INOX Leisure shares jump 10%; here’s why

Shares of INOX Leisure, an Indian movie theater chain, surged 10% to hit a record high, in an otherwise weak broader market today, driven by heavy volume. The stock of the multiplex operator got a boost after Crisil Ratings upgraded the company’s rating outlook amid improvement in operational efficiency, removal of pandemic-related restrictions, and strong content line up.

INOX Leisure shares opened higher at ₹450 and gained as much as 9.98% to touch a 52-week high of ₹486.90 on the BSE. There was a spurt in volume trade as 2.65 lakh shares changed hands over the counter as against the two-week average volume of 0.57 lakh stocks. The stock breaches its previous high of ₹466.10 touched on November 8, 2021.

The share price of INOX Leisure traded higher than 5-day, 20-day, 50-day, 100-day, and 200-day moving averages. It has gained 14% in the last five sessions, 17% in a month, and 34% since the beginning of the calendar year 2022. The stock price has more than doubled from its 52-week low of ₹241.90 touched on April 19, 2021.

What moved the share price higher?

The rally in INOX Leisure shares can be attributed to rating upgrade and recovery in business with easing Covid-19 restrictions. The company reported a strong recovery in December quarter earnings, led by sharp rise in average ticket prices and spends per head on food & beverages.

Crisil has revised upwards its rating outlook on the long-term bank facilities of INOX Leisure (ILL) to ‘stable’ from ‘negative’ and has reaffirmed its ‘CRISIL A+’ rating. The short-term rating has been reaffirmed at ‘CRISIL A1’.

“The revision in outlook reflects strong rebound in the operating performance of ILL during the third quarter of fiscal 2022. While the third wave of the Covid-19 pandemic did marginally impact operations in January 2022, recovery began from February onwards. Besides improvement in occupancy, average ticket prices (ATP) and spending per head (SPH) on food & beverages have sustained at levels higher than those prior to the pandemic. Moreover, movies released since the last week of February reported strong performance at the box office,” Crisil said in a report dated March 22.

The rating agency expects business to improve further in the coming quarters, supported by the uplifting of pandemic-related restrictions and a strong content line up ready to be released over the next few months. “The operating margin may also benefit from some of the cost-control measures undertaken over the last two years, which are expected to sustain longer,” it said.

As per the Crisil report, INOX’s liquidity was boosted significantly from equity raise undertaken over the past two years, which has resulted in a net cash position of around ₹73 crore as of January 31, 2022, against net debt of around ₹27 crore as on March 31, 2021. Besides, cash and bank balance, undrawn committed bank lines, and other liquid investments stood at around ₹281 crore as of January 31, 2022, which should sufficiently cover the debt obligation and capital expenditure (capex) in fiscal 2023, the report noted.

“Sustained improvement in revenue and operating margin, along with maintenance of healthy liquidity, will remain key monitorables,” it added.

In the October-December quarter of the current fiscal, the multiplex chain operator reported narrowing of its consolidated net loss at ₹1.32 crore, as against a loss of ₹102.50 crore in the prior-year period. Revenue from operations jumped multi-fold to ₹296.47 crore in Q3FY22, from ₹14.88 crore in the same period last year, when cinema halls were almost closed.

Inox Leisure, which operates 667 screens in 70 cities as of December 2021, posted the highest-ever quarterly average ticket price at ₹226 along with a highest-ever quarterly spends per head at ₹97, compared to ₹200 and ₹80, respectively, during fiscal 2020.