Inox Leisure (INOX), India’s second-largest multiplex operator, is an attractive play owing to its aggressive expansion plans, premiumisation, and ramp-up of margin-accretive ad and F&B revenues, not to mention the closing gap with market leader PVR. With a healthy balance sheet and negative working capital, the company is well placed to expand.

Blockbuster prospects: Low penetration, robust expansion

Given the low multiplex screen penetration in India, robust movie pipeline (India produces the highest number of movies in the world), rapid urbanisation, and the ongoing shift from unroganised to organised retail provide strong tailwinds to the multiplex industry. The company's low debt implies ample firepower for its expansion plans.

Higher-margin businesses likely to grow faster

F&B and advertisement revenue streams deliver superior margins and are likely to outgrow net box office revenue. F&B contributes 26% to revenue, yielding a gross margin of 72–75%. Ad revenue, which makes up 10% of total revenue, too generates a superior margin of 85–90%.

Outlook and valuation: Bright prospects;

Inox should clock PAT CAGR of 35% over FY19–21 underpinned by: i) aggressive expansion; ii) uptick in F&B and ad revenues; and iii) ramp-up of premium formats. Stock trades at ~16x FY20 EPS, at over a 30% discount to PVR. Interesting stock to consider.

Disclaimer: The above report is compiled from information available on public platforms. inChat team advises users to check with certified experts before taking any investment decisions.

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