Analysts bullish on Inox Leisure

ET INTELLIGENCE GROUP: Steep valuation gap between multiplex companies Inox Leisure and PVR has convinced analysts to recommend Inox Leisure for the next two years. For FY18 estimated earnings, the stock of Inox Leisure is trading at a price to earnings multiple of 25, while the industry leader PVR is trading at a price to earnings multiple of 29.5 for the same period.

An important reason for this valuation gap is the scalability of Inox's operations. The exhbitor is scaling up its operations and catching up with PVR. Inox also has well-diversified presence with close to 20% of India's total multiplex screen count. The company has close to 8% of the domestic box office collections. With close to 413 screens, which is close to its peer PVR that had 491 screens as of December 2015 quarter. By the end of the present fiscal, Inox is targeting 435 screens and analysts estimate that the exhibitor may achieve a screen count of 477 by the end of FY17. This should boost its revenue growth in the coming quarters. It should also provide better revenue sharing deals with producers and distributors.

This expansion needs to be seen in the light of the fact that the multiplex industry has been in consolidation phase. Those exhibitors with high screen share and strong balance sheet would continue to have edge in terms of good growth in average ticket prices and food and beverages revenues. Inox with an average ticket price of Rs179 is poised to grow in the coming quarters due to pan-India presence and reasonably good line up of films this year.