Operating matrix healthy; footfalls subdued Q3 was largely in line with expectations. Limited box-office success led to lower footfalls (down 2%) and occupancy (~29% vs. 32% YoY) despite ~7% increase in screens. However, this was compensated by healthy operating matrix performance, as ATP^ improved 6.5% YoY and SPH# grew 12% YoY (SPH net of taxes was up 7% YoY). We like for its strong geographical presence and ability to monetize footfalls (higher SPH/ ad revenue); however, disappointing movie content has led to subdued footfalls for last six consecutive quarters. GST-led benefits (input tax credit) will aid margin expansion, but sub-par movie content could limit its ability to augment operating performance. Maintain HOLD with revised TP of Rs 1,520 as we roll over to FY20E (12x EV/EBITDA; Rs 1,380 earlier). 06 FEB 2018 Quarterly Update HOLD Target Price: Rs 1,520 CMP : Rs 1,461 Potential Upside : 4% MARKET DATA No. of Shares : 47 mn Free Float : 80% Market Cap : Rs 68 bn 52-week High / Low : Rs 1,660 / Rs 1,145 Avg. Daily vol. (6mth) : 233,730 shares Bloomberg Code : L IB Equity Promoters Holding : 20% FII / DII : 41% / 10% Key highlights Q3 revenue grew 5% YoY to Rs 5.6 bn and EBITDA was up 25% YoY to Rs 1 bn (EBITDA margin expanded 290 bps YoY to 18%) on GST-led benefits, as overheads declined 7% YoY. Net profit grew 22% YoY to Rs 289 mn Ad revenue grew 11% YoY (ad revenue/ screen grew 2%). Despite near-term rise in competitive intensity, management is confident to deliver mid-teen ad growth in medium term, as pricing pressure eases out L added 36 screens YTD, taking the tally to 612 screens (two-third additions in South India); management reiterated 60-70 screen additions annually over next 2-3 years. The company targets to upgrade 20% of its screens to premium (under 7 different formats) and has already upgraded 55 screens (of aggregate 612 screens) L is negotiating with key movie production houses to schedule 6-week window period between theatrical release and Digital release (on pay-per-view basis for OTTs). This will limit any possible adverse impact on screen footfalls Distributor share increased 220 bps YoY to 45.1% (43.4% in H1), as GST led to lower input tax credit especially for regional content (exempt earlier) Financial summary (Consolidated) Sales (Rs mn) 21,626 23,207 27,631 31,437 Adj PAT (Rs mn) 1,037 1,251 2,041 2,464 Con. EPS* (Rs.) - 29.3 42.3 53.2 EPS (Rs.) 22.2 26.8 43.7 52.7 Change YOY (%) (14.9) 20.7 63.1 20.7 P/E (x) 65.8 54.6 33.5 27.7 RoE (%) 11.2 12.2 17.4 17.7 RoCE (%) 15.2 16.5 22.3 23.7 EV/EBITDA (x) 20.9 18.2 13.4 11.4 DPS 2.0 2.0 2.0 2.0 Source: *Consensus broker estimates, Company, Axis Capital ^ATP Average Ticket Price; #SPH F&B Spend per Head CMP as on 31 JAN 2018 Key drivers FY18E FY19E FY20E No. of Screens 639 699 759 Footfalls (mn) 82.7 95.4 104.3 ATP (Rs) 204 210 216 SPH (Net of VAT) 80 85 90 Price performance 160 140 Sensex 120 100 80 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 01
06 FEB 2018 Quarterly Update ( Continued from page 1) Benefit from input tax credit led to lower overheads rent outgo and electricity/ CAM grew only 2-3% YoY, while repairs/ maintenance and other expenses were flat YoY. Full benefits to be visible in FY19 Management still awaits clarity on GST-related tax implications, and has not decided on passing through input tax credit related benefits to consumers L acquired 2.2% stake in US-based luxury theatre chain IPic Gold for USD 4 mn. This company owns 121 screens with a superior revenue mix of F&B (51% share) and theatricals (33% share). While management does not intend to expand in US, it expects to implement its learning to boost L s F&B sales across premium screens L will be opening its first international screen in Sri Lanka in FY19. Focus remains on expanding selectively in demographics similar to India s Results update Quarter ended YTD YTD % (Rs mn) Dec-17 Dec-16 % Chg Sep-17 % Chg FY18 FY17 Chg Net Sales 5,573 5,309 5.0 5,554 0.3 17,633 16,553 6.5 Film distributor's share/movie Dist 1,323 1,167 13.4 1,335 (0.9) 4,106 3,526 16.4 Consumption of F&B 379 347 9.3 385 (1.5) 1,177 1,067 10.3 Employee cost 622 576 8.0 587 6.0 1,888 1,667 13.3 Rent 994 - - 972 2.3 3,050 2,860 6.6 Other overheads 1,252 991 26.3 1,371 (8.7) 4,243 4,537 (6.5) EBIDTA 1,003 800 25.5 905 10.9 3,170 2,897 9.4 EBIDTA margin (%) 18.0 15.1-16.3-18.0 17.5 - Depreciation 375 345 8.8 347 8.1 1,097 1,021 7.5 EBIT 629 455-558 - 2,072 1,876 - EBIT margin (%) 11.3 8.6-10.1-11.8 11.3 - Interest 212 204 3.9 207 2.2 627 590 6.4 Other income 32 111 (71.2) 42 (22.8) 98 223 (56.2) PBT 449 363 23.8 393 14.3 1,543 1,509 2.2 Tax 154 127 20.7 140 9.9 551 525 5.0 Reported PAT 289 236 22.4 252 14.7 983 950 3.5 No. of shares (mn) 47 47-47 - 47 47 0.3 EPS (Rs.) 6.2 5.1 20.7 5.4 14.7 20.4 18.7 9.2 Operating matrix Dec-17 Dec-16 % Chg Sep-17 % Chg FY17 FY16 % Chg No of screens 603 562 7 600 0 579 516 12.2 No of seats 136,539 128,587 6 136,272 0 132,026 118,124 11.8 Footfalls (mn) 17.4 17.9 (2.8) 18.7 (7.0) 75.2 69.6 8.0 Average Ticket Price (ATP) 212.0 199.0 6.5 204.0 3.9 196.0 188.0 4.3 F&B spend per head (SPH) 92.0 82.0 12.2 91.0 1.1 81.0 72.0 12.5 Revenue break up (Rs mn) Ticket Sales 2,931 2721.3 7.7 2,993 (2.1) 11,275 9,948 13.3 F&B revenues 1,438 1349 6.6 1,423 1.0 5,794 4,977 16.4 Ad/ Sponsorship revenues 867 783.5 10.6 688 26.0 2,518 2,145 17.3 02
Q1FY16 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q1FY16 Q1FY16 06 FEB 2018 Quarterly Update Six consecutive quarters of no footfall growth ATP; gross SPH leading the operating performance 650 600 550 500 450 (No) Screens Footfalls (RHS) (mn) 22 20 18 16 14 12 220 210 200 190 180 170 (Rs) Blended ATP SPH (RHS) (Rs) 100 90 80 70 400 10 160 60 Revenue break up F&B/ ad revenue growth encouraging 7 6 5 4 3 2 1 0 Ticket sales F&B revenue Sponsorship revenue Other Op Income (Rs bn) 0.4 0.4 0.7 0.5 0.5 0.4 0.3 0.7 0.5 0.3 0.4 0.5 1.3 1.2 0.5 0.4 1.1 0.9 1.0 0.3 0.9 0.4 1.0 0.7 2.0 2.3 2.3 2.7 2.7 2.5 2.1 1.6 0.8 0.6 0.7 0.7 0.5 0.3 0.5 0.5 0.6 0.8 0.5 0.7 0.9 0.5 1.6 1.5 1.4 1.4 1.4 1.3 1.3 3.1 3.4 2.8 2.7 2.6 3.0 2.9 Revenue and Operating margin trend 7 6 5 (Rs bn) 23 18 17 Revenue 10 20 EBITDA margin (RHS) 17 15 19 16 (%) 18 25 20 15 4 12 10 3 5 03
Financial summary (Consolidated) Profit & loss (Rs mn) Net sales 21,626 23,207 27,631 31,437 Other operating income - - - - Total operating income 21,626 23,207 27,631 31,437 Cost of goods sold (6,676) (7,581) (8,897) (10,086) Gross profit 14,950 15,626 18,733 21,352 Gross margin (%) 69.1 67.3 67.8 67.9 Total operating expenses (11,385) (11,592) (13,350) (15,169) EBITDA 3,565 4,034 5,383 6,182 EBITDA margin (%) 16.5 17.4 19.5 19.7 Depreciation (1,384) (1,531) (1,775) (2,032) EBIT 2,182 2,504 3,608 4,151 Net interest (806) (794) (702) (610) Other income 191 200 210 221 Profit before tax 1,566 1,910 3,117 3,762 Total taxation (529) (659) (1,075) (1,298) Tax rate (%) 33.8 34.5 34.5 34.5 Profit after tax 1,037 1,251 2,041 2,464 Minorities - - - - Profit/ Loss associate co(s) - - - - Adjusted net profit 1,037 1,251 2,041 2,464 Adj. PAT margin (%) 4.8 5.4 7.4 7.8 Net non-recurring items - - - - Reported net profit 1,037 1,251 2,041 2,464 Balance sheet (Rs mn) Paid-up capital 467 467 467 467 Reserves & surplus 9,183 10,325 12,257 14,613 Net worth 9,650 10,792 12,725 15,080 Borrowing 6,050 5,250 4,450 3,650 Other non-current liabilities 80 80 80 80 Total liabilities 16,186 16,528 17,660 19,215 Gross fixed assets 17,092 18,913 21,242 23,685 Less: Depreciation (2,005) (3,536) (5,311) (7,342) Net fixed assets 15,087 15,377 15,931 16,343 Add: Capital WIP 1,056 1,056 1,056 1,056 Total fixed assets 16,143 16,433 16,987 17,398 Total Investment 20 20 20 20 Inventory 190 208 244 276 Debtors 1,021 1,144 1,363 1,550 Cash & bank 299 562 980 1,949 Loans & advances 53 53 53 53 Current liabilities 6,071 6,806 7,409 7,965 Net current assets (3,277) (3,608) (3,539) (2,906) Other non-current assets 3,300 3,683 4,193 4,703 Total assets 16,186 16,528 17,660 19,216 Cash flow (Rs mn) 06 FEB 2018 Quarterly Update Profit before tax 1,566 1,910 3,117 3,762 Depreciation & Amortisation 1,384 1,531 1,775 2,032 Chg in working capital (246) 593 349 336 Cash flow from operations 3,196 3,969 4,657 5,220 Capital expenditure (6,324) (1,821) (2,329) (2,443) Cash flow from investing (6,170) (2,003) (2,629) (2,732) Equity raised/ (repaid) 10 - - - Debt raised/ (repaid) 1,439 (800) (800) (800) Dividend paid (117) (109) (109) (109) Cash flow from financing 602 (1,703) (1,611) (1,519) Net chg in cash (2,372) 263 418 969 Key ratios OPERATIONAL FDEPS (Rs) 22.2 26.8 43.7 52.7 CEPS (Rs) 51.8 59.5 81.7 96.2 DPS (Rs) 2.0 2.0 2.0 2.0 Dividend payout ratio (%) 9.0 7.5 4.6 3.8 GROWTH Net sales (%) 15.0 7.3 19.1 13.8 EBITDA (%) 10.1 13.2 33.4 14.8 Adj net profit (%) (14.8) 20.7 63.1 20.7 FDEPS (%) (14.9) 20.7 63.1 20.7 PERFORMANCE RoE (%) 11.2 12.2 17.4 17.7 RoCE (%) 15.2 16.5 22.3 23.7 EFFICIENCY Asset turnover (x) 1.5 1.5 1.7 1.9 Sales/ total assets (x) 1.0 1.0 1.1 1.2 Working capital/ sales (x) (0.1) (0.2) (0.2) (0.1) Receivable days 17.2 18.0 18.0 18.0 Inventory days 3.8 4.0 4.0 4.0 Payable days 39.9 43.5 44.0 43.9 FINANCIAL STABILITY Total debt/ equity (x) 0.6 0.5 0.4 0.3 Net debt/ equity (x) 0.6 0.4 0.3 0.1 Current ratio (x) 0.5 0.5 0.5 0.6 Interest cover (x) 2.7 3.2 5.1 6.8 VALUATION PE (x) 65.8 54.6 33.5 27.7 EV/ EBITDA (x) 20.9 18.2 13.4 11.4 EV/ Net sales (x) 3.4 3.2 2.6 2.2 PB (x) 7.1 6.3 5.4 4.5 Dividend yield (%) 0.1 0.1 0.1 0.1 Free cash flow yield (%) - - - - 04
06 FEB 2018 Quarterly Update Disclosures: The following Disclosures are being made in compliance with the SEBI Research Analyst Regulations 2014 (herein after referred to as the Regulations). 1. Axis Securities Ltd. (ASL) is a SEBI Registered Research Analyst having registration no. INH000000297. ASL, the Research Entity (RE) as defined in the Regulations, is engaged in the business of providing Stock broking services, Depository participant services & distribution of various financial products. ASL is a subsidiary company of Axis Bank Ltd. Axis Bank Ltd. is a listed public company and one of India s largest private sector bank and has its various subsidiaries engaged in businesses of Asset management, NBFC, Merchant Banking, Trusteeship, Venture Capital, Stock Broking, the details in respect of which are available on www.axisbank.com. 2. ASL is registered with the Securities & Exchange Board of India (SEBI) for its stock broking & Depository participant business activities and with the Association of Mutual Funds of India (AMFI) for distribution of financial products and also registered with IRDA as a corporate agent for insurance business activity. 3. ASL has no material adverse disciplinary history as on the date of publication of this report. 4. I/We, authors (Research team) and the name/s subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect my/our views about the subject issuer(s) or securities. I/We also certify that no part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. I/we or my/our relative or ASL does not have any financial interest in the subject company. Also I/we or my/our relative or ASL or its Associates may have beneficial ownership of 1% or more in the subject company at the end of the month immediately preceding the date of publication of the Research Report. Since associates of ASL are engaged in various financial service businesses, they might have financial interests or beneficial ownership in various companies including the subject company/companies mentioned in this report. I/we or my/our relative or ASL or its associates do not have any material conflict of interest. I/we have not served as director, officer or employee in the subject company. Research Team Sr. No Name Designation E-mail 1 Siji Philip Research Analyst siji.philip@axissecurities.in 2 Rohit Chawla Research Associate rohit.chawla@axissecurities.in 5. ASL or its associates has not received any compensation from the subject company in the past twelve months. ASL or its Research Analysts has not been engaged in market making activity for the subject company. 6. In the last 12-month period ending on the last day of the month immediately preceding the date of publication of this research report, ASL or any of its associates may have: i. Received compensation for investment banking, merchant banking or stock broking services or for any other services from the subject company of this research report and / or; ii. Managed or co-managed public offering of the securities from the subject company of this research report and / or; iii. Received compensation for products or services other than investment banking, merchant banking or stock broking services from the subject company of this research report; ASL or any of its associates have not received compensation or other benefits from the subject company of this research report or any other third-party in connection with this report Term& Conditions: This report has been prepared by ASL and is meant for sole use by the recipient and not for circulation. The report and information contained herein is strictly confidential and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of ASL. The report is based on the facts, figures and information that are considered true, correct, reliable and accurate. The intent of this report is not recommendatory in nature. The information is obtained from publicly available media or other sources believed to be reliable. Such information has not been independently verified and no guaranty, representation of warranty, express or implied, is made as to its accuracy, completeness or correctness. All such information and opinions are subject to change without notice. The report is prepared solely for informational purpose and does not constitute an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments for the clients. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. ASL will not treat recipients as customers by virtue of their receiving this report. 05
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The Company reserves the right to make modifications and alternations to this document as may be required from time to time without any prior notice. The views expressed are those of the analyst(s) and the Company may or may not subscribe to all the views expressed therein. Copyright in this document vests with Axis Securities Limited. Axis Securities Limited, SEBI Single Reg. No.- NSE, BSE & MSEI INZ000161633, ARN No. 64610, CDSL-IN-DP-CDSL-693-2013, SEBI-Research Analyst Reg. No. INH 000000297, SEBI Portfolio Manager Reg. No.- INP000000654, Main/Dealing off.- Unit No. 2, Phoenix Market City, 15, LBS Road, Near Kamani Junction, Kurla (west), Mumbai-400070, Tel No. 18002100808, Reg. off.- Axis House, 8th Floor, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai 400 025.Compliance Officer: Anand Shaha, E-Mail ID: compliance.officer@axisdirect.in,tel No: 022-42671582. 06