Inox Leisure rebounds 20% in three days. Does it still have room for upside?

Inox Leisure, India’s second-largest multiplex chain, has bounced back over the past three sessions after falling as much as 30% in the previous few weeks in the wake of concerns related to a new coronavirus variant.

The company’s shares jumped 4.4% on Thursday to close at Rs 409.70 apiece on the BSE. This means it has stretched its gains to a tad more than 20% in three sessions; the stock had climbed 4.3% on Tuesday and 9% on Wednesday.

On Monday, Inox Liesure shares had touched a low of Rs 340.80 apiece—down nearly 30% from a one-year high of Rs 466.10 in November—amid concerns related to the Omicron variant of coronavirus.

The highly infectious variant was first discovered in southern Africa and has now been reported in many countries worldwide, fuelling worries of another wave of Covid-19 pandemic.

Edelweiss Securities, the institutional broking and research arm of diversified financial services company Edelweiss Group, has retained its buy rating on Inox Leisure with a target price of Rs 547 per share. This is 33% higher than Thursday’s closing price.

Edelweiss anticipates strong revival in demand, backed by pent-up demand and a large pipeline of major movies, will help Inox. The company’s balance sheet, too, has the potential to support its expansion plans.

“If there is no serious third wave of Covid-19, then INOX Leisure is set for a strong recovery,” Edelweiss said in a client note.

Inox’s ad revenues should also bounce back with a lag of two quarters. Smaller players such as Carnival have seen significant impact from covid, giving more room to large players such as Inox to grow.

Box Office collections, line-up

The multiplex association estimates Rs 4,000-6,000 crore box office collections in 2021 compared with Rs 2,000 crore in 2020. There is strong pent-up demand and success of major films such as Sooryavanshi bodes well for the industry, as consumers seek to return to movie screens after a gap of about two years.

Producers, too, have been sitting on content for a long time while broadcasters such as Sun TV Network and ZEE Entertainment are also lining up strong content.

Edelweiss foresees the second half of fiscal 2022 to also benefit from major regional as well as Hollywood movies — the latter includes a James Bond flick and Marvel movie Eternals.

Inox is also stepping up offerings in terms of content diversity and food menu, and is integrating itself deeper into consumers’ lives. The company has partnered with ITC’s Kitchens of India to bring authentic Indian cuisine to its menu.

The company aims to offer more than stock popcorn and fries to consumers, and give them a proper dining and outing experience when they return to screens with their family and friends. It is also exploring screening of alternative content such as sports and concerts of famous bands to showcase most relevant content to young audiences, Edelweiss said.