INOX Leisure: is the second-largest multiplex player in India with 79 properties

2 July 2014

Inox Leisure

spotlight

The Idea Junction

Stock Info

Bloomberg

CMP (INR)

Equity Shares (m)

M.Cap. (INR b)/(USD b)

52-Week Range (INR)

1,6,12 Rel. Perf. (%)

INOL IN

160

96.2

14.8/0.2

167/51

15/18/124

Cinema paradiso

Exhibiting signs of growth



Financials & Valuation (INR b)

INOL is the second-largest multiplex player in India with 79 properties, 310 screens

and 83,809 seats with ~15% Bollywood and 25-30% Hollywood market share.

Management plans to increase the aggression by opening ~83 screens in FY15, which

should lead to faster growth, going forward.

We expect INOX (Global) to improve its key matrices like ATP and SPH going forward,

with increased focus on North India market (only 9% of revenue), which should help to

drive growth and market share.

Management expects ad revenue/screen to grow at 50% over the next two years,

thereby leading to higher growth and margin expansion.

With the expansion into newer geographies like North India, higher number of movie

releases per annum and improved content, we expect an occupancy rate of 29% by

FY16E.

INOL's management expects GST implementation to result in 200bp margin expansion.

We expect INOL to post a revenue CAGR of 25.5% and PAT CAGR of 46% over FY15-17E,

primarily due to newer screen additions and higher growth in ad revenue. The stock

trades at 19.3x FY16E and 13.4x FY17E earnings.

Y/E March

Sales

EBITDA

EPS (INR)

EPS Gr. (%)

BV/Sh. (INR)

RoE (%)

RoCE (%)

Payout (%)

Valuations

P/E (x)

P/BV (x)

EV/EBITDA (x)

Div Yield (%)

28.6

3.5

10.8

0.6

19.3

3.1

8.3

0.6

13.4

2.5

6.4

0.6

2015E 2016E 2017E

11.1

1.6

0.5

5.6

45.9

45.1

13.1

16.1

20.7

14.2

2.1

0.8

8.3

47.8

52.2

17.0

19.6

14.0

17.6

2.7

1.1

11.9

44.5

63.0

20.7

23.7

9.7



Pure play focus on exhibition business, aggressive expansion

Movie exhibition industry is highly concentrated with three large focused players,

namely PVR, INOL and Big Cinemas, which are in an aggressive expansion mode

and hence the best plays. Historically, INOL has been adding ~29 screens on an

average over the last three years, which the management plans to increase the

aggression by opening ~83 screens in FY15, which should lead to faster growth,

going forward. We expect the gap between PVR to reduce with the expansion,

which will lead to a re-rating going forward.

Shareholding pattern (%)

As on

Mar-14 Dec-13 Mar-13

Promoter

48.7

66.6

Dom. Inst

3.5

2.1

2.3

Foreign

1.2

0.8

Others

46.6

48.0

30.4

Stock performance (1 year)

Focus to improve presence in North India to drive growth

INOL has ~116 screens in west and 45 screens in North India, compared to PVR's 200

screens in west and 125 in north. In our view, this has been the primary reason for

higher ATP, SPH and ad revenue/screen for PVR. However, we expect INOL to

improve its matrices going forward, with increased focus on North India market

(only 9% of revenue), which should help to drive growth and market share.

Spotlight

is a new offering from the Research team at Motilal Oswal. While our Coverage Universe

is a wide representation of investment opportunities in India, there are many emerging names in the

Mid Cap Universe that are not under coverage. Spotlight is an attempt to feature such mid cap stocks

by visiting such companies. We are not including these stocks under our active coverage at this point

in time. Motilal Oswal Research may or may not follow up on stocks under Spotlight.

Niket Shah

(Niket.Shah@MotilalOswal.com); +91 22 3982 5426

Sagar K Shah

(Sagark@MotilalOswal.com); +91 22 3312 4958

Investors are advised to refer through disclosures made at the end of the Research Report.

RED: Caution

AMBER: In transition

GREEN: Interesting

spotlight

| Inox Leisure

Key matrices set to improve

ATP is a factor of content release in a year and right location of screens, which provide the ability

to charge a premium pricing. While PVR's ATP was at INR168, INOL was at INR156 in FY14, a

difference of 7%. We believe it was in favor of PVR primarily due to higher contribution from

North and West India, higher 3D movie content and higher share of Hollywood movies. Given

INOL's focus on adding newer screens in prime locations, increased contribution of Hollywood

and higher 3D movie releases, we expect its ATP to increase from INR156 in FY14 to INR172 in

FY16E, posting 5% CAGR. With footfalls expected to increase from 38.6m in FY14 to 58m in FY16E,

we believe that INOL will derive the benefit of economies of scale going forward in lower cost

of F&B procurement, as it plans to add ~140-150 screens in the next two years. INOL's occupancy

rate has improved from 23% in FY11 to 28% in FY14, post its acquisition of Fame. With the

expansion into newer geographies like North India, higher number of movie releases per annum

and improved content, we expect an occupancy rate of 29% by FY16E.

Huge potential to scale up ad revenue/screen

INOL's ad revenue has grown from INR172m in FY11 to INR495m in FY14, marking a CAGR of 42%,

while ad revenue/screen has increased from INR1m in FY11 to INR1.7m in FY14. However, this is

lower than PVR's ad revenue/screen of INR3.6m as its pricing, duration of contracts and

monetization of area is much better. INOL derives ~70% of ad revenue from on-screen and

balance 30% from off-screen. Around 60% of PVR's contracts are annual ones, an area where

INOL has started to focus. INOL has hiked its ad rates and focused on high value and long term

deals and also started monetizing the lobby area, which resulted in 50% growth in ad revenue/

screen in FY14, much higher than PVR. Management expects ad revenue/screen to grow at 50%

over the next two years, faster than PVR's guidance of 20%, thereby leading to higher growth

and margin expansion.

GST - game changing event for multiplex businesses

High entertainment tax is a major impediment for exhibition industry's growth. The overall tax

implication is as high as 40-50% in states like Maharashtra, Uttar Pradesh, etc. However, post

GST, the peak rate is likely to be ~16%, leading to significant cost reduction. Also, input tax credit

will be available for setoff against the output tax liability (service tax paid presently on rent,

electricity, security, housekeeping etc is not available for setoff against output liability of

entertainment tax or VAT). INOL's management expects GST implementation to result in 200bp

margin expansion.

Valuation

We expect INOL to post a revenue CAGR of 25.5% from INR11.4b in FY15E to INR17.5b in FY17E,

primarily due to newer screen additions and higher growth in ad revenue. PAT is expected to

increase from INR0.6b in FY15E to INR1.2b in FY17E, marking 46% CAGR. Inox has treasury stock

which comprises of ~21% of total share capital, purchased at a consideration of ~INR75 per share

on its balance sheet with debt of INR2.2b at end of FY14. The stock trades at 19.3x FY16E and

13.4x FY17E earnings.

2 July 2014

spotlight

Inox Leisure

India’s 2

largest multiplex chain on growth trajectory

Pure play focus on exhibition business ensures efficiency

INOL is the second-largest

multiplex player in India

with 79 properties, 310

screens and 83,809 seats

Movie exhibition industry is highly concentrated with two to three large players

controlling the industry. While PVR is the leader with a presence of 421 screens

spread across 97 properties with 101,095 seats, INOL is the second-largest multiplex

player in India with 79 properties, 310 screens and 83,809 seats at the end of FY14.

We believe that INOL’s Bollywood market share stands ~15%, compared to PVR’s

~20-22%, and ~25-30% in Hollywood versus PVR’s 30-35% share. In the multiplex

segment, we believe there are only three focused players – PVR, INOL and Big

Cinemas -- which are in an aggressive expansion mode and hence best plays in

exhibition business. INOL’s focus solely on the exhibition business and planned

aggression to open newer screens will aid it grow at a faster rate, going forward.

Multiplex screens in India

Number of Screens

421

310

259

366

Source: Company, MOSL

Comparison of key matrices

Particulars

Properties

Screens

Seats

Cities

Total Revenues (m)

EBITDA (m)

EBITDA Margin (%)

PAT (m)

Admits (m)

ATP (INR)

SPH (INR)

PVR

421

101,095

12,769

2,064

579

168

INOL

310

83,809

8,690

1,219

369

156

Source: Company, MOSL

2 July 2014

spotlight

Inox Leisure

Aggressive expansion to aid reduce gap with PVR

INOL is in the process of

opening 20 new properties

with 83 screens and

~19,000 seats by FY15

Historically, INOL has been expanding ~29 screens on an average over the last three

years, compared to PVR’s addition of ~35 screens. However, management plans to

increase the aggression by opening ~83 screens in FY15, compared to PVR’s

guidance of ~65-70. Going forward, we expect this gap to reduce with the expansion

plans, which will also lead to a re-rating of the stock.

Screen additions during the year

Total number of screens

Inox

PVR

421

310

485

375

535

430

Inox

PVR

239

123

119

142

257

166

360

285

FY10

FY11

FY12

FY13

FY14

FY15E

FY16E

FY12

FY13

FY14

FY15E

FY16E

Source: Company, MOSL

Screen addition pipeline for FY15

Property / City

Vizag

Jamnagar

Jalgoan

Manipal

Gurgaon

Faridabad

Lucknow

*Panchkula

Vijayawada

Ajmer

Kurnool

Pune

Thrissur

Kota

Bhiwadi

Jammu

Bangalore

Goa

Mangalore

Cuttack

Total screens

Location

Jagadamba Centre

Saat Rasta,Khambhaliya Main road

Station Road

Syndicate circle

Old Railway Road

Sector 20 ,Delhi- Mathura Road

Mohanlal Ganj, Rae Bareli Road

Sector 5

Canal Guest House, MG Road

Panchsheel Nagar

Bellary Road

NIBM Ext Road

Guruvayu Road

DCM Road

Alwar Bypass

Nawabad

Yelahankha, Bellary road

Porvorium

Kulshekar

Town Hall Road

No of screens

Source: Company, MOSL

2 July 2014

spotlight

Inox Leisure

Strong matrices to charter growth

ATP, SPH set to improve going forward

There is no significant

difference in key matrices

between INOL and PVR,

which is a testimony of the

fact that INOL’s properties

are located in prime

locations and have

pricing power

ATP is a factor of content release in a year and right location of screens to charge a

premium pricing. While PVR’s ATP was at INR168, INOL’s ATP was INR156 in FY14, a

difference of 7%. We believe the difference is in favor of PVR primarily due to higher

contribution from North and West India, higher content of 3D and higher share of

Hollywood. Given INOL’s focus on adding newer screens in prime locations, we

expect its ATP to increase from INR156 in FY14 to INR172 in FY16E, posting 5%

CAGR.

F&B is a 70% gross margin business, with growth partially related to footfalls. While

PVR has been able to grow its SPH by 13% in FY14, INOL increased it by 4.3%

primarily on newer products being launched and ability to increase prices based on

better location advantage. However, we believe that INOL will derive the benefit of

economies of scale going forward from lower cost of procurement, as it plans to add

~140-150 screens in the next two years.

ATP gap reduces over the period

Inox

162

152

156

163

160

PVR

168

156

178

164

188

172

INOL’s SPH set to improve

Inox

PVR

FY11

FY12

FY13

FY14

FY15E

FY16E

FY11

FY12

FY13

FY14

FY15E

FY16E

Source: Company, MOSL

Key advertisers

Source: Company, MOSL

2 July 2014

spotlight

Inox Leisure

Increased Hollywood content to drive occupancy, ATP

INOL derives 15% of its

INOL derives 15% of its revenue from Hollywood movies, compared to just 8% for

revenue from Hollywood

the industry. This not only enables it to achieve higher ATP, but also ensures content

movies, compared to just

risk diversification. We believe with the popularity of English movies and demand

8% for the industry

for 3D content, contribution from Hollywood movies will increase, going forward.

Hollywood movie contribution higher compared to industry

Hollywood Contribution

Bollywood Contribution

Regional Contribution

16%

66%

18%

FY11

17%

65%

19%

FY12

17%

67%

16%

FY13

16%

70%

44%

48%

15%

FY14

Industry

Source: Company, FICCI KPMG 2014, MOSL

Higher contribution from 3D content to support ATP growth

Indian audiences are getting acquainted with 3D technology but Indian film makers

are yet to master the art of making 3D movies matching the quality levels of

Hollywood. High quality content can be achieved only shooting the film completely

in 3D. However, this is expensive, forcing filmmakers to convert 2D content to 3D.

India has emerged as an outsourcing base for 3D related conversion of Hollywood

films and ample talent is being developed in the country for 2D to 3D conversion.

In FY11, INOL derived ~5%

of its ticket revenue from

3D movies, which improved

to 10% in FY14

In FY11, INOL derived ~5% of its ticket revenue from 3D movies, which improved to

10% in FY14 (PVR contribution at 23%). ATP for 3D movies enjoy 15-20% premium

over regular 2D movies, thus taking the overall ATP higher. We believe that with

wide acceptance of 3D movies and more Bollywood movies being shot in 3D, ATP

can increase from the current levels.

3D content of overall exhibition is rising

3D Content (%)

10%

FY11

FY12

FY13

FY14

Source: Company, MOSL

2 July 2014

spotlight

Inox Leisure

More INR1b movies to support occupancy rates, ATP

In 2008, Ghajini became the first movie to cross INR1b collection at the box office,

setting a new benchmark for Bollywood. However, its exclusivity seems to be fading,

with an increasing number of films crossing the INR1b threshold. In 2012, nine

Bollywood movies crossed the coveted INR1b mark, compared with just five in 2011.

However, due to poor content, the number dipped to seven in 2013. However, the

box office collection of Dhoom 3 touched INR2.6b. Continued box office successes

driven by strong content and expansion of multiplexes could establish INR2b as the

new benchmark. Going forward, we expect content to remain strong (with increased

expectations from viewers) and more movies in the INR1b club category.

Bollywood’s INR1b club

Number of Movies

Continued box office

successes, driven by strong

content and expansion of

multiplexes, could establish

INR2b as the new

benchmark

FY08

FY09

FY10

FY11

FY12

FY13

Source: Company, MOSL

Bollywood movies with collection of INR1b and above (INR b)

Movie Name

Dhoom 3 (Hindi)

Chennai Express

3 Idiots

Ek Tha Tiger

Yeh Jawani Hain Deewani

Krrish 3

Dabangg 2

Bodyguard

Dabangg

Rowdy Rathore

Ready

Agneepath

Ra One

Housefull 2

Ghajini

Ram Leela

Bhaag Milkha Bhaag

Jai Ho

Golmaal 3

Don 2

Barfi

Son of Sardaar

Holiday

Jab Tak Hain Jaan

2 States

Bol Bachchan

Production House

Yash Raj Films

Red chillies production

Vidhu Vinod Chopra

Yash Raj Films, Fantastic Films, Prime Focus

Dharma Productions Pvt. Ltd

Red Chillies & VFX

Arbaaz Khan Productions, Shree Ashtavinayak Cine Vision

Reel Life Production

Arbaaz Khan Productions, Shree Ashtavinayak Cine Vision

UTV Motion Pictures, SLB Films Pvt. Ltd

Sohail Khan Productions

Dharma Productions Pvt. Ltd

Red chillies production

Eros International, Nadiadwala Grandson Entertainment

Aamir Khan Productions

Eros International Media Limited

P. S. Bharti Event Pictures

Sohail Khan Productions

Shree Ashtavinayak Cine Vision Pvt. Ltd., Devgan Films

Excel Entertainment

UTV Motion Pictures, SLB Films Pvt. Ltd

Viacom 18 Motion Pictures

Reliance Entertainment

Yash Raj Films

Dharma Productions Pvt. Ltd

Shree Ashtavinayak Cine Vision Pvt. Ltd., Devgan Films

Box Office Collection

2.62

2.08

2.03

1.86

1.81

1.50

1.43

1.41

1.33

1.21

1.20

1.15

1.14

1.15

1.13

1.09

1.08

1.06

1.05

1.04

1.02

1.00

Source: Company, MOSL

2 July 2014

spotlight

Inox Leisure

Newer property additions to drive footfall growth

INOL received ~38.6m footfalls in FY14, which we expect to reach 60m in FY16E,

driven by higher aggressive opening of screens. Around 170-180 Hindi movies and

~120-125 English movies were released in FY14. We expect this number to increase

going forward, thereby leading to higher footfalls growth.

Footfalls to post steady growth

Inox (m)

PVR (m)

FY11

FY12

FY13

FY14

FY15E

FY16E

Source: Company, MOSL

Total number of seats

INOL to outpace PVR in seats addition during the year

Source: Company, MOSL

Occupancy to remain steady

IONL’s occupancy rate

improved from 23% in FY11

to 28% in FY14 and we

expect this number to

increase to 29% in FY16E

With the acquisition of Fame in 2011, IONL’s occupancy rate improved from 23% in

FY11 to 28% in FY14 and we expect this number to increase to 29% in FY16E. The

gap in the occupancy rate between IONL and PVR is expected to reduce over FY14-

FY16E as IONL plans to expand its screen presence across new geographies. Also, as

Indian movies are becoming shorter in recent years, multiplexes are able to

accommodate more shows per screen. Number of shows per day has increased to

5.2 per day, against 4-4.3 shows per day four to five years ago and is likely to further

improve to 5.5 shows per day, thereby improving the occupancy rate, going

forward.

2 July 2014

spotlight

Inox Leisure

Gap in occupancy rate between two exhibitors reduces

Inox

40%

30%

20%

10%

FY11

FY12

FY13

FY14

FY15E

FY16E

PVR

Source: Company, MOSL

Huge potential to scale up ad revenue/screen

Given the addition of

screens lined up for FY15

in prime locations, INOL

will have a higher

bargaining power

INOL’s ad revenue grew from INR172m in FY11 to INR495m in FY14, marking a CAGR

of 42%, while ad revenue/screen increased from INR1m in FY11 to INR1.7m in FY14.

However, this is lower than PVR’s ad revenue/screen of INR3.6m as they have large

corporate deals. INOL derives ~70% of ad revenue from on-screen and balance 30%

from off-screen, in line with PVR. Around 60% of PVR’s contracts with advertisers

are annual ones, compared to Inox of 65-70%. INOL has started to hike ad rates and

focus on high value and long term deals. It also has started to monetize the lobby

area, which resulted in 50% growth in ad revenue/screen in FY14, much higher than

PVR. It has focused on direct dealing with the Government for national

advertisements. It follows a flexi pricing model, whereby it charges higher for ads

before the start of a movie and immediately after the interval, to increase its ad

revenue/screen. It has also ramped up the sales team to increase its aggression in

ad revenue.

While FMCG, telecom, consumer electronics and automobiles are the main

advertisers, new sectors like BFSI too have started to advertise through INOL.

Management has guided for 50% growth in ad revenue, much higher than the 20%

guidance from PVR, which should drive margins and profitability higher.

Ad revenue/footfall trend

Ad revenue/footfall(m)

43%

40%

14.1

9.4

6.6

-2%

9.2

12.8

10%

YoY Growth

16.7

18%

18.8

Ad revenue per screen comparison

Inox

4.0

13%

1.0

1.2

4.2

3.8

PVR

3.6

1.7

3.7

2.1

4.0

2.5

FY11

FY12

FY13

FY14

FY15E

FY16E

FY17E

FY11

FY12

FY13

FY14

FY15E

FY16E

Source: Company, MOSL

2 July 2014

spotlight

Inox Leisure

Ad revenue comparison - INOL and PVR (INR m)

Inox

PVR

2,040

1,419

992

531

172

FY11

654

292

324

495

1,693

719

1,006

INOL’s ad revenue trend (INR m)

Ad revenue (m)

69%

53%

45%

40%

1,006

YoY Growth

32%

1,327

11%

172

292

FY12

324

FY13

495

FY14

719

FY12

FY13

FY14

FY15E

FY16E

FY11

FY15E

FY16E

FY17E

Source: Company, MOSL

Revenue mix

Tickets Collection

17%

74%

18%

73%

F&B

19%

73%

19%

69%

VPF Income

22%

65%

Other Operating Income

22%

65%

22%

66%

FY11

FY12

FY13

FY14

FY15E

FY16E

FY17E

Source: Company, MOSL

GST – a possible game changer

Post implementation of

GST, the peak rate is likely

to be ~16%, leading to

significant cost reduction

High entertainment tax is a major impediment for exhibition industry’s growth. The

overall tax implication is as high as 40-50% in states like Maharashtra, Uttar Pradesh,

Bihar and Karnataka. However, post GST, the peak rate is likely to be ~16%, leading

to significant cost reduction. Also, input tax credit will be available for setoff against

the output tax liability (service tax paid presently on rent, electricity, security,

housekeeping etc is not available for setoff against output liability of entertainment

tax or VAT). INOL’s management expects GST implementation to result in 200bp

margin expansion.

2 July 2014

spotlight

Inox Leisure

Intent to have a strong pan India presence

Focus to improve presence in North India to drive growth

An increase in penetration

of multiplexes in East India

and market share gains in

North will diversify IONL’s

revenue, going forward

INOL has ~116 screens in west and 45 screens in North India, compared to PVR’s 200

screens in west and 125 in north. In our view, this has been the primary reason for

higher ATP, SPH and ad revenue/screen for PVR. However, we expect INOL to

improve its matrices going forward, with increased focus on North India market

(only 9% of revenue), which should help to drive growth and market share.

Region-wise revenue contribution

East

West

North

South

35%

39%

19%

FY12

35%

38%

18%

FY13

32%

10%

40%

18%

FY14

Source: Company, MOSL

Geographical-wise contribution

Geographical contribution of properties

Cities

South

24%

East

22%

Properties

East, 18

South, 19

North

21%

West

33%

North, 13

West, 29

Source: Company, MOSL

Screen presence geographical-wise

Seats presence geographical-wise

Screens

South, 79

East, 70

South,

18,320

Seats

East,

18,631

North, 45

West, 116

North,

12,041

West,

33,817

Source: Company, MOSL

2 July 2014

spotlight

Inox Leisure

Dominates South with 74% market share

Market share distribution in West

PVR

20%

East

BIG

31%

West

Inox

26%

Inox

74%

PVR

43%

Source: Company, MOSL

Market share distribution in North

Market share distribution in South

North

BIG

29%

Inox

19%

BIG

22%

South

Inox

39%

PVR

52%

PVR

39%

Source: Company, MOSL

Properties distribution comparison

Inox

PVR

East

Screen distribution comparison

Inox

PVR

200

116

West

North

East

South

West

125

South

North

Source: Company, MOSL

Seats distribution comparison

Inox

PVR

50,335

33,817

18,631

5,014

East

South

West

18,320

16,616

29,130

12,041

Presence across cities

Inox

PVR

North

East

South

West

North

Source: Company, MOSL

2 July 2014

spotlight

Inox Leisure

Industry overview

Indians romance with movies and cine stars – an age old tradition

Indian M&E industry on a growth trajectory

The size of India’s M&E (Media and Entertainment) industry expanded from

INR820b in CY11 to INR918b in CY13, registering an overall growth of 11.9%. Given

the impetus provided by digitization, continued growth of regional media, elections

coverage in India, strength in the film sector and fast growing new media

businesses, the industry is estimated to grow 13% in CY14 to INR1,038b. The

Government’s recent policy measures should pave the way for a gradual recovery of

Indian economy, and thus the Indian M&E industry should post a healthy CAGR of

14.2% to reach INR1.8t by CY18. The film industry recorded a double digit growth in

CY13, albeit slower that CY12, with multiple movies scoring big in box office

collections. Around 90-95% movie screens are digitized in the country, with a shift in

focus to tier 2 and 3 cities. The global M&E market has witnessed signs of steady

growth over the past three to five years and is expected to cross USD2t in CY18, at a

CAGR of 6% from CY13 to CY18.

Industry size and projection

Overall industry

size (INR b)

Films

Radio

Music

OOH

Animation and VFX

Gaming

Digital Advertising

Total

2009

257.0

175.2

89.3

8.3

7.8

13.7

20.1

8.0

587.4

2010

297.0

192.9

83.3

10.0

8.6

16.5

23.7

10.0

652.0

2011

329.0

208.8

92.9

11.5

9.0

17.8

31.0

13.0

15.4

728.4

2012

370.1

224.1

112.4

12.7

10.6

18.2

35.3

15.3

21.7

820.4

2013

417.2

243.1

125.3

14.6

9.6

19.3

39.7

19.2

30.1

918.1

Gr. in 2013

2014E

over 2012

12.7%

8.5%

11.5%

15.0%

-9.9%

5.9%

12.5%

25.5%

38.7%

11.9%

478.9

264.0

138.0

16.6

10.1

21.2

45.0

23.5

41.2

2015E

567.4

287.0

158.3

19.0

11.3

23.1

51.7

28.0

55.1

2016E

672.4

313.0

181.3

23.0

13.2

25.2

60.0

32.3

69.7

1,390.1

2017E

771.9

343.0

200.0

27.8

15.1

27.5

70.2

36.1

88.1

1,579.7

2018E

885.0

374.0

219.8

33.6

17.8

30.0

82.9

40.6

102.2

1,785.9

CAGR

(2013-18)

16.2%

9.0%

11.9%

18.1%

13.2%

9.2%

15.9%

16.2%

27.7%

14.2%

1,038.5 1,200.9

Source: FICCI-KPMG 2014, MOSL

Domestic theatricals contribute ~75% of total film industry’s revenue

Growth of differentiated content, wider releases and aggressive promotions led to

significant growth of Indian film industry. Of the total industry size of ~INR125b in

CY13, domestic theatricals alone contributed INR93b (75%). Factors such as rapid

urbanization, penetration of multiplex in tier 2 and 3 cities, increasing sophistication

in production and marketing of films and audience’s receptivity to differentiated

content together will assist the industry to post 11.9% CAGR to reach INR219b by

CY18E. Domestic theatricals revenue is expected to clock 11.4% CAGR to reach

INR160b by CY18E.

2 July 2014

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Inox Leisure

Film industry’s performance

Revenues (INR b)

Domestic Theatrical

Overseas Theatrical

Home Video

Cable & Satellite Rights

Ancillary Revenue Streams

Total

2009

68.5

6.8

4.3

6.3

3.5

89.4

2010

6.6

2.3

8.3

4.1

83.3

2011

68.8

6.9

10.5

4.7

92.9

2012

85.1

7.6

1.7

12.6

5.4

112.4

2013

93.4

8.3

1.4

15.1

125.2

2014E

102.2

9.4

1.2

16.1

9.1

138

2015E

116.9

10.3

18.4

11.7

158.3

2016E

133.3

11.4

0.9

20.9

14.7

181.2

2017E

146.3

0.8

17.8

199.9

2018E

160.2

12.7

0.7

25.2

219.8

2012-13 CAGR

(YoY gr.) 2013-18

9.80%

9.40%

20.20%

29.30%

11.50%

11.40%

8.90%

10.70%

24.70%

11.90%

-18.00% -13.00%

Source: FICCI-KPMG 2014, MOSL

Domestic theatricals contribute maximum in films revenue

Domestic Theatrical

Cable & Satellite Rights

Overseas Theatrical

Ancillary Revenue Streams

Home Video

77%

74%

76%

75%

74%

73%

2009

2010

2011

2012

2013

2014E

2015E

2016E

2017E

2018E

Source: Company, MOSL

Industry ATP, occupancy rate on the rise

Consolidation in the industry led to a significant improvement in the bargaining

power of most exhibitors. Another round of consolidation is expected in the next

five years. Improvement in occupancy rate and ATP led to significant growth in the

domestic industry. Occupancy levels for major multiplex players increased from ~23-

27% in CY11 to more than 30% in CY13. Theatres have adopted differential pricing

policy for weekdays and weekends, thus optimizing footfall across the week.

Multiplexes have also seen an increase in ATP. Ticket prices rose from INR150-160 in

CY11 to INR168-175 in CY13, marking a CAGR of 5.8%. The gap between high-end

multiplexes and regular multiplexes is more than the gap between regular

multiplexes and regular single screens. 3D movies continue to be priced at a

premium of 15-20% over regular movies.

ATP across types of screens

ATP (INR)

239

127

High-end

Multiplex

Single Screen

Low-end

Single Screen

Source: Company, MOSL

2 July 2014

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Inox Leisure

Significant increase in screens over the years

Theatricals continue to be the main source of revenue for the industry, contributing

INR93.4b to the INR125.3b film revenue. Growth in digital technology has led to cost

efficiency and curbs on piracy to a great extent. Presently, 80-100% of films are

distributed digitally, compared to 50% two years ago. Wider reach and coordinated

release of movies has been a key revenue driver for the industry. Digital prints cost

one-fifth compared to analogs. Swift distribution across the country at a lesser price

resulted in more screens in which a movie can be released simultaneously.

Increase in screens over the years

Number of screens

4500

3000

500

Hum Aapke hai kaun

(1994)

1000

3 Idiots (2010)

Ek Tha Tiger (2012)

Dhoom 3 (2013)

Source: Company, MOSL

Huge growth opportunity

India has a population of ~1.2b, growing at 1.3% per year. Demographics are

favorable, with 35% of the population in the working age. Watching movies in a

theater is the prime entertainment option for people in India, the world’s largest

film entertainment market (1,000 movie releases and over 3b movie-goers

annually). India has a total of 9,100 screens, of which just 1,400 are multiplexes. The

average ticket price is ~USD1 for a single screen and USD2.6 for a multiplex. The

multiplex segment is highly organized and largely dominated by five key players

(1,028

screens YTD).

Bollywood (Hindi) movies account for ~45% of the film industry

revenue, followed by Tamil (18%) and Telugu (16%). Hollywood movies contribute

~8% of the Indian film industry revenue. While the industry is likely to see further

consolidation, it needs at least 30,000 screens. Given the low screen density in India

(8 per million), compared with Indonesia (141 per million), US (125 per million),

China (31 per million) and Brazil (10 per million), the growth opportunity is huge.

Number of screens per million is lowest in India

No of screens per million

India

China

Germany

Ireland

Denmark

France

USA

117

100

150

PVR and INOL control ~70% of the multiplex market

Source: Company, MOSL

2 July 2014

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Inox Leisure

Single screens face challenging times

Single screens are facing challenging times with ~97 being shut down in CY12. The

year also saw single screen theatres making efforts to reinvent themselves. They are

focusing on upgrading their existing infrastructure to provide enhanced movie

watching/going experience. Several players have invested in (a) improving picture

quality, (b) surround sound systems, (c) air conditioning, (d) creating/improving

parking spaces and (e) improving the quality of food and beverages. Some players

have introduced online ticketing to enhance consumer convenience and curb black

marketing.

Multiplexes presence increases

Single Screen

Multiplexes

Single screens still share the larger pie

Type of screen in 2013

Multiplexes

18%

888

8700

960

8600

1104

8100

1400

7700

1700

7700

Single

Screen

82%

2009

2010

2011

2012

2013

Source: Company, MOSL

Hollywood movies popularity on the rise

Until few years ago, Hollywood was considered an urban phenomenon and the

movies were released for English speaking audience. However, over the past few

years, the trend has changed significantly. New Hollywood movies are getting wide

acknowledgement from various audiences.

Iron Man 3

was released across more

than 1,000 screens (in four languages), in comparison to historical average of 250-

300 screens. Though the share of Hollywood is small in the overall domestic

theatricals market, players are not complaining as movies continue to draw footfalls.

During the year, Oblivion had an occupancy of 25-35%,

The Great Gatsby

in 3D had

30-40%, while for the best performing movies such as

Gravity

and

The Conjuring,

occupancy level rose to 50-60%.

Revenue split of regional market for Hollywood films

Source: Company, MOSL

2 July 2014

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Inox Leisure

Top Hollywood films released in India in CY13

Titles

Iron Man 3

Fast & Furious 6

Man of Steel

Gravity

The Wolverine

G.I.Joe: Retaliation

Thor 2: The Dark World

The Conjuring

World War Z

A Good Day to Die Hard

Release Date

26-Apr-13

24-May-13

14-Jun-13

11-Oct-13

26-Jul-13

29-Mar-13

8-Nov-13

2-Aug-13

21-Jun-13

22-Feb-13

Genre

Action/Sci-Fi/Thriller

Action/Crime/Thriller

Action/Adventure/Fantasy

Drama/Sci-Fi/Thriller

Action/Adventure/Fantasy

Action/Adventure/Sci-Fi

Action/Adventure/Fantasy

Horror/Thriller

Action/Drama/Horror

Action/Crime/Thriller

Screens Total GBO* (INR m)

1054

828

706

195

710

528

600

128

570

678

667

573

370

363

281

230

227

222

177

124

Source: Company, MOSL

Megaplexes – next game changer event for industry

In CY97, PVR revolutionized the film industry by introducing multiplexes. Peers like

INOL, Fun Cinemas, Big Cinemas and Cinepolis followed suit later on. The next big

factor for the industry is introduction of megaplexes. Certain players are developing

megaplexes with 11-15 screens capable of showing 60-80 screenings per day. The

megaplexes would be built at an average cost of ~INR20-25m per screen and would

have capacity of 2,000-2,500 seats. Megaplexes are apt for a country like India

where it would give freedom to tap and grow regional markets such as Telugu,

Tamil, Marathi, Gujarati, Bhojpuri and other regional movies and give them space on

the larger screens along with Hindi and English movies.

Tier 2 and 3 consumers - next big focus area

With the focus shifting to tier 2 and 3 markets, exhibitors are constantly exploring

ideas to target consumers. Various innovative schemes are being launched to tap

tier 2 and 3 markets. For instance, BIG Cinemas developed an exclusive offer for its

customers in tier 2 and 3 markets by offering ‘3+1 Free’ for tickets booked from its

portal. Movie exhibitors see these cities as potential growth drivers. Though Delhi

and Mumbai contribute 55-60% of revenue of a big budget film, multiplex expansion

in these regions is rapidly saturating. With lower real estate prices in smaller towns

and the leeway to launch no-frills cinema, exhibitors are able to lower the cost per

screen significantly. Knowing the demographics of these cities, ticket prices are

lower compared to metros. For instance, while a regular Inox ticket is priced at

INR600 in Mumbai, it is priced at INR50 in Raipur.

Cinematograph Bill, 2013 – a key legislative change

The present Cinematograph Act was enacted in 1952. Since then, Indian cinema and

society has gone through multiple and radical changes. The key objective of the

Cinematograph Bill, 2013 is to make appropriate amendments to the

Cinematograph Act, 1952, keeping in mind the changing perspectives of audiences

and artists. The Justice Mukul Mudgal Committee was formed to bring reforms to

the current bill. Experts are elected from various fields such as law, film and public

administration. The bill handled one of the most-awaited films of a veteran cine star

Kamal Hasan, Vishwaroopam, which faced a ban from the Tamil Nadu government,

despite the film getting a Central Board of Film’s certification. The ban also triggered

2 July 2014

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Inox Leisure

huge loss of revenue due to suspension of screening. The bill is expected to be

passed in the near future, unless further amendments are needed.

Key positives of the Cinematograph Bill, 2013 are listed below:



Appropriate advisory panel representation



Single board film certification



Expanded classification of films



Improved litigation process



Stronger penalties for piracy

Increasing acceptance of 3D exhibition

Indian audiences are getting acquainted with 3D technology but Indian film makers

are yet to master the art of making 3D movies matching the quality of Hollywood.

High quality content can be achieved only by shooting the film completely in 3D.

However, this is expensive and forces film makers to convert 2D content to 3D. India

has also emerged as an outsourcing base for 3D related conversion of Hollywood

films, and ample talent is being developed in the country for 2D to 3D conversion.

3D movies continue to be priced at a premium of 15-20% over regular movies.

Multiplex chains experiment with pricing models to maximize revenue…

Business in the first week of release has increased, driven by wider releases. The

first week and weekend contribute 60-80% of a film’s total collection. Even within

the first week, the trend is getting skewed towards the weekend. Hence, multiplex

chains are experimenting with pricing models to maximize revenue. By adopting a

differential pricing strategy for weekdays and weekends, they are able to maximize

footfalls across the week.

…but states regulate ticket pricing

In many states, governments regulate the ticket pricing. In Tamil Nadu, single screen

theaters are allowed to charge a maximum of INR50 per ticket and multiplexes are

allowed to charge a maximum of INR120 per ticket, depending on the facilities

provided by them. In Andhra Pradesh, a proposal to hike cinema ticket rates from

INR10 to INR25 for single screens and from INR60 to INR75 for multiplexes is

currently on hold. Industry expects state governments will relax regulations that

limit the number of shows and cap ticket pricing, and allow exhibitors to fix

admission rates according to demand. Flexible pricing will also help to reduce black

marketing of tickets as theater owners will have the freedom to revise rates based

on audience inflow.

High taxation restrains sector’s growth

High entertainment tax acts as a major impediment to exhibition industry’s growth.

The overall tax implication is as high as 40-50% in states like Maharashtra and Uttar

Pradesh. To save on entertainment tax, theater owners declare occupancy rates at

the lowest possible level. Industry estimates indicate that theaters under-report 25-

30% of ticket sales.

2 July 2014

spotlight

Inox Leisure

Company description

Inox Leisure Ltd is the diversification venture of the INOX Group into entertainment.

Inox Leisure’s mission is to be the leader in cinema exhibition industry in every

aspect -- from the quality and choice of cinema, to the varied services offered and

eventually the highest market share.

Since the launch of the multiplex in Goa in CY04, INOL is the venue for the

prestigious International Film Festival of India (IFFI) every year. Since its inception in

CY99, INOL has been active in exploring acquisition and/or expansion opportunities

on a continuous basis, with a view to consolidate its position in the multiplex

industry. In CY07, Calcutta Cinema Private Ltd (CCPL), a multiplex cinema theatre

company based in West Bengal, was merged with INOL.

In May CY13, Fame India Ltd, another multiplex cinema theatre company having a

nation-wide presence, was merged with it. INOL operates 79 multiplexes and 310

screens in 43 cities, making it a truly pan-Indian multiplex chain. INOL will continue

its expansion into cities like Jammu, Mangalore among others.

INOL’s cinemas have state-of-the-art facilities in terms of modern projection and

acoustic systems, interiors of international standards, stadium-styled high back

seating with cup holder arm rests, high levels of hygiene, varied theatre food, a

selection of Hindi, English and regional movies, computerized ticketing and

pertinently high service standards.

2 July 2014

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Inox Leisure

Key management

Mr Pavan Jain, Chairman

Mr Pavan Jain, Chairman of the INOX Group, is a chemical engineer from IIT, New

Delhi and an industrialist with over 38 years of experience. With over 22 years of

experience as the Managing Director of INOX Air Products Ltd, Mr Jain has steered

the company's growth from a single plant business to one of the leading domestic

players in industrial gases business. In addition, Mr Jain has been instrumental in

diversifying the INOX Group into various industries such as Refrigerant Gases,

Chemicals, Cryogenic Engineering, Entertainment and Renewable Energy.

Mr Vivek Jain, Director

Mr Vivek Jain has over 34 years of business experience. He graduated in economics

from St. Stephens, New Delhi and did his post graduation in business administration

from IIM, Ahmedabad, where he specialized in finance. He is currently the Managing

Director of Gujarat Fluorochemicals Ltd and has grown the company to be the

country's largest manufacturer and exporter of Refrigerant Gases.

Mr Deepak Asher, Director

A commerce and law graduate, Mr Deepak Asher is also a Fellow Member of the

Institute of Chartered Accountants of India and an Associate Member of the

Institute of Cost and Works Accountants of India. He has more than 25 years of

experience in the fields of corporate finance and business strategy. Mr Asher is the

President of the Multiplex Association of India and a member of the FICCI

Entertainment Committee. In 2002, he won the Theatre World Newsmaker of the

Year Award for his contribution to the multiplex sector.

Mr Alok Tandon, Chief Executive Officer

As the CEO of Inox Leisure Ltd, Mr Tandon is at the helm of INOL's expansion plans

and concentrates on strengthening the INOL brand on a national scale, making it the

first choice in the business of cinema exhibition in India. Mr Tandon also oversees

the 79 multiplexes and 310 screens in 43 cities in India. An engineer by qualification,

he has been with INOL since its inception and has more than 25 years of varied work

experience in companies such as Hoechst, ITC Welcome group and the Oberoi

Group.

2 July 2014

spotlight

Inox Leisure

Key risks

Timely execution, given aggressive roll-out plan

INOL plans to take up space in various upcoming malls. Thus, any delays in the

construction of these malls will impact the execution of its rollout plan.

Quality of content

Good quality content is the key driver of footfalls in multiplexes. While the quality of

content is improving, in any particular year, if the content released is commercially

unsuccessful, it could impact the revenue of multiplexes.

Escalating rental costs

Rental costs have seen an upward trend for most multiplexes. The escalation in

rents is leading to pressure on margins and impacts profitability.

Continued price controls by state governments

Several states still control cinema ticket prices. While free pricing prevails in West

India, in some parts of North India, approvals are needed to price tickets in a

particular band. In South India, especially Andhra Pradesh and Tamil Nadu, there are

strict restrictions on pricing. In Chennai, for instance, ticket prices are capped at

INR120 and 10% of a show’s tickets have to be issued at INR10.

High entertainment tax on cinema tickets

High entertainment tax is a major impediment to exhibition industry’s growth. The

overall tax implication is as high as 40-50% in states like Maharashtra, Uttar Pradesh,

etc. Though post GST, the peak rate is likely to be ~16%, leading to significant cost

reduction, the visibility on GST implementation is still limited.

2 July 2014

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Inox Leisure

Financials and valuations

Income statement

Y/E March

Net Sales

Change (%)

EBITDA

EBITDA Margin (%)

Depreciation

EBIT

Interest

Other Income

Extraordinary items

PBT

Tax

Tax Rate (%)

Reported PAT

Adjusted PAT

Change (%)

Min. Int. & Assoc. Share

Adj Cons PAT

2012

4,187

24.1

540

12.9

202

339

167

126

18.4

103

182

570.3

182

2013

7,653

82.8

980

12.8

431

549

262

294

109

37.2

184

200

9.9

200

2014

8,688

13.5

1,219

14.0

507

712

276

521

153

29.3

369

371

85.6

371

2015E

11,149

28.3

1,617

14.5

633

984

304

769

231

30.0

538

44.8

538

(INR Million)

2016E

14,201

27.4

2,130

15.0

737

1,393

346

1,136

341

30.0

795

47.8

795

2017E

17,554

23.6

2,721

15.5

834

1,886

334

1,641

492

30.0

1,149

44.5

1,149

Balance sheet

Y/E March

Share Capital

Reserves

Net Worth

Debt

Deferred Tax

Total Capital Employed

Gross Fixed Assets

Less: Acc Depreciation

Net Fixed Assets

Capital WIP

Investments

Current Assets

Inventory

Debtors

Cash & Bank

Loans & Adv, Others

Curr Liabs & Provns

Curr. Liabilities

Provisions

Net Current Assets

Total Assets

2012

616

2,667

3,283

2,080

194

5,557

4,256

925

3,331

241

1,793

1,073

142

828

881

468

413

192

5,557

2013

962

4,119

5,081

2,460

228

7,769

7,561

2,033

5,528

423

1,845

2,173

367

233

1,519

2,200

859

1,342

-27

7,769

2014

962

2,948

3,909

2,237

290

6,436

8,886

2,540

6,347

2,198

334

166

1,612

2,145

972

1,172

6,437

2015E

962

3,374

4,336

2,837

290

7,463

10,586

3,173

7,414

2,658

119

429

2,016

2,646

1,239

1,407

7,463

(INR Million)

2016E

2017E

962

4,058

5,095

5,019

6,057

2,937

2,637

290

8,247

8,984

12,086

13,586

3,909

4,744

8,177

8,843

3,292

4,053

152

185

546

675

2,519

3,149

3,259

3,949

1,570

1,923

1,688

2,026

105

8,246

8,984

E: MOSL Estimates

2 July 2014

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Inox Leisure

Financials and valuations

Ratios

Y/E March

Basic (INR)

EPS

Cash EPS

Book Value

DPS

Payout (incl. Div. Tax.)

Valuation(x)

P/E

Cash P/E

P/BV

EV/Sales

EV/EBITDA

Dividend Yield (%)

Profitability Ratios (%)

RoE

RoCE

Turnover Ratios (%)

Asset Turnover (x)

Debtors (No. of Days)

Inventory (No. of Days)

Creditors (No. of Days)

Leverage Ratios (%)

Net Debt/Equity (x)

2012

1.7

6.2

53.3

0.0

2013

1.9

6.6

52.8

0.0

2014

3.8

9.1

40.7

0.0

40.9

17.2

3.9

1.9

13.8

0.0

5.6

7.3

0.8

12.4

2.7

0.6

4.8

9.0

1.0

17.5

2.6

0.5

8.3

11.7

1.3

14.0

3.6

0.6

2015E

5.6

12.2

45.1

1.0

20.7

28.6

13.1

3.5

1.6

10.8

0.6

13.1

16.1

1.5

14.0

3.9

0.7

2016E

8.3

16.0

52.2

1.0

14.0

19.3

10.0

3.1

1.2

8.3

0.6

17.0

19.7

1.7

14.0

3.9

0.6

2017E

11.9

20.6

63.0

1.0

9.7

13.4

7.8

2.5

1.0

6.4

0.6

20.7

23.7

2.0

14.0

3.8

0.4

Cash flow statement

Y/E March

OP/(Loss) before Tax

Depreciation

Others

Interest

Direct Taxes Paid

(Inc)/Dec in Wkg Cap

CF from Op. Activity

(Inc)/Dec in FA & CWIP

(Pur)/Sale of Invt

Others

CF from Inv. Activity

Inc/(Dec) in Net Worth

Inc / (Dec) in Debt

Interest Paid

Divd Paid (incl Tax)

CF from Fin. Activity

Inc/(Dec) in Cash

Add: Opening Balance

Closing Balance

2012

126

202

135

-58

578

978

-284

-790

-1,071

193

-198

-5

-98

170

2013

294

431

254

-30

-284

713

-855

193

-654

370

-265

107

162

233

2014

525

507

187

-153

-148

918

-903

1,809

995

-223

-276

-1,982

-68

233

165

2015E

769

633

215

-231

-30

1,356

-1,700

-1,611

600

-304

-112

184

-71

165

(INR Million)

2016E

2017E

1,136

1,641

737

834

257

245

-341

-492

-41

-102

1,748

2,127

-1,500

-1,411

100

-300

-346

-334

-112

-358

-746

-20

-30

E: MOSL Estimates

2 July 2014

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