Short-term blip in Inox Leisure’s footfalls
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If it wasn’t for the release of Dangal during the December quarter, Inox Leisure Ltd’s footfalls would have been even lower. Inox’s footfalls declined 3% year-on-year last quarter, as demonetisation-led cash crunch discouraged people from watching films at multiplexes. The occupancy rate also dropped. Add to that the fact that, apart from Dangal, the movie content pipeline was rather unspectacular.
Movies such as Rock on 2, Force 2 and Kahaani 2: Durga Rani Singh, under-delivered at the box office. A combination of these factors meant Inox’s net box office revenue, which contributed 59% of the total revenue, declined 3%. But other revenue streams—food and beverages, advertising and other operating revenues—cumulatively saw 4.5% growth. The upshot: overall December quarter revenue ended flat compared to the year-ago quarter.
What’s more disappointing is that operating profit margin declined as much as 728 basis points to 10.6%. Cost components such as property rent, common facility charges, other expenses and employee costs were the main villains, rising much faster than revenue growth. One basis point is one-hundredth of a percentage point.
Operating profit dropped about 40% to Rs31.7 crore. Profit after tax declined even more sharply by 79% to Rs3.6 crore on account of higher depreciation and finance costs.
After a rather disastrous show, investors will watch whether footfalls improve. It is encouraging that the movie content pipeline looks strong. This quarter, films such as Raees, Kaabil, Jolly LLB 2, Rangoon and Sarkaar 3 are slated for release.
The footfall growth recovery would be gradual and more content-led as seen with Dangal, pointed out analysts from ICICI Securities Ltd. The brokerage firm said that the footfall blip is a near term phenomenon and growth in footfall will rebound with superior content ahead. “There has been a shift from cash bookings to digital bookings with the latter being 61.0% of their overall bookings in Q3FY17 from 43.0% in Q1FY17,” said ICICI Securities. This trend is likely to continue.
Inox’s shares have underperformed the BSE 500 index in the last three months, thanks to concerns related to demonetisation. Currently, the Inox stock trades at 22 times estimated earnings for financial year 2018 based on Bloomberg estimates. Inox intends to exit financial year 2017 with 479 screens. After FY17, it is looking to add 411 screens, eventually taking its screen count to 890. These expansions will add to revenue over the medium term. But in the near-term, the stock will take cues from film content performance and the resultant improvement in footfall.