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Friday, March 11, 2011

Small cap stock analysis - INOX Leisure ltd

Here is a small cap stock from entertainment business I thought is worth spending some time on it's stock analysis.

INOX Leisure is one of the well known movie multiplex operator and exhibitor. It is a subsidiary of another listed company, Gujarat Flurochemicals. INOX leisure has expanded its business in 25 cities with 38 operational properties and 144 multiplex movie screens. INOX leisure has diversified into other businesses, like power, distribution and movie production.

In recent past, company has acquired Calcutta Cinema which owns nine multiplexes in West Bengal and Assam. Company has plans to expand in two and three tier cities such as Jodhpur, Ahmedabad, Bhopal, Mangalore, Coimbatore, Kanpur, Hubli and Bhubaneswar.

Acquisition & Growth
Inox Leisure has recently acquired Fame India. After this acquisition, Inox Leisure now holds more than 50% stake in Fame India. Fame India has 25 operational properties with 95 movie screens in 12 cities. With this acquisition, INOX and Fame India collectively have properties in 37 cities with 240 movie screens. This makes Inox Leisure biggest movie exhibitor in India after Big Cinemas in terms of number of movie screens.

This acquisition would provide increased presence and better pricing power to INOX leisure. In FY10, Fame India had revenue of Rs 18 crore from film distribution. A bit more than by Rs 2 crore of Inox Leisure. Fame India has locations where INOX was not present, thus the acquisition give strategic advantage to INOX for wide presence and stronger distribution network. This should translate into increase in earnings.

Read: Stocks To Buy In 2011

Stock Financials:
INOX leisure had debt of Rs.184 crores in FY10 compared to Rs.44 crores in FY09. Compnay has used this debt to fund the acquisition of Fame India, expansion of screens and acquisition of CCPL multiplexes in West Bengal.

Due to higher debt, interest costs have increased from around Rs 1 crore in the September 2009 quarter to Rs 3.5 crore in the September 2010 quarter. Company's net profit fell 37% on a y-o-y basis to Rs 3.3 crore due to this high interest cost, more employees and other expenses.

Stock Valuation:
At the current share price of Rs 45, Inox leisure stock trades at a price-earnings (P/E) ratio of 8. Compared to its peers like PVR (22) and Cinemax (15), it is much lower. Due to acquisitions and growth that comes with these acquisitions, company is definitely going to show strong improvement in earnings. It’s an attractive investment opportunity in entertainment business for long term investors at Rs.45.

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