Key Rating Drivers & Detailed Description

Strengths:

Established market position

With 667 screens across 158 multiplexes as on December 31, 2021, ILL is the second-largest multiplex operator. Despite restrictions in operations, ILL added ~41 screens in calendar year 2021. Its strong market position is also reflected in its ability to increase ticket prices amidst the pandemic. ATP was Rs 226 in the third quarter of fiscal 2022, against Rs 200 in fiscal 2020. ILL is expected to continue to add screens to improve its market position.

Improving operating efficiency

The operating margin of ILL was healthy at around 18% in fiscal 2020 (ex-Ind AS-116 adjustment), compared with around 19% in fiscal 2019, despite operations being shut in the latter half of March 2020.

After reporting operating losses in fiscal 2021 and first half of fiscal 2022, ILL has reported operating profit in the third quarter of fiscal 2022. Moreover, key operating parameters such as ATP and SPH on food & beverages stood higher at Rs 226 and Rs 97 respectively, during the third quarter of fiscal 2022 compared to ~Rs 200 and ~Rs 80 respectively, during fiscal 2020. Although the operating profit may be constrained during the fourth quarter of fiscal 2022, by the third wave of the pandemic, it is expected to rebound significantly in fiscal 2023, given the current pace of recovery in occupancies and sustenance of higher ATP and SPH on food & beverages compared to pre-pandemic levels.

Strong financial risk profile

ILL enjoys healthy financial flexibility as part of the INOX group. Furthermore, its financial risk profile is supported by its strong ability to raise funds from capital markets. Gearing and net debt to earnings before interest, tax, depreciation and amortisation (EBITDA) ratio was healthy at 0.14 time and 0.3 time, respectively, as on March 31, 2020, while interest coverage ratio remained strong at above 30 times in fiscal 2020. Despite cash losses due to the pandemic in fiscal 2021 and the first half of fiscal 2022, the company has turned net-debt free because of cost rationalisation measures undertaken along with liquidity from the sale of treasury shares and equity raise.

The significant rebound in operating performance expected in fiscal 2023 should further improve the financial risk profile. However, impact of any further waves of the pandemic on occupancy and financial risk profile will remain a key monitorable. Moreover, any impact on the financial risk profile because of inorganic expansion will remain a key rating sensitivity factor.

Weakness:

Exposure to risks inherent in the film exhibition business

Fluctuations in profitability, inherent in the film exhibition business, will continue to affect operations, though the impact should be cushioned marginally by the large scale and diversification of revenue sources. Multiplex players, given their high fixed costs, should remain dependent on occupancy, which is driven by the success of films. Other forms of entertainment and new content distribution platforms, including over-the-top, will continue to expose the company to challenges of sustaining profitability and growth.

Key Financial Indicators

Annexure – List of entities consolidated

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