During Q3FY09,Inox reported a 7% y-o-y growth in topline and a 36% y-o-y drop at the PAT level due to deteriorating operating leverage.

Despite strong performance of key movies during the quarter, the company reported poor numbers that were way below our estimates. In our opinion, the company has failed to capitalize on an otherwise strong content supply.

Inox’s 7% q-o-q growth in topline during what is considered to be the best quarter of the year so far, clearly indicates that a weak macro environment has taken a toll on the occupancies.

Moreover, supply of content and screen space is not likely to improve in the forthcoming quarters due to the liquidity crunch. Consequently, we expect Inox to report a muted topline growth, going forward.

Inox’s 9MFY09 topline stands at 84% of it reported net sales in FY08. At the PAT level, the company has been able to achieve only 41% of the FY08 PAT.

In light of these numbers, we are lowering FY09E topline estimates by 7% and PAT estimates by 50%.

We are downgrading our rating on the stock from Buy to SELL with a target price of Rs21 (Rs67 earlier). Currently, the stock trades on a P/E of 15.4x and 17.3x of our estimated FY09E and FY10E diluted EPS respectively.