| INOX Leisure Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale CRISIL Ratings has reaffirmed its ratings on the bank facilities of INOX Leisure Limited (ILL) at ‘CRISIL A+/Negative/CRISIL A1’.
The negative outlook reflects CRISIL Ratings’ expectation that ILL’s business risk profile may further weaken over the medium term. Prolonged restriction on operations both in terms of time and capacity as well as delayed opening of key states such as Maharashtra may lead to deferment in release of strong Hindi content impacting the overall footfalls.
Cinema halls have been allowed to open in majority of the states across the country, although with varied level of restriction. Largely, regional & English content have supported footfalls.
ILL had undertaken steps to reduce cost and augment liquidity over the past one and half year. It has successfully negotiated with majority of mall developers, where operations have resumed, for waiving off rentals for the entire period of closure of operations during lockdown along with revenue sharing arrangements or lower guaranteed payments from resumption of operations during second quarter of fiscal 2022. Besides, the company has also conserved cash by reducing its workforce and deferring maintenance outlay and capital expenditure (capex).
On August 11, 2020, ILL sold treasury shares for Rs 101.36 crore, which has augmented liquidity. Furthermore, ILL also raised Rs 250 crore and Rs 300 crore equity in November 2020 and June 2021 respectively, as a result of which the company had net cash position of ~Rs 120 crore as of August 31, 2021 as against net debt of around Rs 27 crore as of March 31, 2021.
ILL had liquidity (cash and bank balance, undrawn committed bank lines and other liquid investments) of around ~Rs 355 crore as on August 31, 2021, which should sufficiently cover its curtailed operating cost and debt obligation for the next 5-6 months.
Improvement in the current situation, leading to return of content, relaxation in restrictions in key states and ramp-up in occupancies, while operators continue to contain operating costs and maintain liquidity, will remain a key monitorable.
The ratings reflect the company’s established market position in the film exhibition business, healthy operating efficiency, strong financial risk profile (before the pandemic) and high financial flexibility, being part of the INOX group. These strengths are partially offset by exposure to risks inherent in the film exhibition business. |
Analytical Approach CRISIL Ratings has combined the business and financial risk profiles of ILL and its subsidiary. This is because the companies, together referred to as ILL, are in related businesses, have common promoters and have operational and financial linkages.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation. |
Key Rating Drivers & Detailed Description Strengths:
With 654 screens across 155 multiplexes, ILL is the second-largest multiplex operator. Its strong market position is also reflected in its ability to maintain ticket prices (average ticket price was Rs 200 in fiscal 2020, against Rs 197 in fiscal 2019). Addition of new screens is expected to remain low for some time and would depend upon the ramp-up in occupancy over the next 2-3 months, post lifting of restrictions over operations.
The operating margin of ILL was healthy at around 18% in fiscal 2020, compared with around 19% in fiscal 2019, despite operations being shut in the latter half of March 2020. Besides box-office collection, revenue from other segments continued to improve. For instance, the revenue share of the advertisement segment rose to 9.3% in fiscal 2020, from 6.5% in fiscal 2014, while the food and beverages segment rose to around 26% in fiscal 2020, from 21.3% in fiscal 2014.
While operating performance has been impacted in fiscal 2021 and has continued to remain subdued during the first half of fiscal 2022 owing to the 2nd wave of Covid-19. The company’s ability to sustain growth in occupancy post lifting of restrictions, leading to a healthy margin will remain critical.
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 above 30 times in fiscal 2020.
Despite the cash losses due to the pandemic in fiscal 2021, the company has turned net-debt free as of August 31, 2021 because of liquidity from the sale of treasury shares and Rs 550 crore equity raised during the past 15 months.
However, if occupancy continues to be sub-optimal for a prolonged period in fiscal 2022, there could be an impact on the debt profile, with continued cash losses weakening the financial risk profile. Any sustained impact on operations and, subsequently, the financial risk profile will remain a key monitorable.
Weakness:
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. |
Liquidity: Strong ILL had liquidity of around Rs 355 crore as on August 31, 2021, including cash and bank balance, undrawn committed bank lines and other liquid investments. The liquidity should be sufficient to manage total cash outflow, including fixed costs and debt obligation, even if operations remain disrupted for next 5-6 months. But, turnaround in operations along with the ability to curtail operating costs, while maintaining healthy liquidity amidst fresh restrictions, will remain a key monitorable. |
Outlook: Negative CRISIL Ratings believes there could be weakening of the company’s credit profile over the next 3-4 months if local restrictions in various states continue to hinder operations on a pan-India basis or occupancies remain muted despite resumption of operations. |
Rating Sensitivity factors Upward factors
Downward factors
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About the Company Incorporated in 1999, ILL operates multiplexes. The company set up its first multiplex in Pune, Maharashtra, in May 2002. It acquired a majority stake in FAME and became the second-largest multiplex operator in India. FAME was merged with ILL effective April 1, 2012. In August 2014, ILL acquired a north India-based multiplex chain, Satyam, which had 38 screens.
Net loss was Rs 122 crore on operating revenue of Rs 22 crore for the Q1 ended June 30, 2021, as compared to net loss of Rs 74 crore on operating revenue of Rs 0.25 crore in the corresponding period of the previous fiscal. |
Key Financial Indicators*
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Any other information: Not applicable |
| Note on complexity levels of the rated instrument: CRISIL Ratings' complexity levels are assigned to various types of financial instruments. The CRISIL Ratings' complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL Ratings' complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments. |
Annexure - Details of Instrument(s)
*Letter of Credit of Rs 20 crore as a sub-limit and overdraft of Rs 22 crore as a sublimit # Letter of credit of Rs. 10 crore as a sublimit @Overdraft Facility of Rs. 70 crore and short term line of credit, bank guarantee and letter of credit aggregating to Rs. 32 crore is a sublimit ^ Bank guarantee and Letter of Credit aggregating to Rs 15 crore as a sublimit |
Annexure – List of entities consolidated
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| Annexure - Rating History for last 3 Years | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| All amounts are in Rs.Cr. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Annexure - Details of Bank Lenders & Facilities | |||
| Facility | Amount (Rs.Crore) | Name of Lender | Rating |
| Bank Guarantee | 23.85 | Axis Bank Limited | CRISIL A1 |
| Bank Guarantee | 27 | YES Bank Limited | CRISIL A1 |
| Long Term Loan | 60 | HDFC Bank Limited | CRISIL A+/Negative |
| Overdraft Facility# | 25 | Axis Bank Limited | CRISIL A1 |
| Overdraft Facility | 2 | HDFC Bank Limited | CRISIL A1 |
| Overdraft Facility@ | 70 | ICICI Bank Limited | CRISIL A1 |
| Overdraft Facility^ | 30 | IDFC FIRST Bank Limited | CRISIL A1 |
| Proposed Long Term Bank Loan Facility | 20.83 | Not Applicable | CRISIL A+/Negative |
| Short Term Loan* | 22 | YES Bank Limited | CRISIL A1 |
| Term Loan | 26 | Axis Bank Limited | CRISIL A+/Negative |
| Term Loan | 13 | HDFC Bank Limited | CRISIL A+/Negative |
This Annexure has been updated on 16-Dec-2021 in line with the lender-wise facility details as on 11-Dec-2021 received from the rated entity.
*Letter of Credit of Rs 20 crore as a sub-limit and overdraft of Rs 22 crore as a sublimit
# Letter of credit of Rs. 10 crore as a sublimit
@Overdraft Facility of Rs. 70 crore and short term line of credit, bank guarantee and letter of credit aggregating to Rs. 32 crore is a sublimit
^ Bank guarantee and Letter of Credit aggregating to Rs 15 crore as a sublimit
Criteria Details
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