) 13,481 16,922 20,831 24,127 +91 22 6620 3141
(Click on image
abneesh.roy@edelweissfin.com
EBITDA (INR mn) 2,104 3,092 6,508 7,641 to view video)
Adjusted Profit (INR mn) 1,263 1,393 1,470 1,848 Prateek Barsagade
Adjusted Diluted EPS (INR) 13.7 13.6 14.3 18.0 +91 22 4063 5407
prateek.barsagde@edelweissfin.com
Diluted P/E (x) 24.3 24.6 23.3 18.5
EV/EBITDA (x) 15.8 11.4 8.8 7.5
ROAE (%) 20.7 17.1 17.0 21.5 October 16, 2019
Edelweiss Research is also available on www.edelresearch.com,
Bloomberg EDEL <GO>, Thomson First Call, Reuters and Factset. Edelweiss Securities Limited
Media
Story in charts
Chart 1: Eyeing cross 700-screen milestone by FY21 Chart 2: Revenue growth momentum to sustain
900 25,000
720 20,000
540
(INR mn)
15,000
(No.)
360 10,000
180 5,000
0
FY17 FY18 FY19 FY20E FY21E 0
FY17 FY18 FY19 FY20E FY21E
No. of screens Net revenues
Chart 3: F&B and ad revenue growth to drive margins Chart 4: EBITDA growth to transpire with margin expansion
100%
5,000 20.0
8% 10% 10% 10% 10%
80%
23% 4,000 16.0
23% 26% 27% 29%
60%
3,000 12.0
(INR mn)
(%)
40%
2,000 8.0
20%
1,000 4.0
0%
FY17 FY18 FY19 FY20E FY21E 0 0.0
FY20E
FY21E
FY17
FY18
FY19
Net Box office collection Net Food & Beverages

Advertising revenue Other operating revenue EBITDA EBITDA margin
Chart 5: Secular growth to translate in robust earnings Chart 6: Returns profile to improve going ahead
3,000 30.0
2,400 24.0
18.0
1,800
(INR mn)
(%)
12.0
1,200
6.0
600
0.0
0 FY17 FY18 FY19 FY20E FY21E
FY17 FY18 FY19 FY20E FY21E Return on Average Equity (ROAE) (%)
PAT Pre-tax Return on Capital Employed (ROCE) (%)
Source: Edelweiss research
2 Edelweiss Securities Limited

Inox Leisure
Executive Summary
Highly under-penetrated industry implies huge untapped opportunity

India has more than 9,500 multiplex screens with only 30% (25% in CY15) being
multiplexes; balance 70% are fragmented single screens. This implies huge untapped
opportunity. The market share of multiplexes has been on the rise over the years and we
expect this trend to gather further steam over the coming years. In this backdrop, we are
positive on INOX’s plan to ramp up screen count going ahead.
Ample firepower to expand screen count

INOX set an industry record in FY19 by opening the highest number of screens in a year—85.
We expect the company to add about 80 screens each in FY20 and FY21, in spite of setbacks
“We are looking for aggressive due to competition, real estate challenges and regulatory delays. Nevertheless, compared
growth – both organic and with competitors, the company has a strong balance sheet, which implies ample firepower
inorganic – and are always open to boost the screen count organically as well as inorganically. We estimate INOX would
for acquisitions.” increase its screen count by about 28% by FY21–from 574 in FY19 to 734 by FY21.
Siddharth Jain Superior margin segments on a roll; more cheer in store

Director
The company’s efforts to revamp food menus, diversify offerings, bundle F&B products with
online ticket sales, among others, have paid rich dividends. We expect INOX’s SPH to post
~9% CAGR over FY19–21E with 12% footfall CAGR enabling net F&B revenue to jump ~26%
over FY19-21. With the multiplex industry gaining steam and deepening penetration across
India, it is becoming a steady advertisement avenue for advertisers. INOX’s ad revenue shot
up about 27% YoY, accounting for ~10% of total FY19 net revenue. Considering the
company’s growing presence, we expect its ad revenue to increase at a CAGR of ~18% over
FY19-21 riding benefits derived from scale-up increasing the ad revenue per screen.
Catalysts in place for blockbuster profitability

Factoring the broad-based revenue growth across segments, aggressive screen expansion
plan and benefits from the anticipated increase in scale, we estimate INOX’s revenue,
EBITDA and PAT to clock 19%, 24% and 35% CAGR over FY19–21, implying 35% EPS CAGR.
Given the favourable business dynamics and our robust estimates for the business, we
expect INOX to post 25% ROCE and 20% RoE each in FY20E and FY21E, respectively.
“Watching a movie is in the DNA of
all of us. We Indians, we love our
movies and that will never go out
Outlook and valuation: Closing the gap with biggest rival
of style.” We envisage INOX to emerge as a dominant force in the multiplex space over the medium
term owing to strong management, aggressive expansion plans, focus on high-margin
Alok Tandon segments and unwavering efforts to enhance customer experience.
Chief Executive Officer
We value the stock at 20x (~33% discount to PVR) December 2020E EPS (ex of IND AS 116
impact), which yields a TP of INR475. The stock is trading at ~16/13x FY20/FY21E EPS, which
is at a significant discount to PVR (trading at ~32/25x FY20/21E EPS).
In the current scenario, while we are seeing slowdown pan across the consumption sector,
strong box office collections and content response to enable multiplex chains such as INOX
to outshine. Hence, we are assigning a higher multiple relative to most companies in our
media coverage, though at a discount to PVR.

Media
Key risks
Competition from other multiplex chains such as PVR, Cinepolis, small-scale multiplex
operators and single screens remains a concern. Besides, the advent of digital release on
OTT platforms, not to mention their affordable pricing and shortening time windows from
theatrical releases, poses a reasonable threat. That said, quality content is the primary
driver of footfalls at multiplexes. However, mediocre or inferior quality content could hurt
footfalls. Any extended supply of below-average content could hurt INOX’s revenue and
bottom line. An overall weak macroeconomy could lead to muted growth in the commercial
property market, impacting mall development and, hence, screen openings. Lastly, since the
business is a part of the larger INOX group, concerns in other group entities can result in an
overhang on the INOX Leisure stock.
“Cinema journey would be more

entertaining in the time to come
with technology evolvement and
will become closer to the
moviegoer.”
Kailash Gupta
Chief Financial Officer

Inox Leisure
From a broader lens…
INOX Leisure is the second-largest multiplex operator in India with a pan-India presence
across 67 cities and 595 screens (574 as on FY19), and is a key player in a multiplex industry
along with PVR (largest multiplex chain in India). The company sets up, operates and
manages a national chain of multiplexes under the ‘INOX’ brand. It commenced operations
in May 2002 and has made three acquisitions –Calcutta Cine, Fame India and Satyam
Cineplexes – over the past few years seeking to build scale.
Over FY19, INOX had a scintillating run owing to gripping content, commendable execution
towards screen openings and broad-based revenue growth leading to robust earnings
growth. However, before we delve into details, let’s understand the evolving dynamics of
the Indian movie exhibition industry.
What fed multiplexes’ growth?

India has more than 2,900 multiplex screens, representing about 30% of the Indian screen
count and ~55% of the domestic box office collection share. Over the recent years, the
We have seen multiplexes increase multiplex count has been increasing due to a mix of the following factors:
their screen count share over the  increasing urbanisation and development of commercial real-estate/malls;
years, and expect this trend to pick
up pace over the coming years.  tailwind from uptick in organised retail;
 robust content performance;
 increased ticketing convenience;

 higher disposable incomes; and
 significant improvement in customer experience (over single screens).
That said, we believe the industry has a long way to go given low multiplex screen
penetration in India of 8/mn (China’s 37/mn, 4.5x India’s), high movie churn (with India
producing the highest number of movies in the world) and evolving customer demands,
which prefer the overall experience that multiplexes offer.
We perceive this under-penetration as a huge opportunity. Besides, multiplexes’ market

share has increased over the years and expect this trend to pick up pace over ensuing years.
In this backdrop, we are positive on INOX’s plan to add 80 screens each in FY20 and FY21,
thereby crossing the 700-screen benchmark. However, the grim health of real estate
developers and the ongoing slowdown in commercial activity could delay screen openings.
What makes multiplexes different from single screens?

While single screens currently outnumber multiplexes, from a profitability perspective,
multiplexes churn out higher returns owing to their pricing power in ticketing and F&B,
F&B sale and advertising are key brand loyalty, locations, and economies of scale, which gives them more bargaining power
profitability drivers and therefore in negotiating the exhibition cost and advertising rates.
critical components for multiplexes.
Though single screen tickets cost much less, given their fragmented nature, they lose out on
significant advertisement revenue and also pricing potential of their F&B offerings. INOX, for
instance, derived about 26% of its total net revenue from F&B sales in FY19, which

Media
typically yield a 72–75% gross margin due to higher pricing. Similarly, advertising
constituted about 10% of the company’s total net revenue with ~85-90% directly
contributing to operating profit.
For any multiplex, it is the content that drives the footfall (net box office collections);
however, profitability is driven by F&B revenue and advertising income.
Will it stand the test of time?

Revenue for movie creators We expect the multiplex industry to sustain its growth momentum over the coming years
primarily comes from box office led by expansion/consolidation, tailwind to organised retail and burgeoning content
collections due to better popularity and penetration. We believe, the need for escapism is bound to remain, which is
monetisation, rendering what multiplexes offer and this relatively safeguards them in times of a slowdown in
multiplexes/cinemas the preferred discretionary consumption. Besides, we do believe that for a large part of the Indian
avenue for initial release audience, multiplexes are a part of a day’s outing with family/friends along with shopping or
dining in the mall.
Multiplexes too are upping the ante to retain their audience by improving the experience,
e.g. INOX opened India’s first ScreenX offering a 270-degree viewing experience. Such
technological improvements are aimed at retaining the high-risk customer demographic.
Having outlined our stance on the multiplex industry (covered in further detail at the back)
and INOX’s position in the overall scheme of things, we spell out the reasons for our ‘BUY’
on the company.

Inox Leisure
What makes INOX Leisure a ‘BUY’?
We remain positive on the stock owing to the favourable push to the industry from broader
factors such as:
 multiplexes are replacing single screens – shift towards organised market;
 tailwind from demand – growing footfall/content consumption;
 growing disposable incomes and urbanisation; and
 a favourable tax environment – GST rate cut from 18% to 5% on F&B sales; GST rate cut
of 10% on movie tickets priced above INR100 (at 18%) and 6% on movie tickets priced
below INR100 (at 12%).
 corporate tax cut announcement to bode well for expansion plans
We further evaluate pertinent company-specific questions to explain our stance.
a) What has stood out for INOX Leisure so far? What can we expect?
Factoring in broad-based revenue
growth across segments, Given the company’s historical performance and plans for growth ahead, we believe
aggressive screen expansion plan there are a multitude of factors which bolster our thesis on the business.
and benefits from anticipated  Record screen openings – FY19 proved to be one of the most eventful years for
increase in scale, we estimate INOX Leisure. It set an industry record by opening 85 screens in one year, taking its
INOX’s revenue, EBITDA and PAT to total screen count to 574 in FY19. We expect INOX to add 80 screens each in FY20
post CAGR of ~19%, 24% and 35%, and FY21.
respectively, over FY19–21,  Robust footfall growth – Robust content performance and increased presence led
implying 35% EPS CAGR to ~17% YoY footfall growth in FY19, taking the FY17-19 footfall growth CAGR to
~8% (LTL footfall CAGR stood at ~5%). Over FY19–21, we estimate the footfall to
grow at a ~12% CAGR supported by content and screen expansion. With average
ticket price (ATP) ranging from 199–202, we expect NBOC to expand at a CAGR of
about 17% over FY19–21E.
 Improved pricing power driving F&B and ad revenue growth: Given the focus on
promoting F&B offerings and revamping menus, INOX’s spend per head (SPH)
grew ~12% YoY in FY19 (CAGR of 9.2% over FY17–19), which was higher than ATP
growth (YoY as well as CAGR) and PVR’s SPH growth in FY19. We estimate INOX’s
SPH to post ~9% CAGR over FY19–21 with anticipated footfall CAGR of about
12%, enabling net F&B revenue to jump ~26% on an average over FY19–21E.
Similarly, robust footfalls enabled INOX’s ad revenue to jump about 27% in FY19,
accounting for ~10% of total net revenue for the year. Considering INOX’s expanding
presence, we expect its ad revenue to log CAGR of about 18% over FY19–21E owing to
its rising presence and benefits derived from ramp up, uplifting ad revenue per screen.
b) What’s the strategy? How’s the business positioned?

INOX has positioned itself as a
INOX’s has been considerably aggressive recently. The team successfully opened 85
formidable No.2 by narrowing the
screens in a year, setting an industry record. We have highlighted the steps taken by
gap with PVR across key
the management which reflect the company’s aggression in terms of growing the INOX
parameters
brand.
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 Along with opening industry-record number of screens, INOX revamped its menus,
increased its social media presence and formed alliances with ICC and NBA to
screen alternate content as a hedge to the usual content and for better utilisation
Compared with Carnival Cinemas
of screen inventory.
and Cinepolis, INOX stands out due
to its sheer scale, customer-centric
 With a sharper focus on scaling up its premium format, the company increased its
premium screen portfolio from 4% in FY17 to about 9% in FY19. Premium formats
innovations and strong
typically have ATP/SPH 3–4x the normal format, with a higher average occupancy
management
rate as well. We expect INOX to scale up its INOX Insignia format aggressively over
 the
C coming years in viable locations.
o
We anticipate
m management to adopt a similar approach over the coming years, thereby
cementing
p INOX’s position in the multiplex industry.
a
c) How rare profitability and financial health of the business?
 Strong
e performance enabled INOX post EBITDA CAGR of ~45% (revenue CAGR of
~18%)
d over FY17–19 with ~620bps margin expansion. Going ahead (not adjusting
The business clocked ROCE of for Ind AS 116), we estimate EBITDA margin to increase gradually driven by rising
22.2% in FY19, improving F&B
w and ad revenue (margin-accretive) and cost efficiencies due to the expanding
considerably from 15% in FY18 scale.
i We estimate EBITDA to clock ~24% CAGR over FY19–21.
 t net working capital for the business has remained negative due to its nature
Core
ofhbusiness, wherein almost all payments are made upfront (tickets, F&B), while
A strong balance sheet lends inventory is a relatively small portion of the working capital investment.
ample firepower for aggressive  Givenp the favourable dynamics and our estimates of the business, we expect the
expansion, organic and inorganic l
business to register ROCE of ~25% and RoE of ~20% in FY20 and FY21, respectively.
 aC
 Gross debt/EBITDA is about 0.4x, a multi-year low, with gross debt/equity of ~0.1x
yo
in FY19, indicating ample room to gear up
em
rp
d) How sis the management quality? How do we view the company?
a
Currently,
r the business is headed by Mr. Alok Tandon, CEO, who has more than 30
years’ sexperience
e across entertainment, hospitality and pharmaceutical industries. He
has been
ud part of INOX’s startup team and has helped build and develop the company
since inception.
c The business is also overseen by Mr. Siddharth Jain in the capacity of
non-executive
hw director.
i
Lately,atINOX has become more aggressive in eyeing prime properties, bringing in new
technology
sh and exhibiting pricing power while sharpening focus on revamping and
promoting the F&B portfolio. We anticipate management to maintain aggression and
continue
Cp to chart strong growth going ahead. We share our view on the company as a
whole athrough
l SWOT analysis as depicted below.
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8 ma Edelweiss Securities Limited
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Inox Leisure
Fig. 1: SWOT analysis
Strengths
Weakness
Strong balance sheet
Low presence in
Customer-centric southern India
innovations
Underlying content
Focus on premium risk
properties
Opportunities Threats
Low multiplex OTTs
penetration in India Unpredictable nature of
content
Scope to increase SPH
Intensifying competition
Improving experience for properties
through innovations Slowdown in discretionary
and technology consumption
e) How does the valuation look?

While valuation is at a discount to INOX, the second-largest multiplex operator in India, is headed in the right direction
PVR, it is higher than rest of our with aggressive expansion plans, focus on high-margin segments and unwavering
media coverage entities owing to efforts to enhance the customer experience. Given its unlevered balance sheet (D/E at
favorable business scenario, 0.1x in FY19), INOX Leisure has firepower to expand organically and inorganically.
structural growth story and ample
scope for growth Going ahead, INOX could emerge as a dominant force in the multiplex space owing to
strong promoters, steady expansion and healthy balance sheet. In terms of valuation,
we peg INOX at 20x (33% discount to PVR) EPS December 2020E (ex of IND AS 116
impact), which yields a TP of INR475. The stock is trading at ~16x/13x FY20/FY21E EPS,
which is at a significant discount to PVR (trading at ~32/25x FY20/21E EPS). Our EPS
estimates (excluding IND AS 116 impact) for FY20 and FY21 stand at – INR20.8 and
INR24.7.
f) What are the risks?

Competition from other exhibitors and OTTs
Competition from other multiplex chains such as PVR, Cinepolis, small-scale multiplex
Content performance is the
operators and single screens remains a concern. In addition, the advent of digital
highest risk for the business
release on OTT platforms along with affordable pricing and pressure on time windows
poses a reasonable threat to multiplexes.
Time windows between theatrical
and digital release to be a key
Content uncertainty
monitorable to understand the risk Differentiated content is the primary driver of footfalls at multiplexes. However,
from OTTs mediocre or inferior quality content could hurt footfalls. Any extended supply of below-
average content could hurt INOX’s revenue and bottom line.

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Slowdown in real estate development along with rising rentals
Multiplexes are generally located in malls. An overall weak macroeconomy could lead
to muted growth in the commercial property market, impacting mall development.
Currently, most properties owned by INOX are on lease. We believe sustenance of
slowdown in real estate development over the next few quarters could be a major
impediment to the company’s screen addition plans. Additionally, with other exhibitors
and businesses vying for space in malls, elevated rentals are a cause for concern.
Local body tax levied by state governments

The contagion risk of entertainment tax (over and above GST), currently levied by local
bodies in a few states, overhangs multiplexes. Such taxes are currently levied in
Madhya Pradesh, Kerala and Tamil Nadu.
Regulation on pricing and anti-profiteering

Recently, two other multiplex operators have come under the scanner of anti-
profiteering authorities for not slashing the ticket prices in line with the GST rate cut on
movie tickets. While this probe involves only two operators as of now, it is likely that it
could be expanded to other multiplex operators. Previously, we had seen that
companies such as Jubilant Foodworks, Hindustan Unilever and ITC getting embroiled in
similar issues and facing litigation and fines. Though, this is preliminary as of now, we
would watch out for any further developments on this front.

Inox Leisure
Investment Rationale
Screen expansions to ramp up market share
Screen expansion robust in FY19; screen strategy changing
FY19 proved to be a blockbuster year for INOX, not just in terms of footfall and revenue,
but also on the screen expansion front. The company added 85 screens (82 screens on
net basis), indicating its aggressive expansion stance. Though seats per screen have
dipped to 236 in FY19 from 270 in FY14 (down 13%), the number of screens per property
is likely to increase. The latter offers multiplexes additional screen inventory, hedge
against content risk, potential for higher footfalls as well as occupancy.
Major expansion plans on the anvil

As of FY19, INOX Leisure had 574
While management’s plan is to add ~80 screens in FY20, we do not rule out minor setbacks
screens spread across all regions
from competition, real estate challenges and regulatory delays. These notwithstanding,
and major cities in India.
compared to competitors the company has a strong balance sheet, lending it ample fuel to
boost screen count organically as well as inorganically.
Enhanced reach
o and rise in movies breaching the INR1bn box office collection
Higher numberm of multiplex screens has not only changed the mix of movies being screened
at cinema halls,
p but also reduced the number of days to achieve INR1bn box office collection.
Also, improving
a multiplex penetration in tier-II towns and transparency will result in better
ticket collection
r for movies.
e
Fig. 2: Break down of screens across regions d Fig. 3: India produces the highest number of films in the world
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Inorganic expansion
c entails synergistic benefits
India’s multiplex
h industry underwent significant consolidation in the past decade and two
Traditionally, growth in the
players—PVR and INOX—currently dominate the market. Though significant consolidation
multiplex industry has been
hereon appears
a low as multiplexes have already spread their reach across different pockets
acquisitive and INOX is perfectly
in the country,
s we do expect some activity. Additionally, with commercial malls and other
poised to play that game
real estate properties coming up at a slower-than-expected pace, we envisage acquisitions
in the multiplex
C industry.
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In CY18, PVR acquired SPI Cinemas (76 screens) to gain entry and establish a footing in the
South market. CY14-15 also saw a couple of rounds of consolidation with Carnival Cinema’s
entry in to the big league through three major acquisitions—HDIL Broadway (33 screens),
Reliance-owned Big Cinemas (258 screens) and Stargaze Entertainment (30 screens). Other
prominent acquisitions include INOX buying Satyam Cineplexes (38 screens) and Cinepolis
acquiring Fun Cinemas (83 screens).
Table 1: Past deals in the multiplex industry

Number of screens EV/screen EV/EBITDA
Deal Date Status acquired EV (INR mn) (INR mn) (trailing)
PVR - SPI Cinemas Aug-18 Completed 76 10,000 132 15.8x
PVR - DT Cinemas Jun-15 Completed 32 4,330 135 NA
Carnival - Glitz Jan-15 Completed 30 900 30 NA
Carnival - Big Cinemas Dec-14 Completed 258 7,000 27 29x
Cinepolis-Fun Dec-14 Completed 83 5,400 65 13.5x
Carnival - HDIL Jul-14 Completed 33 1,100 33 NA
Inox - Satyam Jul-14 Completed 38 2,200 58 15.7x
PVR - Cinemax Nov-12 Completed 139 5,700 41 9.0x
Inox - Fame Feb-10 Completed 95 1,880 20 10.6x
Previously, INOX had expanded its footprint in North India, particularly Delhi, with the
Marginalisation of smaller & acquisition of Satyam Cineplexes. This was the company’s third acquisition after the
regional players and higher acquisition of Fame in 2010 and Calcutta Cine in 2007. Currently, the company’s screen
content cost are driving portfolio is West-heavy with 42% of screens in the region; only ~15% screens are in the East.
consolidation. With these acquisitions, the company gained access to cities where it was not present
earlier. Following are the synergy benefits of inorganic acquisitions:
Revenue enhancement: INOX, being the second-largest multiplex player in India, can derive
synergy in advertising and F&B revenues. Apart from increased ad inventory due to
inorganic expansion, it can command better price compared to a standalone entity. Further,
Consolidation enhances influence it can increase menu options in the acquired entity, leading to higher F&B revenue.
over strategic decisions in the
industry. It also leads to sharing of Content cost synergies: The company can negotiate better content rates with producers
best practices across industries and due to larger procurement base. Rising screen count will impart INOX better bargaining
imparts superior pricing power. power with content producers.
Reduction in overhead costs: Consolidation always results in reduction of overheads.

Certain functions like accounting and human resources can be consolidated and replica
 beCreduced.
costs can
o
A low net m debt-equity ratio of 0.1x and INR1.4bn in treasury stock lends INOX the
firepower top achieve its aggressive expansions plans. With INOX’s aggressive expansion
plans in place
a and potential acquisitions, INOX could bridge the gap with PVR in a short span
of time. r
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Inox Leisure
Tweaking screen strategy

Though INOX’s seats per screen have dipped to 236 in FY19 from 270 in FY14 (down13%),
the number of screens per property is likely to increase. The latter offers multiplexes
additional screen inventory, hedge against content risk, potential for higher footfalls as well
as occupancy.
Chart 7: INOX added 85 screens in FY19 (82 on net basis)

900
750
600
(No.)
450
300
150
0
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20E FY21E
No. of screens
Source: Company, Edelweiss research
Table 2: Screen presence by zone

Inox Leisure - Screen presence FY14 FY15 FY16 FY17 FY18 FY19*
East 70 67 69 72 72 87
West 116 134 170 206 219 247
North 45 82 86 94 102 123
South 79 89 95 100 99 138
Total 310 372 420 472 492 595
Inox Leisure - Screen presence (%) FY14 FY15 FY16 FY17 FY18 FY19
East 23 18 16 15 15 15
West 37 36 40 44 45 42
North 15 22 20 20 21 21
South 25 24 23 21 20 23
Total 100 100 100 100 100 100
Note – FY19 figures represent screen count as on reported in Q1FY20 earnings presentation

Media
F&B spends to log healthy spurt
Robust growth in FY19

F&B revenue accounted for ~26% of INOX’s net FY19 revenue, ~18% CAGR over FY16-19.
Though the F&B segment’s revenue growth had slowed down in the past years owing to
stagnant footfalls, it catapulted to ~43% YoY in FY19. This spurt was spearheaded by strong
growth in footfall, revamp of menus, diversifying offerings, and introduction of fresh-cooked
food in premium formats.
F&B revenue continues to remain critical for multiplexes considering the high margins and
rising participation of audience in F&B offerings. The company also offers premium and
gourmet cuisines at its premium properties, giving patrons a wider variety. Cut in GST from
18% to 5% on F&B products also contributed to the growth.
With the company’s efforts to promote its F&B offerings, its SPH grew ~12% YoY to INR74 in
FY19. Going ahead, we expect INOX to focus on promoting its F&B offerings and revamp the
product mix to boost SPH and bridge the gap with PVR.
Chart 8: SPH comparison – PVR versus INOX – Opportunity to close the gap
105
We see the SPH gap between INOX 90

and PVR as an opportunity for
INOX to capitalize. 75
(INR)
60
Burgeoning pricing power, diverse
& gourmet offerings and uptick in 45
footfalls to lend tailwind to INOX’s
F&B revenue 30
FY15 FY16 FY17 FY18 FY19
PVR Inox
In the recent past there have been issues regarding F&B pricing in multiplexes. However, so
far the concerned bodies have ruled in favour of multiplexes, thereby reducing risk to the
revenue stream. Amidst the ongoing pricing issues, gross margin of INOX’s F&B revenue
stood at ~74% (PVR’s F&B gross margin at ~73%), a 150bps YoY dip.
We expect INOX’s SPH to grow at a CAGR ~9% over FY19-21 with an anticipated footfall
CAGR of ~12%, enabling the net F&B revenues to grow at ~26% over FY19-21.
Issues pertaining to F&B pricing in multiplexes had taken the center stage last year owing to
a few PILs raised in various high courts. Subsequent to petitions filed by complainants in
various high courts to allow outside food in multiplexes, pertinent judicial bodies have asked
multiplex-goers to abstain from carrying outside food.

Inox Leisure
Table 3: SPH comparison – PVR versus INOX – Opportunity to close the gap
Date F&B issue Authority Verdict Impact
Feb-19 PIL to allow movie goers to carry their own food in cinemas Madras High Court Dismissed
1-Sep PIL procedings in Bombay HC allowing movie goers to carry their own food Supreme Court Stayed Proceedings
Aug-18 Bombay HC questions the state over prohibitng own food in cinemas Maharashtra Govt. Cited secutiry issues
Aug-18 J&K HC allows movie goers to carry own food in cinemas Supreme Court Stayed Proceedings
Jul-18 Madhya Pradesh HC moves over a PIL on high prices charged by multiplexes for food Supreme Court Stayed Proceedings
Jul-18 Telangana Legal Metrology Dept. warns multiplexes over F&B pricing Hyderabad High Court Dismissed
Source: Media, Edelweiss research
Currently the matter is pending for hearing in the Supreme Court sine die and hence we do
not anticipate any significant risks to the F&B revenues owing to the previous precedents.
Chart 9: Net F&B revenue and footfall trend – INOX

7,500 90.0
6,000 72.0
4,500 54.0
(INR mn)
(mn)
3,000 36.0
1,500 18.0
0 0.0
FY15 FY16 FY17 FY18 FY19 FY20E FY21E
Net F&B revenue Footfall
Chart 10: SPH and footfall trend – INOX

100 100
86 86
72 72
(mn)
(INR)
58 58
44 44
30 30
SPH (INR) Footfall (mn)

Media
In terms of F&B revenue growth, PVR (including SPI Cinemas) and INOX have been very close
to one another, with INOX experiencing a steady growth trajectory in the past quarters.
Chart 11: Recent net F&B revenue growth comparison – PVR versus INOX
70.0
55.0
40.0
(%)
25.0
10.0
(5.0)
Q2FY18
Q3FY18
Q1FY19
Q2FY19
Q4FY19
Q1FY20
Q1FY18
Q4FY18
Q3FY19
PVR INOX Leisure

Inox Leisure
Expansion to boost ad revenue
Advertisements: Key revenue churner; Scale benefits to spur growth

With the multiplex industry gaining steam and deepening penetration across India, it is
becoming a steady advertising avenue for advertisers. Ad revenue grew ~27% YoY
accounting for ~10% of the total net revenue for INOX in FY19. With aggressive expansion
plans in place along with an in-house ad sales team, we expect the ad revenue growth
momentum to sustain.
INOX’s ad revenue has clocked ~25% CAGR over FY16-19 to INR1,760mn in FY19, up ~27%
INOX’s advertising revenue YoY. Ad revenue contributed significantly to the ~46% YoY jump in FY19 EBITDA. Its margin
contributed significantly to the on ad revenue is typically ~85-90% of ad revenue.
~46% YoY jump in FY19 EBITDA
owing to superior margins of 85- Ad revenue per screen (excluding non-managed screens), as of FY19, stands at INR3.1mn,
90% significantly higher than INR2.3mn in FY16 (calculation based on closing screen count for the
period).
With expanding presence, INOX Though INOX’s ad per screen (annualised) has grown considerably, it lags PVR’s (including
could benefit from working with SPI Cinemas), whose ad per screen as of FY19 stood at 4.6mn (INR4.2mn in FY16). INOX is
larger corporate/national-level planning to narrow the huge ad revenue disparity with PVR via sound marketing initiatives.
advertisers, thereby boosting its ad
revenue. Accordingly, it has been experimenting by advertising at various in-house locations like
lobbies, pillars, etc. Moreover, a dedicated in-house ad sales team provides creative inputs
to advertisers in production of ads.
W
e
INOX’s ad revenue per screen has posted ~10% CAGR over FY16-19. Over the years, the
company’s per screen metrics pertaining to ad revenue have improved. We expect the ad
e
revenue to grow at a CAGR of ~18% over FY19-21 owing to the increasing screen count
x benefits derived from scale-up increasing the ad revenue per screen.
and
p
Chart 12: Momentum to continue e Chart 13: Ad revenue improving for INOX
3,000 c 4.0 12.5
t
2,400 3.4 10.0
t
h
2.8 7.5
(INR mn)
1,800
(INR mn)
e
(%)
2.2 5.0
1,200 a
d
1.6 2.5
600
r
1.0 0.0
e
FY20E
FY21E
FY15
FY16
FY17
FY18
FY19
0
FY15 FY16 FY17 FY18 FY19v FY20E FY21E
e
Ad revenues (INR mn) Ad revenue per screen Ad revenue (% of revenue)
n
u Source: Company, Edelweiss research
e
t
o
g
r
o
Media
Focus on enhancing experience through luxury/differentiated formats

Hedging the migration risk
To counter the rising risk from OTTs and other entertainment options, multiplexes are
focusing on improving the customer experience in order to remain relevant in the value
chain. INOX has premium format screens housed under the Insignia brand, which
provides customers a luxury movie-viewing experience along with gourmet food
offerings. While introduction of luxury offerings in tier-I cities is not new, multiplexes are
now investing in new innovative technologies as well to offer more value to patrons.
While OTTs have grabbed eyeballs due to differentiated content and the convenience they
offer at competitive prices, multiplexes are also working towards upping their game to keep
customers coming in. Luxury format screens are targeted at tier-I markets and high-end
Luxury format screens are targeted customers, who also happen to be the highest at-risk group for multiplexes from OTTs.
at tier-I markets and high-end
customers, who also happen to be INOX has brand Insignia which houses premium formats to offer enhanced movie and dining
the highest at-risk group for experience to customers. Additionally, its IMAX screen format attracts huge footfalls for
multiplexes from OTTs. visually intensive movies. Currently, INOX has over 50 premium screens: ~9% of total
screen portfolio in FY19, and aims to take this to 13-14% in the coming years.
ATP and SPH for premium/luxury The company has been giving a higher import to technology in order to differentiate itself.
screens are typically 3-4x normal In 2019, INOX inked a deal with CJ 4DPLEX for importing the latter’s ‘ScreenX’ technology to
ATP and SPH with an average India. The technology offers patrons a 270-degree view entailing a more immersive movie
occupancy of ~40%, significantly experience. We perceive this as a positive for INOX in terms of gaining footfalls as theatres
higher than the normal average only have limited differentiating factors over one another and any factor which adds to
occupancy of 26-27%. the experience will be critical.
As of FY19, the luxury format constitutes ~9% of the company’s total screen count, up
from ~4% in FY17, reflecting INOX’s appetite to focus on this format. We believe, such
screens will largely be opened in metro cities where the appetite for luxury format theatres
has been higher and expect multiplexes to continue to focus on premium offerings.
Additionally, such measures will be conducive to keep multiplexes relevant in the value
chain and mitigate the risk from OTTs. A few more of INOX’s customer-centric innovations
are:
 Screening of select ICC World Cup 2019 matches on INOX screens – one of three
multiplex chains in the world having rights to screen live matches from the World Cup
 Screening of Pro Kabaddi League matches at select locations
 Installed Onyx LED screens in select cinemas.
 Permitting cancellation on advance bookings.
 Ticketing at INOX has been GST compliant from the beginning; no impact on INOX from
GST e-ticketing rules

Inox Leisure
Fig. 2: INOX properties’ visuals

Media
Financial Outlook
Revenue growth momentum to sustain

We expect INOX’s net revenue to grow at a ~19% CAGR over FY19-21, driven by strong
double-digit growth across the key revenue segments – box office collection, food and
beverage and advertisement revenue.
Superior margin segments to drive profitability
We expect operating leverage benefits to continue to play in FY20 and FY21 in the wake of
scale economies towards the fixed costs, higher bargaining power with distributors/content
creators and online ticketing players, better rates for advertising. We anticpate the EBITDA
to grow at a CAGR of ~24% over FY19-21 with the EPS growing at CAGR of ~35%.
Return ratios
We anticipate INOX Leisure to register ~25% RoCE in FY20 and FY21 respectively improving
against 22.2% in FY19 on account strong revenue growth and EBITDA expansion. We
envisage RoE for FY20 and FY21 to be ~20% respectively for each year.
Broad based revenue growth to transpire

We expect the net revenues (post box office and F&B GST) to grow at a ~19% CAGR
bolstered by a broad-based revenue growth. We expect ~23% YoY revenue growth in FY20
and ~16% revenue growth in FY21.
We expect the company to report Chart 14: Revenue growth

70 mn and 78.5 mn footfall in FY20 25,000
and FY21, respectively, with ~1% 30.0
YoY and ~2% YoY growth in the 20,000
ATP. 22.0
15,000
(INR mn)
14.0
(%)
Over FY19–21, we estimate
10,000 6.0
footfalls to post ~12% CAGR
supported by content and screen
expansion. 5,000
 C (2.0)
o
0m (10.0)
With average ticket price (ATP) p FY15 FY16 FY17 FY18 FY19 FY20E FY21E
ranging from INR199–202, we a Net revenues (INR mn) YoY growth (%)
estimate NBOC to post ~17% CAGR r
over FY19–21 e
d
We expect revenues to get a boost from robust growth across all revenue segments -
advertising, net box office collections (NBOC) and F&B revenue. Though, ATP growth would
w
be slow due to the price cuts taken in light of GST cut transmission, net box office revenue
i
growth to remain strong going ahead. We anticipate the NBOC (Net box office collection
t
revenue) to grow at a CAGR of ~17.5% over FY19-21.
 h C
o
p
m
20 lp Edelweiss Securities Limited
aa
yr
e
e
Inox Leisure
Chart 15: NBOC revenue growth

15,000
30.0
12,000
20.0
9,000
(INR mn)
10.0
(%)
6,000 0.0
3,000 (10.0)
0 (20.0)
Netbox office collection revenue (INR mn) YoY growth (%)
We expect INOX’s SPH to grow at a CAGR ~9% over FY19-21 with an anticipated footfall
CAGR of ~12%, enabling the net F&B revenues to grow at ~26% over FY19-21. With INOX’s
increasing pricing power, increased offering and uptick in footfalls owing to strong content
to lend tailwind to the F&B revenue.
On the F&B front, we anticipate Chart 16: Net F&B revenue growth
the SPH to grow ~10% and ~8% in 6,500 50.0
FY20 and FY21 respectively,
enabling net F&B revenue to grow
5,200 40.0
at ~26% CAGR over FY19–21E
3,900 30.0
(INR mn)
(%)
2,600 20.0
 C
1,300 o 10.0
m
0p 0.0
a FY15 FY16 FY17 FY18 FY19 FY20E FY21E
r Net F&B revenue (INR mn) YoY growth (%)
e
d
Ad revenue per screen to increase
~4% YoY in FY20 and FY21 each We expect the ad revenue to grow at a CAGR of ~18% over FY19-21 owing to the increasing
w
leading to ~18% CAGR for screen count and benefits derived from scale-up increasing the ad revenue per screen.
i
advertisement revenues over t
FY19-21. h
p
 Cl
a
o
y
m
pe
r
21 a Edelweiss Securities Limited
s
r
e
s
d
u
Media
Chart 17: Advertisement revenue growth
3,000 70.0
2,400 56.0
1,800 42.0
(INR mn)
(%)
1,200 28.0
600 14.0
0 0.0
Ad revenue (INR mn) YoY growth (%)
EBITDA poised to grow at ~24% CAGR along with robust margin improvement
FY19 was a fantastic year for the domestic multiplex industry, on the back of strong content
performance and hence INOX saw an EBITDA growth of ~45% YoY. As the screen expansion
takes place along with rise in footfall, we are likely to see margin expansion through a
combination of growth in margin additive segments (F&B and advertising) and scale
economies. We might see an upside in the EBITDA in case content performance betters the
previous year with higher footfall translating in greater F&B and advertisement revenues
which provide superior margins.
Chart 18: Secular growth to translate in margin expansion

5,000 20.0
4,000 16.0
3,000 12.0
(INR mn)
(%)
2,000 8.0
1,000 4.0
0 0.0
FY20E
FY21E
FY15
FY16
FY17
FY18
FY19
EBITDA (INR mn) EBITDA margin (%)

We expect PAT CAGR of ~35% over FY19-21, bolstered by secular growth across revenue
segments and sharpened focus on margin-accretive segments.

Inox Leisure
Chart 19: PAT to grow steadily

3,000 20.0
2,500 16.0
2,000
12.0
(INR mn)
(%)
1,500
8.0
1,000
500 4.0
0 0.0
PAT (INR mn) PAT margin (%)

Media
Outlook and Valuation

INOX, the second largest multiplex operator in India, is headed in the right direction with
aggressive expansion plans, focus on high-margin segments and unwavering efforts to
enhance the customer experience. Given its unlevered balance sheet (D/E at 0.1x in FY19),
INOX has the firepower to expand organically and inorganically, leading to higher
bargaining power in terms of ad and F&B revenues and content costs.
In terms of valuations, we peg INOX at 20x (~33% discount to PVR) December 2020E EPS
(excluding the IND AS116 impact), which yields a TP of INR475. At CMP, the stock trades at
~16x/13x FY20/FY21E EPS. We initiate coverage with ‘BUY/SO’. Our EPS estimates
(excluding IND AS 116 impact) for FY20 and FY21 stand at – INR20.8 and INR24.7.
While the stock has traded at significant discount to PVR (in the past, we had seen the stock
trade at 20x 1-year forward EPS) we do expect the multiple gap with PVR to be bridged with
improvement in metrics, increase in scale and strong governance. Given that INOX Leisure is
part of the larger INOX group, any issues in other promoter entities could lead to an
overhang on INOX Leisure.
Chart 20: 1-year forward PE band

900
35x
720
30x
25x
540
(INR)
20x
360 15x
10x
180
0
Apr-17
Apr-18
Apr-19
Oct-16
Oct-17
Oct-18
Oct-19

Inox Leisure
Key Risks
Competition from other exhibitors, OTTs, Sports

Competition from other multiplex chains such as PVR, Cinepolis, remains a concern. In
addition, the advent of digital release on OTT platforms along with affordable pricing and
pressure on time windows poses a threat to multiplexes. Huge popularity of IPL and
increasing interest of audience in other sports tournaments such as World Kabaddi League,
ISL etc. along with national tournaments like World Cup, Indian Badminton League and
Hockey India League could affect footfalls.
Content uncertainty
Differentiated content is the primary footfalls driver in multiplexes. However, average
content or inferior quality content will hurt footfalls. Any extended supply of below-average
content could hurt INOX’s revenue and bottom line.
Slowdown in real estate along with rising rentals

Multiplexes are generally located in malls. Weak sentiment in the economy could lead to
muted growth in the commercial property market, impacting mall development. Currently,
most properties owned by INOX are on lease. We believe, sustenance of this trend over the
next few quarters may be a major impediment to the company’s screen addition plans.
Additionally, with other exhibitors and businesses vying for space in malls, elevated rentals
is also a concern.
Piracy
Availability of good quality new movies over the internet could impact footfalls of
multiplexes. To mitigate the impact of piracy, production houses mostly release movies
worldwide on the same day. Majority of the box office collection happens in the first week
and availability of movie on the internet after the first week has minimal impact.
Agreements with industry stakeholders

Currently, the net box office collection is shared with distributors at a pre-agreed price.
However, any dispute between producers and exhibitors could harm the multiplex business.
In addition, the practice of virtual print fee payment by production houses to multiplexes
has been protested by the former.
Local body tax levied by state governments

Contagion risk of entertainment tax (over and above GST), currently levied by local bodies in
a few states, remains a concern for multiplexes. Currently levied in Madhya Pradesh, Kerala
and Tamil Nadu.
New accounting standard Ind AS 116

Commencement of new accounting standard Ind AS 116, applicable from April 1, 2019, will
impact reported (unadjusted) return and profitability ratios. The new standard will enforce
companies to recognise off-balance sheet lease liabilities and assets on their books.
However, there will be no impact from an economic standpoint.

Media
Where does INOX stand against PVR?
The ATP gap between the two With over 1,350 screens (~46% of total multiplex screens) across India, PVR and INOX
players narrowed in FY19 with dominate the multiplex business. In FY19, 15 bollywood movies crossed the coveted INR1bn
INOX closing in on PVR—FY19 plus mark in box office collections.
difference of INR10 compared with
INR17 in FY18 Phenomenal content performance helped PVR and INOX in FY19. While footfalls rose ~17%
for INOX, PVR’s (including SPI Cinemas) jumped ~31%. PVR (consolidated) recorded growth
of 32%, 46% and 47% in revenue, EBITDA and adjusted PAT, respectively. INOX posted
While PVR continues to lead in growth of 26%, 47% and 10% (INR537mn of tax benefits in base) in revenue, EBITDA and
SPH, INOX has managed to bridge adjusted PAT, respectively. The strong content pull lifted footfalls by ~17% YoY for INOX
the gap. While INOX’s SPH grew and ~31% for PVR (including SPI Cinemas).
~9% in FY19, PVR’s rose ~2%
PVR’s FY19 consolidated (including SPI Cinemas) net box office collection (NBOC) revenue
grew about 31% compared with ~22% for INOX. The ATP gap between the two players
narrowed in FY19 with INOX closing in on PVR—FY19 difference of INR10 (PVR at INR207,
On the ad revenue front, PVR grew INOX at INR197) compared with INR17 in FY18 (PVR’s FY18 ATP stood at INR210, INOX’s at
20%, lagging INOX’s ~27% in FY19. INR193). Q4FY19 saw the ATP declining YoY due to transmission of GST rate cut to movie
However, on ad revenue per ticket prices, which we believe will temper gross ATP growth for multiplexes.
screen, PVR continues to be ahead
of INOX—51% higher in FY19 In terms of net F&B revenue, INOX posted growth of 42% YoY and PVR 39% YoY. Though
PVR continues to be ahead of INOX in terms of SPH, the latter has managed to bridge the
difference in FY19 on this front as well—from INR23 in FY18 (PVR at INR89 and INOX at
INR66) to INR17 in FY19 (PVR at INR91 and INOX INR74).
Comparing PVR and INOX

Given the good run both players have had in FY19, we look at their operational trends and
see how they compete on various aspects:
Chart 21: Net box revenue— INOX improving steadily Chart 22: F&B revenue— INOX grew faster than PVR in FY19
18,000 9,000
14,400 7,200
(INR mn)
10,800 5,400
(INR mn)
7,200 3,600
3,600 1,800
0 0
FY15 FY16 FY17 FY18 FY19 FY15 FY16 FY17 FY18 FY19
PVR Inox PVR Inox

Inox Leisure
Chart 23: Number of screens— PVR ahead by 197 screens Chart 24: Footfalls— PVR’s scale gives them benefit
900 120.0
740 100.0
580 80.0
(screens)
(mn)
420 60.0
260 40.0
100 20.0
PVR Inox PVR Inox
Chart 25: ATP— INOX bridging gap with PVR Chart 26: SPH – Opportunity for INOX
250 105
230 90
210 75
(INR)
(INR)
190 60
170 45
150 30
PVR Inox PVR Inox
Chart 27: Return on average equity comparison

24.0
20.0
16.0
(%)
12.0
8.0
4.0
FY16 FY17 FY18 FY19
PVR INOX

Media
Chart 28: Pre-tax ROCE comparison
24.0
20.0
16.0
(%)
12.0
8.0
4.0
FY16 FY17 FY18 FY19
PVR INOX
Table 4: Annual comparison - INOX versus PVR

PVR Inox Leisure
Annual Comarison (Consol.)
FY15 FY16 FY17 FY18 FY19 CAGR (%) FY15 FY16 FY17 FY18 FY19 CAGR (%)
ATP (INR) 178 188 196 210 207 3.8 164 170 178 193 197 4.7
Total revenues (INR mn) 14,771 18,811 21,628 23,340 30,856 20.2 8,954 11,589 12,207 13,481 16,922 17.3
Net box office (INR mn) 8,240 9,948 11,249 12,470 16,357 18.7 5,516 7,311 7,128 8,022 9,747 15.3
Ad revenues (INR mn) 1,771 2,145 2,518 2,969 3,535 18.9 815 910 962 1,389 1,760 21.2
F&B revenue (INR mn) 3,853 4,977 5,794 6,250 8,467 21.8 1,910 2,656 2,841 3,060 4,366 23.0
Footfalls (mn) 59.2 69.6 75.2 76.1 99.3 13.8 41.1 53.4 53.7 53.3 62.5 11.0
No. of screens 464 516 579 625 771 13.5 372 420 468 492 574 11.5
SPH (INR) 65 72 77 89 91 8.7 55 58 61 66 74 7.7
EBITDA (INR mn) 2,008 3,240 3,570 4,018 5,863 30.7 1,228 1,899 1,461 2,104 3,083 25.9
EBITDA per screen 4.3 6.3 6.2 6.4 7.6 15.1 3.3 4.5 3.1 4.3 5.4 12.9
% of revenues
Net box office 55.8 52.9 52.0 53.4 53.0 61.6 63.1 58.4 59.5 57.6
Ad revenues 12.0 11.4 11.6 12.7 11.5 9.1 7.9 7.9 10.3 10.4
F&B revenue 26.1 26.5 26.8 26.8 27.4 21.3 22.9 23.3 22.7 25.8
YoY growth
ATP 6.0 5.6 4.3 7.1 (1.4) 5.1 3.7 4.7 8.4 2.1
Net box office 3.7 20.7 13.1 10.9 31.2 12.5 32.5 (2.5) 12.5 21.5
Ad revenues 16.8 21.1 17.3 17.9 19.1 64.5 11.7 5.7 44.4 26.7
F&B revenue 15.8 29.2 16.4 7.9 35.5 17.7 39.1 7.0 7.7 42.7
Footfalls (1.0) 17.6 8.0 1.2 30.5 6.5 29.9 0.6 (0.7) 17.3

Inox Leisure
ATP differential has reduced considerably; INOX fast catching up
Chart 29: Average ticket price trend – PVR versus INOX

220
In Q1FY18, PVR’s ATP was about
11% higher than INOX; this gap has 212
narrowed considerably to ~7% in
Q1FY20 204
(INR)
196
In our view, this signals increase in
INOX’s relative pricing power and 188
sustained customer demand.
Increase in INOX’s premium 180
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
properties also helped
I
n
PVR INOX Leisure
o Source: Company, Edelweiss research
u
r
INOX’s SPH rose by 25% over past nine quarters versus 17% for PVR
v 30: Spend per head trend – PVR versus INOX

Chart
i 110
e
In Q1FY18, PVR’s SPH was about w 98
34% higher than INOX; this ,
difference narrowed considerably 86
(INR)
to ~26% by Q1FY20 t
h
N 74
iO
sX
62
is 50
is
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q1FY18
g
n
b
ae
PVR INOX Leisure
li
sn Source: Company, Edelweiss research
g
a
n
e
q
i
u
n
a
cl
rl
ey
a
sa
29 eg Edelweiss Securities Limited
g
ri
n
e
Media
Chart 31: Net F&B revenue growth comparison – PVR versus INOX
70.0
55.0
Over the past few quarters, PVR’s 40.0
(%)
net F&B YoY revenue growth has
been higher than INOX’s; however, 25.0
the latter is catching up fast
10.0
I
N
(5.0)
O
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q2FY19
Q3FY19
Q4FY19
Q1FY19
Q1FY20
X
i
PVR INOX Leisure
s
b
INOX’s
e ARPU grew 8% over past nine quarters versus 4% for PVR
i
Chart
n 32: ARPU comparison – PVR versus INOX
g 325
While PVR’s total ARPU (ATP + e 300

SPH) has increased ~4% over the q
past nine quarters, INOX’s has u 275
(INR)
grown ~8% a
l 250
l
This increase is attributable to 225
y
steady growth in SPH indicating
better monetisation and increase 200
a
Q2FY18
Q3FY18
Q1FY19
Q2FY19
Q4FY19
Q1FY20
Q1FY18
Q4FY18
Q3FY19
in pricing power g
gT
rh PVR INOX Leisure
ei
ss
s
ii
vn
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r
ae
na
ds
e
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30 s Edelweiss Securities Limited
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Inox Leisure
Occupancy rates for PVR remain higher than INOX
Chart 33: Occupancy rate comparison – PVR versus INOX

30
PVR has traditionally enjoyed 26

higher occupancy rates than INOX
owing to its screen locations and
22
strong push through online ticket
(Mn)
aggregators.
18
However, in recent quarters, the 14

difference in occupancy rates has
widened.
10
H
Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20
o PVR INOX Leisure
w
e
v
PVR’s higher occupancy rate is also due to acquisition of SPI Cinemas, which has made its
e
screen portfolio more South-heavy than INOX (~33% for PVR, ~21% for INOX). This
r
translates in to higher occupancy as multiplexes and single screens in South have 50–60%
,
occupancy rates. It also implies higher per screen revenue and footfall for PVR than INOX
(refer to charts below).
i
n
Chart 34: PVR has higher footfall per screen than INOX (excl non managed screens)
r 40
e
36
c
e
32
(Mn)
n
t
28
q
24
u
a
20
r
Q1FY18
Q3FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q1FY20
Q2FY18
t
e
r PVR INOX Leisure
s Source: Company, Edelweiss research
,
t
h
e
d
i
31 f Edelweiss Securities Limited
f
e
r
Media
Chart 35: NBOC per screen for PVR and INOX (excl non managed screens)
8.0
7.0
6.0
(INR)
5.0
4.0
3.0
Q1FY18
Q2FY18
Q3FY18
Q1FY19
Q2FY19
Q3FY19
Q1FY20
Q4FY18
Q4FY19
PVR INOX
PVR’s EBITDA per footfall continues to be greater than INOX
Chart 36: PVR has higher EBITDA per footfall

66.0
In Q1FY18, PVR’s EBITDA per 58.0

footfall was 11% higher than INOX,
while on average over the past 50.0
(INR)
nine quarters, it was higher by 31%

than INOX. However, in Q4FY19, 42.0
PVR’s EBITDA per footfall was only
8% higher than INOX’s. 34.0
H
o 26.0
Q2FY18
Q3FY18
Q4FY18
Q1FY19
Q3FY19
Q4FY19
Q1FY20
Q1FY18
Q2FY19
w
e
v PVR INOX
e
r
,
i
n
r
e
c
e
n
t
q
u
a
r
t
e
r
Inox Leisure
Chart 37: EBITDA (ex of ad revenue) per footfall for PVR and INOX
38.0
31.0
24.0
(INR)
17.0
10.0
3.0
Q1FY0
Q1FY18
Q4FY18
Q1FY19
Q2FY19
Q3FY19
Q4FY19
Q2FY18
Q3FY18
PVR INOX
PVR benefits from scale, thereby fetching higher ad revenue per screen than INOX
(excluding non-managed screens for INOX).
Chart 38: PVR’s ad revenue per screen superior to INOX

2.0
In Q1FY20, PVR’s ad revenue per
screen stood at INR1.2mn versus 1.6
INOX’s INR0.80mn
1.2
(INR mn)
However, given the latter’s

aggressive expansion plans and the 0.8
significant gap, this gap is likely to
reduce 0.4
I
n 0.0
Q1FY18
Q2FY18
Q3FY18
Q4FY18
Q2FY19
Q3FY19
Q1FY20
Q1FY19
Q Q4FY19
1
F PVR INOX Leisure
Y Source: Company, Edelweiss research
2
0
,
P
V
R
’
s
a
d
33
r Edelweiss Securities Limited
e
v
e
n
Media
Chart 39: INOX—Revenue mix trend
100%
80%
60%
40%
NBOC constitutes about 58% of
total operating revenue for INOX
20%
and about 53% for PVR
0%
Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20
Net F&B revenue constitutes about
25% of total operating revenue for Net box office (INR mn) F&B revenue (INR mn)
INOX and about 27% for PVR Ad revenues (INR mn) Other operating income
Ad revenue constitutes about 10% Chart 40: PVR—Revenue mix trend

of total operating revenue for
100%
INOX and about 12% for PVR
 A
80%
d
60%
r
40%e
v
20%e
n
0%u
e Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20
Net box office (INR mn) F&B revenue (INR mn)

c
o Ad revenues (INR mn) Other operating income
n Source: Company, Edelweiss research
s
t
i
t
u
t
e
s
a
b
o
u
t
1
0
34 % Edelweiss Securities Limited
o
f
Inox Leisure
Rental costs (as % of sales) lower for INOX
Chart 41: Rental costs (including common area maintenance) comparison
Rent and common area 29.0

maintenance expenses as a % of
sales have been lower for INOX
26.0
compared to PVR.
23.0
This differential between PVR and
(%)
INOX stood at ~4% in FY15, which 20.0
has dipped to 1.8% in FY19.
 d
17.0
r
e
14.0
v FY16 FY17 FY18 FY19
e PVR INOX Leisure
n
u
e
Though PVR was a tad higher, the rent and common area maintenance expenses as a % of
c
sales had been declining—from ~24% in FY15 to ~21% in FY19. For INOX, this expense has
o
been ~20% of net sales in FY15 and has come down to ~19% in FY19. It also implies that PVR
n
has been present in leading properties in respective cities, thereby incurring higher rentals,
s
but also achieving higher footfalls on a per screen basis.
t
i
Payroll costs (as % of sales) lower for INOX, overall employee costs higher
t
u
Chart 42: Payroll costs (excluding off-roll employee costs) comparison
t
e
12.5
s
11.0a
b
o
9.5
u
(%)
t
8.0
1
6.50
%
5.0
o
FY16 FY17 FY18 FY19
f
PVR INOX Leisure
t
o Source: Company, Edelweiss research
t
35 a Edelweiss Securities Limited
l
o
p
Media
While the chart above indicates that PVR’s payroll costs have been considerably higher than
INOX, this does not include off roll (outsourced) employee costs, which is a significant
component for INOX and has increased significantly over the past few years. INOX’s
outsourced employee expense to the payroll employee expense stood at ~40% in FY15 and
jumped to 57% in FY19.
Overall employee costs, including outsourced personnel cost (not including security and
housekeeping), indicate that employee cost as a percentage of sales has declined for INOX
(lower than PVR in FY19). The chart below, however, does not include outsourced personnel
cost for PVR due to non-availability of exact figures. We have not included housekeeping
and security expenses for both the players in overall employee expenses.
Chart 43: INOX’s employee cost including outsourced employee cost (as % of sales)
11.5
11.0
10.5
(%)
10.0
9.5
9.0
FY16 FY17 FY18 FY19
PVR INOX Leisure
Note: Outsourced personnel cost for PVR are not included; housekeeping and security expenses
are not included for both PVR and INOX

Inox Leisure
Company Description
INOX is a film exhibition company which is in the business of setting up, operating and
managing a national chain of multiplexes under the INOX brand. The company commenced
operations in May 2002. It acquired 50.5% stake in Fame India in February 2010. INOX is a
subsidiary of GFL. The first multiplex was set up in Pune on May 11, 2002. As of FY19 end, it
had presence across 67 cities with 141 properties with 574 screens. Underpinned by strong
corporate ethos and financial backing, INOX has established its credentials in the
entertainment industry in a short span.
Currently, INOX is well positioned in its normal INOX format and is gaining presence in the
premium segment through ‘INOX Insignia’, a brand that offers luxurious movie-viewing
experience.
The company operates as a subsidiary of Gujarat Fluorochemicals Ltd. (GFL), which owns
51.32%. GFL, the holding entity, is part of the 90-year old INOX Group, which has an
established presence across renewables, chemicals, air products and wind energy. While
promoters have successfully run and expanded the INOX Group, majority of their experience
so far has been in managing B2B businesses.
Fig. 3: SWOT analysis
Strengths
Strong balance sheet Weakness
Customer-centric Low presence in
innovations southern India
Focus on premium Underlying content risk
properties
Threats
Opportunities
OTTs
Multiplex penetration
in India Unpredictable nature
of content
Scope to increase SPH
Intensifying
Capitalise on cutting
competition for
edge technology
properties

Media
Management Overview
Mr. Pavan Jain, Director, (Chairman, INOX Group): Mr. Pavan Jain is a Chemical Engineer
from IIT, New Delhi, and an industrialist with over 40 years of experience. With over 30
years’ experience as the Managing Director of INOX Air Products, he has steered the
company’s growth from a single plant business to one of the leading domestic players in the
industrial gases business. In addition, he has been instrumental in diversifying the INOX
Group in to various industries such as refrigerant gases, chemicals, cryogenic engineering,
entertainment and renewable energy.
Mr. Vivek Jain, Director: Mr. Vivek Jain has graduated in Economics from St. Stephens, New
Delhi, and did his post-graduation in business administration from IIM, Ahmedabad, where
he specialized in finance. He has over 35 years of business experience and is currently the
Managing Director of Gujarat Fluorochemicals.
Mr Siddharth Jain, Director: Mr. Siddharth Jain earned a Bachelor’s Degree in Mechanical
Engineering at The University of Michigan, US, and an MBA from INSEAD, France. He is
currently a Whole-Time Director of INOX Air Products and also a Director in other group
companies. He has over 16 years’ experience in working with various business units across
the group.
Mr Deepak Asher, Director: A commerce and law graduate, Mr. Deepak Asher is also a
Fellow Member of the Institute of Chartered Accountants of India and an Associate Member
of the Institute of Cost and Works Accountants of India. He has >25 years’ experience in
corporate finance and business strategy. Mr. Asher is President of the Multiplex Association
of India and member of the FICCI Entertainment Committee. In 2002, he won the Theatre
World Newsmaker of the Year Award for his contribution to the multiplex sector.
Mr. Alok Tandon, Chief Executive Officer: Mr. Alok Tandon is a Graduate in Mechanical
Engineering with over 30 years’ experience across entertainment, hospitality and
pharmaceutical industries. He has been part of INOX’s startup team and has helped build
and develop the company since inception. Mr. Tandon played a very active role in all the
three mergers & acquisitions made by the company—Calcutta Cine in 2007, Fame India in
2010 and Satyam Cineplexes in August 2014. Spearheading INOX’s expansion and
consolidation, Mr. Tandon has been successfully steering the company’s growth momentum
over the years and by being true to its motto of ‘LIVE THE MOVIE’.
Mr. Mr. Kailash B. Gupta, Chief Financial Officer: Mr. Kailash B. Gupta has over 21 years of
experience in business strategy, commercials, fund raising, financial planning & analysis,
accounting, MIS, IFRS, budgeting, controlling, treasury & taxation functions & commercial
negotiations. Prior to joining INOX, Mr. Gupta worked with Entertainment Network (India)
(ENIL) since 2011 as the Vice President where he was heading the overall finance,
accounting, controlling and taxation. At INOX, he is responsible for strategic planning,
finance & accounts, legal & compliances and investor relations. He led numerous initiatives
including planning, investments / treasury, finance & accounting, budgeting & MIS,
regulatory reporting and taxation. Recently, he has been awarded the best ‘CFO in the
Media & Entertainment sector’ for exceptional performance & achievements by The
Institute of Chartered Accountants of India (ICAI) and has also been identified among the
Top 20 CFOs in India in the 12th edition the CFO Leadership Summit.

Inox Leisure
Industry Overview
India favourably placed compared to global players

India is nowhere close to global players in terms of screens / mn population—around
eight screens / mn population and even fewer multiplex screens compared to the US’
125 screens / mn population. India’s screen density is lower compared to even
developing nations such as Brazil and China.
India remains heavily under screened

India’s film industry is the largest world over in terms of the number of films produced.
However, it is nowhere close to being a world leader in terms of screens/ mn population.
There are around eight screens / mn population in India compared to the US’ ~125.
This under penetration is expected to lend big boost to the multiplex industry. Though
addition of multiplex screens over the past few years has dramatically changed the film
exhibition space in India, there still exists huge opportunity to rapidly increase the number
of cinema screens over the next decade sans oversupply situation. We expect the increase
in multiplex screens (not single screens) in India to address the issue.
Chart 44: Number of screens per mn population

150
(Screens / Mn population)
120
90
60
30
0
Germany
France
Brazil
Thailand
Spain
S Korea
China
India
UK
us
Taiwan
Japan
Source: Company Presentation, Edelweiss research

Media
Chart 45: India produces highest number of movies
2,250
1,800
1,350
(Nos.)
900
450
Germany
S Korea
China
India
France
Japan
US
Spain
Italy
UK
Source: Company Presentation, Edelweiss research
Burgeoning multiplexes edging out single screens

With burgeoning of multiplexes (~31% of total screens in India), single screens are fast
losing ground. The latter are finding it tough to manage challenges posed due to: i) high
real estate costs; ii) multiplexes’ focus on delivering superior customer experience via
better technology & offerings; and iii) negligible bargaining power compared to
multiplex chains. Single screens are struggling to remain profitable as occupancy levels
have been dwindling due to the audience migrating to multiplexes.
Onslaught of multiplexes mowing down single screens
We expect robust growth in multiplex screens in India (single screens dwindling in numbers).
Multiplex operators are adding ~250-300 screens per year amidst real estate situation and
regulatory concerns in India. They are also rolling out interesting theatre formats—MX4D,
IMAX, Gold Class and ScreenX—to enhance the customer experience.
Single screen players have been lagging in terms of technology upgradation and keeping
pace with the evolving industry, largely due to limited access to capital and reluctance to
change. Most importantly, with rising presence of multiplex chains, location and rental costs
have become a serious issue for smaller players. Consequently, single screens’ market share
in terms of screens has declined to 69% in CY18 from ~78% in CY15.

Inox Leisure
Chart 46: Multiplex screens edging out single screens

10,000
8,000
6,000
(%)
4,000
2,000
0
CY15 CY16 CY17 CY18
Single Screen Multiplexes
Source: FICCI KPMG Report, Edelweiss research
Achieving breakeven tough for single screens

Seating capacity is a major differentiator between multiplex and single screens. A typical
single screen theatre houses 500-1,000 seats compared to 150-250 seats per screen for a
multiplex. Hence, single screens require higher occupancy rate to break even. This, along
with higher revenue share to distributors, lower ticket prices, cheaper F&B pricing and lower
advertising income render the economics of single screens extremely challenging.
Multiplex chains have increased revenue per footfall by exploiting F&B and advertising
opportunities and improved their economics over the past two decades. These factors will
accelerate market share gain for multiplexes from single screen theatres.
Table 5: Multiplexes offer better experience

Parameters Multiplex Single screen
No of screens 5 1
No. of seats/screen 150-250 500-1000
Technology Higher investments towards screens, sound and Digital screens present,
picture quality, Innovation quotient higher innovation quotient low
Comfort Better seating, air conditioning Lesser comfort
Convenience Online booking of tickets, food and seats Lesser facilities
Food & Beverages High variety, Premium offerings Limited offerings, Cheaper price
Ticket prices (INR) 200-250 30-100
The convenience provided by multiplexes—F&B offerings, experience, online ticketing,

location—has led to shift in consumers’ preference from single to multi-screens, especially
in tier-I and II markets.
Single screens a long term opportunity for multiplexes

Intensifying competition from multiplexes, low occupancy rates, piracy and high operational
costs are spelling doom for single screen theatres in tier II and III cities. Multiplexes are
giving single screens a run for their money and compelling many to convert their 500-1,000
seats single screens to two-three screens with ~250 or less seating capacity.

Media
Though this is likely to reduce the operational cost per show and allow greater programming
flexibility to single screen owners, we believe converting single screens in to a multiplex is
not an easy task. This is because the single screen has to be entirely demolished and altered
to provide the convenience and comfort of a multiplex to the audience. We expect
multiplexes to adopt the policy of retrofitting existing single screens, especially in tier II and
III markets where location is a major concern, considering the absence of malls and
commercial zones.
Table 6: Leading multiplex screen presence pan India

Screen Count
PVR Cinemas 771
Inox Leisure 574
Carnival Cinemas 425
Cinepolis India 350
Total 2,120
Source: Industry, Edelweiss research
Note – Screen count for PVR and INOX are as on FY19; Screen count for Carnival Cinemas and
Cinepolis India are as on CY18
Growth in in-cinema advertising and regional movies to sustain
The industry’s in-cinema advertising is estimated to post ~14% CAGR over CY18-21 to
INR11bn by CY21. Multiplexes offer national advertisers far greater reach and impact
bolstered by their pan-India presence. Blockbuster weekends attract premium pricing
where the premium can be in the 25-30% range above the average ad rate, thus
boosting in-cinema advertising.
Development of regional content will reduce dependence of multiplexes on bollywood

and provide cushion if any Hindi movie fails at the box office. Additionally, with
audiences opening up to differentiated and regional content, multiplexes’ dependence
on perceived stars has reduced, which is a positive in the long run.
Cinema ads getting into radar for advertisers

Over the years, proliferation of multiplexes and digitisation of screens have lured the
audience back in to theatres. This has led to monetisation of in-cinema advertising at
multiplexes, which is estimated to post ~14% CAGR to INR11bn over CY18-21. While on-
screen advertising can guarantee undivided attention of a captive audience, off-screen
promotions enable brands to leverage walls, seats, doors, interactive/entertainment zones,
etc., within a theatre’s premises.
Major spenders include sectors such as FMCG, banking, automobile, local real estate and
local retail. The ratio of local versus national advertisers is ~75:25. Blockbuster weekends
attract premium pricing where the premium can be in the 25-30% range above the average
ad rate, thus boosting in-cinema advertising.

Inox Leisure
Chart 47: In-cinema advertising to grow to INR11bn by CY21E

12.5
10.0
7.5
(INR bn)
5.0
2.5
0.0
2017 2018 2019E 2021E
In-cinema advertising (INR bn)
Source: FICCI KPMG report, Edelweiss research
Contribution from regional and hollywood movies on the rise

A positive development over the past few years has been the development of regional film
industries like Bengali and Marathi. While Hindi and Telugu movies are driven by content,
genre and stars, Bengali, Marathi and Malayalam movies are more content driven.
Development of regional content will reduce INOX’s dependence on bollywood and provide
a cushion in case any Hindi movie fails at the box office.
Further, increase in the number of multiplex screens has changed the mix of movies being
screened in cinema halls. This has led to increase in regional and hollywood content.
Multiple screens cater to more niche tastes as well as demand for regional and hollywood
content, while also showing bollywood content. In fact, most regional and hollywood
content is being released in Hindi also to reach the Hindi-speaking audience.
Table 7: Box office collections across languages

(INR bn) CY17 CY18
Bollywood films 48 49
Hollywood films 10 12
South Indian films 40 39
Other languages 11 10
Source: FICCI KPMG report, Edelweiss research

Media
Potent kickers for ATP growth
Multiplexes in India have lower average ticket prices (ATP) compared to the US.
However, ATP of Indian multiplexes to per capita GDP ratio is higher than global
standards (although absolute ATP is much lower), leaving limited room for rapid growth
in ATP. However, the share of 3D and hollywood movies, which usually fetch higher
ticket prices, is on the rise, which is likely to push up ATP. Additionally, innovative
theatre formats introduced by multiplexes will enable them to command a higher ATP.
India has very few entertainment options with movies and shopping in malls being high
on the list. Other options like theatre and stand-up comedy, which fetch high ATP, cater
to niche audiences. Hence, we believe, there is ample scope to hike ticket prices in the
medium term.
Online contribution, which was minuscule in initial years, ramped up significantly in

FY16. Even a 10% convenience fee charged by online platforms has had no major impact
on demand, which implies that customers are ready to pay extra for convenience.
Lower ATP (absolute) leaves room for hike

ATP of Indian multiplexes to per capita GDP ratio is higher than global standards, leaving
limited room for growth in ATP. However, in absolute terms, India’s ATP is much lower.
Compared to US’ ATP of USD8.4, India’s ATP (absolute) of USD2.3 is quite low. Also, with
gradual shutdown/conversion of single screens and large-scale industry-wide consolidation,
bargaining power of national multiplex chains is increasing.
Moreover, strong content also empowers multiplexes to command higher prices on an

opening weekend. Though there is immense scope to further increase ticket prices,
especially in tier II and III cities, the recent GST cut of 10% on movie ticket prices has slowed
down ATP growth. Over the long term, however, we expect the inflationary impact to grow
the ATP by 5-6% p.a. as in the past. While we believe multiplexes wield the power to
increase ATP, we would be watchful of the threat from OTTs which could dent footfalls.
Table 8: ATP - India versus US (adjusted for GDP)

Country ATP (USD) GDP per capita (USD) ATP/GDP per capita (%)
Japan 12.8 41,418.0 0.0308
Canada 8.1 48,601.0 0.0167
US 8.1 65,062.0 0.0125
Spain 8.5 31,906.0 0.0268
UK 10.9 42,036.0 0.0259
UAE 11.3 42,384.0 0.0266
India - Multiplex 2.3 2,188.0 0.1051
India - Single Screen 0.8 2,188.0 0.0366
Source: Worldatlas, World Bank, Edelweiss research

Inox Leisure
Dearth of alternative entertainment avenues to boost ATP

India lacks entertainment options, with movies and shopping at malls being high on the list.
Options such as theatre and stand-up comedy are for niche audiences. Besides, we believe
ticket prices of multiplexes should be compared with other outdoor entertainment options
like plays, live shows and concerts. Also, there is a huge price difference between theme
parks and multiplexes and people prefer visiting the latter rather than theme parks.
Comparing multiplex ticket costs with indoor entertainment options like TV will also be
unfair. We believe, family outings to Indian multiplexes are turning in to a lifestyle product
with the cinema experience enhanced by a variety of food offerings, superior audio & visual
technology and premium “viewing” environment. Taking in to consideration these aspects,
we believe multiplexes have ample scope to hike ticket prices in the medium term.
Table 9: Prices of different entertainment options

Entertainment options Prices (INR)
Amusmement parks 1000-1500
Music Concerts (Basic Pass) 500-2000
Live Plays 250-500
Stand-up comedy 300-500
Online ticketing spurring growth

Online contribution, which was minuscule in initial years, has increased significantly over the
past few years. Price transparency and hassle-free ticket booking have spurred demand for
online ticket booking. Patrons are increasingly availing the convenience of evolving
technology in movie viewing experience.
For instance, just by showing an SMS received on confirmation of a ticket booking a patron
can enter a theatre. Even a 10% internet handling fee on online booking has failed to dent
demand, which implies people are ready to pay that extra buck for convenience and ease.
Table 10: 10% convenience fee charged by multiplex players

Online booking Price per ticket (INR)
Movie price 250.0
Internet handling fees (10%) 25.0
CGST and IGST (18%) 4.5
Total price (INR) 279.5

Media
GST rate cut bodes well for multiplexes; local body tax a risk
Recent GST rate cut on movie ticket prices to be benign for multiplexes over the long
term.
The GST Council has slashed the rate from 28% to 18% on movie tickets priced above
INR100 and reduced it from 18% to 12% on tickets priced up to INR100.
Though this will force multiplexes to prune ATPs in order to pass on rate cut benefits,
we do not foresee any impact on net box office collection revenue.
GST rate cut to reflect in lower ticket prices; multiplexes to gain

The GST Council in its 31st meet announced reduction in GST rate on movie tickets—from
28% to 18% on tickets priced above INR100 and from 18% to 12% on tickets priced up to
INR100. In our view, this is a favourable development for movie patrons, exhibitors and
distributors. However, it will translate in to simultaneous dip in ticket prices going ahead as
benefits of the rate cut will have to be passed on to customers in compliance with anti-
profiteering guidelines.
Hence, we anticipate ~10% drop in ATPs for multiplex chains as well as single screens to be
effective starting 2019, whose biggest beneficiary will be movie goers. We do not expect any
material impact on revenue of multiplexes as the cut in ticket prices will be accompanied by
reduced tax rates. Therefore, net box office collection revenue of multiplexes will remain
intact. In addition, GST rates on F&B revenue have been cut from 18% in FY18 to 5% in FY19.
We believe, with movie tickets becoming more affordable, a sizeable portion of the
audience could migrate from single screens to multiplex format theatres, especially in tier-II
and III cities. This will be a big positive for multiplexes considering that these markets are
price-sensitive where multiplexes have traditionally faced strong competition from single
screens. However, the underlying assumption is that content performance remains steady.
State governments’ local body tax a concern

In recent past, two states—Madhya Pradesh and Kerala—introduced a local body tax on
movie tickets. Currently Madhya Pradesh, Kerala and Tamil Nadu levy entertainment tax
over and above the GST rate. While the risk to revenue is minimal as of now, contagion risk
due to other states following suit is higher and remains a concern.
Table 11: Local body tax across states

State LBT rate (%)
Bhopal (Madhya Pradesh) 15.0
Indore (Madhya Pradesh) 5.0
Kerala 10.0
Tamil Nadu (Tamil films) 8.0
Tamil Nadu (Other languages) 15.0
Source: FICCI KPMG Report, Edelweiss research

Inox Leisure
Appendix
INOX Group
The INOX Group, set up over 90 years ago, is an USD3bn group diversified across seven
business units. Currently, the Group's business includes leadership in industrial gases,
fluorocarbons, multiplexes and cryogenic engineering. It has three highly successful listed
companies and alliances with global majors including Fortune-500 companies. Together,
group companies employ more than 10,000 employees nationwide across 150+ business
units in India.
Fig. 4: INOX Group

 Listed on BSE and NSE
 A subsidiary of Gujarat Fluorochemicals Ltd. (GFL)
 Of the 51% stake owned by GFL in INOX Leisure, 98.9% is locked-in as of now
 141 properties in 67 cities comprising of 583 screens
 A subsidiary of INOX Leasing and Finance Limited – owns 52.5% stake
 Largest producer of chloromethanes, refrigerants and Polytetrafluoro-ethylene (PTFE) in
India
 Pioneer of carbon credits in India
 50:50 joint venture with Air Products and Chemicals Inc(USA)
 One of the largest manufacturers of industrial gases in India with 39 plants spread
throughout the country and has a turnover in excess of $100 Million.
 INOX India (INOXCVA) is a privately held company of the INOX Group

 Largest manufacturer of Cryogenic liquid storage and transport tanks in India and a reputed
supplier to leading international Gas Companies worldwide
 INOXCVA has its offices and manufacturing plants in USA, India, Brazil and Europe
 57% subsidiary of GFL, with a total promoter shareholding of 75%
 INOX Wind is India’s leading wind energy solutions provider servicing IPPs, Utilities, PSUs,
Corporates and Retail Investors.
 100% subsidiary of GFL
 INOX Renewables is engaged in the business of wind energy generation
 Owns and operates 259 MWs of operational capacity across Maharashtra, Rajasthan and
Tamil Nadu.
INOX Leisure’s first multiplex was set up in Pune on May 11, 2002. As of March 2019 end,
the company had presence across 67 cities with 574 screens (583 screens as of May 2019).
With strong corporate ethos and financial backing, the company has established credible
presence in the entertainment industry in a short span. It is also involved in the prestigious
International Film Festival of India (IFFI) held every year.

Media
Fig. 5: INOX’s footprint in FY19
The company is actively involved in acquisition or expansion opportunities. In 2007, it

acquired Calcutta Cinema (CCPL), a multiplex cinema theatre company based in West Bengal.
In 2011, it acquired Fame India, another leading multiplex chain. Further, INOX acquired
Satyam Cineplexes in FY15.
Fig. 6: INOX’s screen expansion trend

Inox Leisure
Table 12: Expected opening schedule in FY20

FY20 Screen Pipeline - Cities Properties Screens Seats
Lucknow (Opened) 1 4 803
Vadodara (Opened) 1 5 976
Hyderabad 1 8 1,678
Gurugram 2 8 970
Kolkata 1 2 342
Bengaluru 2 9 1,357
Gorakhpur 1 4 761
Lucknow 2 9 1,817
Jalandhar 1 3 822
Indore (existing) - 6 403
Pune 1 5 1,160
Delhi 2 6 498
Tumkur 1 5 1,000
Vijaywada 1 3 1,022
Salem 1 3 803
Total 18 80 14,412

Inox Leisure
Financial Statements - Consolidated

Key assumption Income statement (INR mn)
Year to March FY18 FY19 FY20E FY21E Year to March FY18 FY19 FY20E FY21E
GDP(Y-o-Y %) 6.7 7.1 6.3 6.8
Net revenues 13,481 16,922 20,831 24,127
Inflation (Avg) 3.6 3.7 3.7 4.0
Film exhibtion cost 3,673 4,442 5,438 6,263
Repo rate (exit rate) 6.0 6.3 4.8 4.8
USD/INR (Avg) 64.5 70.0 72.0 73.0 COGS of F&B 744 1,125 1,369 1,587
Company assumptions Employee expenses 964 1,152 1,432 1,639
Revenue assumptions Rent expense 2,642 3,186 - -
Footfall growth (%) (0.7) 17.3 12.2 12.0 S G &A expenses 3,354 3,925 6,084 6,997
Average Ticket Price (ATP) 193.0 197.0 199.0 202.4 Total operating expenses 11,377 13,830 14,323 16,486
Spend per head (SPH) 66.0 74.0 81.4 87.9 EBITDA 2,104 3,092 6,508 7,641
Net F&B revenue growth (%) 7.7 42.7 30.7 21.0
Depreciation & amortization 867 955 2,548 3,032
Ad revenue growth (%) 44.4 26.7 19.6 16.7
EBIT 1,237 2,137 3,960 4,609
Cost assumptions
Exhibition cost (% of NBOC) 45.8 45.6 46.0 46.5 Less: Interest Expense 289 237 2,150 2,300
COGS of F&B (% of F&B rev.) 24.3 25.8 24.0 23.0 Add: Other income 145 149 155 162
Employee cost (% of rev.) 7.1 6.8 6.9 6.8 Add: Exceptional items (116) (50) - -
Financial assumptions Profit before tax 977 1,999 1,965 2,471
Debtors days 17 18 16 15 Less: Provision for Tax (170) 656 495 623
Inventory days 8 7 7 7 Add: Share of profit from asso. (0) - - -
Payable days 83 89 86 79
Reported Profit 1,146 1,343 1,470 1,848
Cash conversion cycle (days) (59) (65) (63) (57)
Less: Excep. Items (Net of Tax) (116) (50) - -
Core capital expenditure 1,356 2,323 2,800 2,820
Tax rate (%) (15.5) 32.0 25.2 25.2 Adjusted Profit 1,263 1,393 1,470 1,848
No. of Shares outstanding (mn) 92 103 103 103
Adjusted Basic EPS 13.8 13.6 14.3 18.0
No. of Dil. shares OS (mn) 92 103 103 103
Adjusted Diluted EPS 13.7 13.6 14.3 18.0
Adjusted Cash EPS 23 23 39 48
Common size metrics- as % of net revenues

Year to March FY18 FY19 FY20E FY21E
Film exhibtion cost 27.2 26.3 26.1 26.0
COGS of F&B 5.5 6.6 6.6 6.6
Employee expenses 7.1 6.8 6.9 6.8
Rent expense 19.6 18.8 - -
S G &A expenses 24.9 23.2 29.2 29.0
Operating expenses 84.4 81.7 68.8 68.3
Depreciation and Amortization 6.4 5.6 12.2 12.6
Interest expenditure 2.1 1.4 10.3 9.5
EBITDA margin 15.6 18.3 31.2 31.7
EBIT margin 9.2 12.6 19.0 19.1
Net profit margins 9.4 8.2 7.1 7.7
Growth metrics
Year to March FY18 FY19 FY20E FY21E
Revenues 10.4 25.5 23.1 15.8
EBITDA 44.1 46.9 110.5 17.4
PBT 119.3 104.7 (1.7) 25.7
Adjusted Profit 295.7 10.3 5.5 25.7
EPS 295.7 (1.3) 5.5 25.7

Inox Leisure
Balance sheet (INR mn) Cash flow metrices (INR mn)
As on 31st March FY18 FY19 FY20E FY21E Year to March FY18 FY19 FY20E FY21E
Share capital 962 1,026 1,026 1,026 Operating cash flow 2,111 2,797 2,553 3,112
Reserves & surplus 5,735 8,612 6,642 8,490 Financing cash flow (540) (456) 156 (315)
Shareholders funds 6,696 9,638 7,668 9,516 Investing cash flow (1,539) (2,356) (2,675) (2,718)
Minority interest - - - - Net cash flow 33 (16) 34 79
Long term borrowings 2,524 550 22,590 22,590 Capex (1,356) (2,323) (2,800) (2,820)
Short term borrowings 404 749 950 800
Total Borrowings 2,928 1,299 23,540 23,390 Profitability & liquidity ratios
LT Liabilities & Provisions 858 817 882 934 Year to March FY18 FY19 FY20E FY21E
Deferred Tax Liability (net) (780) (439) (2,289) (2,289) Return on Average Equity (ROAE) (%) 20.7 17.1 17.0 21.5
Sources of funds 9,702 11,316 29,801 31,551 Pre-tax Return on Capital Employed (ROCE)
15.0 (%) 22.2 19.5 14.9
Gross Block 9,624 11,947 14,747 17,567 Inventory days 8 7 7 7
Net Block 7,427 8,939 27,422 29,175 Debtors days 17 18 16 15
Capital work in progress 539 637 637 637 Payable days 83 89 86 79
Intangible assets 291 286 275 259 Cash Conversion Cycle (59) (65) (63) (57)
Total Fixed Assets 8,257 9,861 28,334 30,071 Current Ratio 1.6 1.5 1.5 1.4
Non current investments 12 6 6 6 Gross Debt/EBITDA 1.4 0.4 3.6 3.1
Cash and cash equivalents 274 143 177 256 Gross Debt/Equity 0.4 0.1 3.1 2.5
Inventories 94 122 133 154 Adjusted Debt/Equity 0.4 0.1 3.1 2.5
Sundry debtors 761 882 948 1,075 Interest Coverage Ratio 4.3 9.0 1.8 2.0
Loans & advances 1,478 1,806 1,709 1,661
Other Current Assets 1,162 1,439 1,544 1,629 Operating ratios
Total current assets (ex cash) 3,495 4,249 4,334 4,519 Year to March FY18 FY19 FY20E FY21E
Trade payable 1,132 1,596 1,611 1,775 Total asset turnover 1.4 1.6 1.0 0.8
Other Current Liab & ST Prov. 1,205 1,348 1,438 1,526 Fixed asset turnover 1.8 2.0 1.1 0.8
Total current liabilities & prov. 2,337 2,944 3,048 3,301 Equity turnover 2.2 2.1 2.4 2.8
Net current assets (ex cash) 1,158 1,305 1,285 1,218
Uses of funds 9,702 11,316 29,802 31,552 Valuation parameters
Book value per share 73 94 75 93 Year to March FY18 FY19 FY20E FY21E
Adjusted Diluted EPS (INR) 13.7 13.6 14.3 18.0
Free cash flow (INR mn) Y-o-Y growth (%) 295.5 (1.2) 5.5 25.7
Year to March FY18 FY19 FY20E FY21E Adjusted Cash EPS (INR) 23.2 22.9 39.2 47.6
Reported Profit 1,146 1,343 1,470 1,848 Diluted Price to Earnings Ratio (P/E) (x)2 4.3 24.6 23.3 18.5
Add: Depreciation 867 955 2,548 3,032 Price to Book Ratio (P/B) (x) 4.6 3.6 4.5 3.6
Interest (Net of Tax) 334 161 1,608 1,720 Enterprise Value / Sales (x) 2.5 2.1 2.8 2.4
Others (341) 250 (3,113) (3,607) Enterprise Value / EBITDA (x) 15.8 11.4 8.8 7.5
Less: Changes in WC (105) (88) (40) (119)
Operating cash flow 2,111 2,797 2,553 3,112
Less: Capex 1,356 2,323 2,800 2,820
Free cash flow 755 474 (247) 292
Peer comparison valuation

Market cap Diluted P/E (X) P/BV (x) ROAE (%)
Name (USD mn) FY20E FY21E FY20E FY21E FY20E FY21E
INOX Leisure 482 23.3 18.5 4.5 3.6 17.0 21.5
PVR 1,223 38.1 29.7 9.4 7.2 17.6 22.5
Median - 30.7 24.1 6.9 5.4 17.3 22.0
Average - 30.7 24.1 6.9 5.4 17.3 22.0

Media
Additional Data
Directors Data
Pavan Jain Chairman Haigreve Khaitan Independent Director
Vivek Jain Non-Executive Director Amit Jatia Independent Director
Deepak Asher Non-Executive Director Kishore Biyani Independent Director
Siddharth Jain Non-Executive Director Girija Balakrishnan Independent Director
*as per last available data
Auditors - M/s. Kulkarni and Company
Holding – Top10
Perc. Holding Perc. Holding
HDFC Asset Management 7.18 Sundaram Asset Management 3.64
Aditya Birla Sun Life Asset Management 2.62 DSP Investment Managers 2.03
TAIYO Greater India Fund 1.66 Dimensional Fund Advisors 1.61
Reliance Capital 1.47 BNP Paribas Asset Management 1.38
ICICI Prudential Asset Management 1.15 Morgan Stanley 0.90
*as per last available data
Bulk Deals
Data Acquired / Seller B/S Qty Traded Price
No Data Available
*in last one year
Insider Trades
Reporting Data Acquired / Seller B/S Qty Traded
No Data Available
*in last one year

RATING & INTERPRETATION
Inox Leisure
Company Absolute Relative Relative Company Absolute Relative Relative

reco reco risk reco reco Risk
DB Corp HOLD SU M DEN Networks HOLD SU H
Dish TV India HOLD SU M Hathway Cable & Datacom HOLD SP M
Jagran Prakashan HOLD SU M PVR BUY SO M
Sun TV Network BUY SO H Zee Entertainment Enterprises BUY SP M
ABSOLUTE RATING
Ratings Expected absolute returns over 12 months
Buy More than 15%
Hold Between 15% and - 5%
Reduce Less than -5%
RELATIVE RETURNS RATING

Ratings Criteria
Sector Outperformer (SO) Stock return > 1.25 x Sector return
Sector Performer (SP) Stock return > 0.75 x Sector return
Stock return < 1.25 x Sector return
Sector Underperformer (SU) Stock return < 0.75 x Sector return
Sector return is market cap weighted average return for the coverage universe
within the sector
RELATIVE RISK RATING

Ratings Criteria
Low (L) Bottom 1/3rd percentile in the sector
Medium (M) Middle 1/3rd percentile in the sector
High (H) Top 1/3rd percentile in the sector
Risk ratings are based on Edelweiss risk model
SECTOR RATING
Ratings Criteria
Overweight (OW) Sector return > 1.25 x Nifty return
Equalweight (EW) Sector return > 0.75 x Nifty return
Sector return < 1.25 x Nifty return
Underweight (UW) Sector return < 0.75 x Nifty return

Media
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ADITYA
Digitally signed by ADITYA NARAIN
Aditya Narain DN: c=IN, o=EDELWEISS SECURITIES LIMITED,
ou=SERVICE,
2.5.4.20=3dc92af943d52d778c99d69c48a8e0c
89e548e5001b4f8141cf423fd58c07b02,
Head of Research
NARAIN
postalCode=400011, st=MAHARASHTRA,
serialNumber=e0576796072ad1a3266c27990f
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aditya.narain@edelweissfin.com cn=ADITYA NARAIN
Date: 2019.10.16 12:59:43 +05'30'
Coverage group(s) of stocks by primary analyst(s): Media

DB Corp, DEN Networks, Dish TV India, Hathway Cable & Datacom, Jagran Prakashan, PVR, Sun TV Network, Zee Entertainment Enterprises
Recent Research
Date Company Title Price (INR) Recos
09-Oct-19 Media New quarter, same story;

Result Preview
24-Sep-19 Sunt TV Beaming bright; 499 Buy
Network Company Update
29-Aug-19 PVR A clearer picture; 1,580 Buy
Company Update
Distribution of Ratings / Market Cap

Edelweiss Research Coverage Universe Rating Interpretation
Buy Hold Reduce Total Rating Expected to
Rating Distribution* 161 67 11 240 Buy appreciate more than 15% over a 12-month period
* 1stocks under review
Hold appreciate up to 15% over a 12-month period
> 50bn Between 10bn and 50 bn < 10bn
Reduce depreciate more than 5% over a 12-month period
Market Cap (INR) 156 62 11
One year price chart

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Inox Leisure

Inox Leisure
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Media
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Inox Leisure
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Inox Leisure Initiating Coverage Oct 19 EDEL

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Inox Leisure Initiating Coverage Oct 19 EDEL

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INITIATING COVERAGE

Inox Leisure (INOX), India’s second-largest multiplex operator, is an

Net Box office collection Net Food & Beverages

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Highly under-penetrated industry implies huge untapped opportunity

Ample firepower to expand screen count

Siddharth Jain Superior margin segments on a roll; more cheer in store

Catalysts in place for blockbuster profitability

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“Cinema journey would be more

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From a broader lens…

What fed multiplexes’ growth?

 robust content performance;

 increased ticketing convenience;

 significant improvement in customer experience (over single screens).

We perceive this under-penetration as a huge opportunity. Besides, multiplexes’ market

What makes multiplexes different from single screens?

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Will it stand the test of time?

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What makes INOX Leisure a ‘BUY’?

We further evaluate pertinent company-specific questions to explain our stance.

b) What’s the strategy? How’s the business positioned?

Fig. 1: SWOT analysis

Source: Edelweiss research

e) How does the valuation look?

f) What are the risks?

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Local body tax levied by state governments

Regulation on pricing and anti-profiteering

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Screen expansion robust in FY19; screen strategy changing

Major expansion plans on the anvil

Table 1: Past deals in the multiplex industry

Reduction in overhead costs: Consolidation always results in reduction of overheads.

Tweaking screen strategy

Chart 7: INOX added 85 screens in FY19 (82 on net basis)

Table 2: Screen presence by zone

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F&B spends to log healthy spurt

Robust growth in FY19

We see the SPH gap between INOX 90

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Chart 9: Net F&B revenue and footfall trend – INOX

Chart 10: SPH and footfall trend – INOX

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Expansion to boost ad revenue

Advertisements: Key revenue churner; Scale benefits to spur growth

Focus on enhancing experience through luxury/differentiated formats

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Fig. 2: INOX properties’ visuals

Source: Company, Edelweiss research

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Revenue growth momentum to sustain

Superior margin segments to drive profitability

Broad based revenue growth to transpire

We expect the company to report Chart 14: Revenue growth

Chart 15: NBOC revenue growth

Chart 18: Secular growth to translate in margin expansion

EBITDA (INR mn) EBITDA margin (%)

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Chart 19: PAT to grow steadily