For 4QFY2008, Inox reported a subdued topline growth of 18.4% y-o-y to Rs39.3 crore as lower Occupancy led to a muted 13.4% y-o-y growth in footfall. However, 4QFY2008 numbers are not strictly comparable on a y-o-y basis owing to inclusion of Calcutta Cine Pvt Limited’s (CCPL) financials.
On the operating front, the company delivered a dismal performance for the quarter registering a 790bp decline in operating margin to 10% (17.9%) largely owing to a sharp 782bp increase in other expenditure and 287bp rise in staff costs.
The sharp jump in other expenditure has been attributed to higher rental (as new property additions are on a lease basis) and power costs. However, on a full year basis, the company registered a 391bp decline in operating margin to 21.8% (25.7%).
Going ahead, we believe Margins would improve (owing to a lower base in FY2008) as fixed costs get spread over a larger revenue base. However, rising E-tax outflow and execution in terms of property addition remain the key factors to watch out for.
During FY2008-10, we expect Inox to register a CAGR of 35.1% in topline mainly driven by addition in seating capacity as we expect ATP and F&B Spend to improve only marginally.
We also expect the screens to increase from the current 84 to 111 in FY2009 and 142 in FY2010. At the operating front, margins are expected to improve by 250bp over FY2008-10 (largely owing to a lower base effect in FY2008) driving a robust 42.7% CAGR in EBITDA supported by lower overheads (spread over a larger screen base).
At the CMP of Rs184, Inox is trading at 13.4x FY2010E EPS, which is relatively expensive compared to its peers and leaves little upside for investors. We maintain our NEUTRAL view on the stock.