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This multiplex stock jumped 47% in 2019 despite slump in consumer spending

This multiplex stock jumped 47% in 2019 despite slump in consumer spending

By Moneycontrol News Dec 12, 2019 6:43:10 AM IST (Updated)

Brokerages expect up to 30 percent upside.

Union Minister Ravi Shankar Prasad came in for sharp criticism when he pointed to the box-office collections of some films to say the economy was doing fine. But there is one stock, with strong links to films, which has indeed beaten the odds.

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Consumer spending declined for the first time in 2019 in four decades but shares of speciality retail player INOX Leisure have jumped more than 47 percent on BSE, as of December 9 close. The equity benchmark Sensex has gained more than 12 percent in the same period.
Stocks outperforming the market benchmark is not an unusual phenomenon, but what makes INOX Leisure's rise special is that it brushed aside the slump in consumer spending.
Brokerages are bullish on INOX’s aggressive expansion strategy, focus on premiumisation and ramp-up of margin-accretive segments.
The stock is trading at FY21 PE and EV/adjusted EBITDA of 18 times and 8 times, respectively.
Brokerage firm SBICAP Securities has a 'buy' recommendation on INOX with a target price of Rs 415. The upside potential for this recommendation is 14 percent.
"We estimate revenue and adjusted EBITDA to grow at a CAGR of 17 percent and 24 percent, respectively, during FY19-21E," said SBICAP Securities.
At a recent analyst meeting, the company said that its strategic focus areas include loyalty program, through which it hopes to collect data.
"We highlight that INOX is the first to come out with a tier-based loyalty programme and the management expects it to be profit-generating in the long term. It is pertinent to note here that Jet airways had successfully created a loyalty program Jet Privilege, which helped it raise funds by unlocking value and was instrumental in driving repeat purchase," SBICAP Securities said.
"The single largest takeaway for us is the fact that senior management has a very clear thought process and a decisive action plan; we see these as positives. The company’s efforts over the last three years to catch up with PVR have paid off well so far and we expect this improvement to continue."
INOX has 600 operational screens and 900 screens are in the pipeline. Last year, it added 85 new screens, and this year’s target was around 70.
The multiplex industry, SBICAP Securities says, will remain a three-player industry as running a cinema business is not easy. It’s difficult to set up cinema business from scratch, as it involves real estate, infra, hardware, lease and malls. If any stretched asset is on the block for sale or rent, the company is ready to grab it. Therefore, there is a scarce possibility of any new player in this business.
Over-the-top services are seen as a threat to multiplex players. The company acknowledges that there will be cannibalisation if the movie releases in cinemas and on OTT the same day.
However, there is a 12-week window globally and an eight-week window in India and the company doesn’t see this window going away any time soon.
Brokerage firm Prabhudas Lilladher has a 'buy' recommendation on INOX, with a target price of Rs 416.
"We believe INOX’s premiumisation approach and strategy to focus on metro and tier-1 markets is yielding rich dividends. Negligible debt and strong screen pipeline visibility (nearly 900 new screens are in fray backed by signed agreements) gives additional comfort. We maintain our buy rating with a target price of Rs 416, valuing the stock at an EV/EBITDA multiple of 8.7 times on FY21 Ind-AS compliant earnings," Prabhudas Lilladher said.
Brokerage firm Firstcall Research has an 'overweight' view on the stock for medium to long-term investment.
"Earnings per share (EPS) of the company for FY20E and FY21E are seen at Rs 13.89 and Rs 15.67, respectively. Net sales and PAT of the company are expected to grow at a CAGR of 20 percent and 12 percent over 2018 to 2021E, respectively. The price to book value of the stock is expected to be at 3.69 times and 3.28 times for FY20E and FY21E, respectively," said Firstcall Research.
Edelweiss Securities has a buy recommendation on the stock with a target price of Rs 475.
"We are retaining the target 20 times EPS yields a target price of Rs 475 and maintain a buy. The stock is trading at about 27 times and 21 times FY20 and FY21E EPS, respectively, (18 times/15 times ex-Ind AS 116 adjustment)," said Edelweiss Securities.
IDBI Capital, too, has a buy recommendation on INOX with a target price of Rs 422.
IDBI expects FY20E EBITDA of INOX to the tune of Rs 381.3 crore, up 23 percent YoY. "H1FY20 EBITDA is 50.3 percent of our forecast. We forecast FY20 EBITDA margin to improve by about 30bps YoY to 18.5 percent and forecast it to remain flattish at 18.6 percent in FY21E," IDBI Capital said.
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