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Edited Transcript of INOXLEISUR.NSE earnings conference call or presentation 23-Oct-19 11:30am GMT

Q2 2020 INOX Leisure Ltd Earnings Call

Vadodara Oct 31, 2019 (Thomson StreetEvents) -- Edited Transcript of INOX Leisure Ltd earnings conference call or presentation Wednesday, October 23, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alok Tandon

INOX Leisure Limited - CEO

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Conference Call Participants

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* Abhishek Joshi

CGS-CIMB - Analyst

* Abneesh Roy

Edelweiss Securities Ltd., Research Division - SVP

* Ashish Kanodia

AMBIT Capital Private Limited, Research Division - Research Analyst

* Darpan M. Thakkar

HSBC, Research Division - Analyst

* Girish Pai

Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research

* Harsh Shah

Dimensional Securities Private Limited, Research Division - Research Analyst

* Jinesh Joshi

Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst

* Keshav Lahoti

Angel Broking Private Limited, Research Division - Analyst

* Rohit Dokania

IDFC Securities Limited, Research Division - SVP of Research

* Arisha Potra

Sharekhan - Analyst

* Manuelvan Med

Laurel Investment - Analyst

* Urmil Shah

IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst

* Vahishta Unwalla

CARE Ratings - Analyst

* Yogesh Kirve

Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, good day, and welcome to the INOX Leisure Q2 FY '20 Earnings Conference Call hosted by IDBI Capital Markets and Securities. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Urmil Shah from IDBI Capital. Thank you, and over to you, sir.

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Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [2]

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Thank you, Shirley. Good evening, everyone. On behalf of IDBI Capital, I welcome you all to the INOX Leisure post earnings con call for the quarter ended September 2019. As always, on the call from the senior management of the company, we have Mr. Alok Tandon, our CEO, INOX Leisure; and Mr. Kailash Gupta, our CFO, INOX Leisure. We will start the call with opening remarks from Mr. Alok, and then we will open up for Q&A. Over to you, Alok, sir.

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Alok Tandon, INOX Leisure Limited - CEO [3]

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Hi, everyone. I'm Alok Tandon speaking, and thank you very much, Urmil. On behalf of management of INOX Leisure, I would like to wish you a very good evening and extend a very warm welcome to all the participants on this call. Happy to inform you that the Board of Directors has approved the quarterly results of Q2 FY '20. The results have been uploaded on the website of the stock exchanges as well as on the website of the company. And along with the results, we have also uploaded an earnings presentation.

On this call, we would like to walk you through some of the significant financial and operating parameters as contained in our presentation. And of course, after that we will open it to any questions that you may have.

Let me take you through some of our achievements of Q2 FY '20. We have had the highest footfall growth in the industry of 39% in Q2 FY '20. We've had the highest occupancy growth in industry of 589 bps. We've had the highest revenue growth in the industry of 42%. We have had the highest EBITDA growth in the industry of 121%, and we've also had the highest PAT growth in the industry of 327% in Q2 FY '20. For the trailing 12 months, we have had the highest EBITDA to capital invested ratio of 27%, and we are the first national chain in the industry to be net debt free. When we look at the first 6 months of this financial year, we again have the highest footfall growth in the industry of 24%. We've had the highest revenue growth in the industry of 30%. We've had the highest EBITDA growth in the industry of 48% and also the highest PAT growth of 89% in H1 FY '20 in the industry.

Looking at some of the financial results and highlights of Q2. As for the first half of FY '20, let me tell you that we will be comparing Q2 Y-on-Y and first half Y-on-Y. We are doing a Y-on-Y comparison, which is Q2 FY '20 is being compared to Q2 FY '19 and H1 FY '20 is being compared to H1 FY '19. For the quarter, the total revenue went up by 42% from INR 369 crores in Q2 FY '19 to INR 524 crores in Q2 FY '20. EBITDA increased by 121% from INR 49 crores in Q2 FY '19 to INR 107 crores in Q2 FY '20. EBITDA margin has improved from 13% to 20% in Q2 FY '20. PAT increased from INR 12 crores to INR 51 crores in Q2 FY '20 and that's an increase of 327%. PAT margin, therefore, increased from 3% in Q2 FY '19 to 10% in Q2 FY '20. These were the numbers for the first quarter.

For the first half of the year, total revenue went up by 30% from INR 787 crores to INR 1,020 crores. EBITDA improved by 48% from INR 125 crores to INR 199 crores in H1 FY '20. EBITDA margin, too, improved from 17% in H1 FY '19 to 20% in H1 FY '20. PAT improved by 89% from INR 49 crores to INR 92 crores in H1 FY '20 and PAT margin, too, improved from 6% in H1 FY '19 to 9% in H1 FY '20.

Now let's look at the breakup of various revenues. We all know that our revenue is comprised of 4 key streams: net box office, net food and beverage, advertisement and other operating revenues. For the quarter, the net box office figures went up from INR 206 crores to INR 311 crores in Q2 FY '20, that was a growth of 51%. F&B revenues went up from INR 95 crores to INR 141 crores, which is a growth of 48%. Advertising income went up from INR 38 crores in Q2 FY '19 to INR 40 crores in Q2 FY '20, that is a growth of 5%. On other revenues, we went up from INR 30 crores to INR 33 crores, which is a growth of 9%, and as a result of which the total revenues went up to INR 524 crores from INR 369 crores in Q2 FY '20.

The figures for the first half of the year are as follows. Revenues from net box office went up from INR 448 crores in H1 FY '19 to INR 598 crores from H1 FY '20, that is a growth of 33%. F&B revenues went up from INR 206 crores to INR 273 crores, which is a growth of 32%. Advertising income went up from INR 78 crores to INR 87 crores in H1 FY '20, which is a growth of 11%. And other revenues went up from INR 54 crores to INR 62 crores, which is a growth of 14%, and as a result of which total revenues went up from INR 787 crores in H1 FY '19 to about INR 1,020 crores in H1 FY '20. For Q2 FY '20, the net box office revenues comprised 59.3% of our total revenues; F&B comprises 26.8%; advertising, 7.6%; and other operating revenues, 6.2% of our total revenues for the quarter.

For H1 F1 '20 -- FY '20, net box office revenues now comprise 58.6% of our total revenues; F&B comprises 26.8%; advertising, 8.5%; and other operating revenues comprise 6.1% of our total revenues. This performance was largely on the back of some significant releases that happened in the last quarter. These included Mission Mangal, where we had footfall of INR 19 lakhs and a gross box office collection, which is GBOC, of INR 42 crores. Lion King had footfalls of INR 16 lakhs and a GBOC of INR 36 crores. Super 30 had footfalls of INR 17 lakhs and a GBOC of INR 32 crores. Chhichhore had INR 16 lakhs of footfalls and INR 32 crores of GBOC, and Saaho did INR 15 lakh footfalls and GBOC of INR 30 crores. The top 5 films for the quarter, therefore, accounted for about INR 84 lakh of footfall, that is 44% of the quarterly footfalls, and GBOC of INR 172 crores, which is 46% of the quarterly GBOC. As compared to last year, Q2 FY '19, the top 5 films did 45% of footfall and 47% of GBOC.

Now coming to some operational parameters behind the financial numbers which I've just discussed. Overall footfalls improved from INR 137 lakhs in Q2 FY '19 to INR 190 lakhs in Q2 FY '20, that is an increase of 39%. Occupancies also improved to 30% in Q2 FY '20 from 25% in Q2 FY '19. For the first half, the footfalls improved from INR 293 lakhs in H1 FY '19 to INR 363 lakhs in H1 FY '20. Occupancies also increased to 30% as compared to 37% in the first half of last year. On comparable property basis, footfalls for the quarter went up from INR 132 lakhs in Q2 FY '19 to INR 161 lakhs in Q2 FY '20, so that is a growth of about 22%. Occupancies, too, went up from 24% to 30% in Q2 FY '20 on the same-store basis. And for the first half of the year, footfalls went up by 7% from INR 282 lakhs to INR 301 lakhs for the first 6 months. Occupancies, too, increased from 27% to 29% in H1 FY '20.

Overall, average ticket price went up marginally from INR 195 to INR 196 in Q2 FY '20, that is about a 0.4% growth. For the first half, it has remained stable at INR 197. For comparable properties, the average ticket price has decreased from INR 197 to INR 195 in Q2 FY '20, and that is a decline of approximately 1%, and to INR 195 in H1 FY '20 from INR 197 for the same period last year, which is also a decline of approximately 1%.

The second component of the revenue is Food and Beverage. There we have seen the spend per head going up by 7% from INR 73 to INR 79 in Q2 FY '20. For the first half, it went up by 6% from INR 75 to INR 80. Comparable spend per head has gone up by 6% to INR 78 from INR 77 in Q2 FY '20. And for the first half, it went up by 5% from INR 75 in H1 FY '19 to INR 78 in H1 FY '20. The net contribution has improved from 73.3% to 75.5% in Q2 FY '20 and from 74.5% in H1 FY '19 to 75.2% in H1 FY '20.

We continue to maintain the momentum of growth where advertising income is concerned, and this increased in the quarter from INR 38 crores to INR 40 crores in Q2 FY '20, which is a growth of 5%. For first half of the year, advertising income improved by 11% to INR 87 crores from INR 78 crores, which was in the corresponding period compared to last year. Other revenue increased from INR 30 crores in Q2 FY '19 to INR 33 crores in Q2 FY '20, that is a growth of 9%. The other revenue increased by 14% from INR 54 crores in H1 FY '19 to INR 62 crores in H1 FY '20.

If we look at the film distributor share, well, the film distributor share as a ratio of net box office collection went down from 44.7% in Q2 FY '19 to 43.5% in Q2 FY '20. And for the first half, from 44.4% in H1 FY '19, it went down to 43.7% in H1 FY '20. As far as other overheads per operating screen are concerned, these went up from INR 41.7 lakh first quarter per screen to INR 43.1 lakh per quarter per screen in Q2 FY '20, and this is an increase of 3% for the quarter. For the first half of 84. -- for the first half, INR 84.1 lakhs in H1 FY '19 went up to INR 87.1 lakhs in H1 FY '20, which is an increase of 3.6%.

Coming to the properties that we've opened in the last 3 months and in this financial year. We have opened in this quarter 2 properties with 6 screens and 1,515 seats, and the properties we opened in this quarter were 3 screens in Lucknow Umrao Mall, and we also opened another 3 screens in Jalandhar Reliance with 862 seats. As a result of these openings, we today are operational in 19 states, 68 cities, we have 144 operational properties and 598 screens with 140,244 seats. We expect to open 9 more properties with 44 more screens with 7,300 seats during the remaining financial year of 2020. Beyond this, we have a strong visibility of properties based on agreements already signed. We have properties tied up to the extent of about 914 screens, 136 properties and 16,817 seats. And once this pipeline is fully implemented, we will be about 289 properties, 1,556 screens and about 315,561 seats strong.

As far as the content is concerned, we expect some good releases to happen in the remaining part of November, this quarter and earlier next year. This month, we have Housefull 4, we have Bala, Marjaavaan and Pagalpanti and that's in November. And December also looks very exciting with Panipat, Mardaani, Dabangg 3 and Good Newwz.

In terms of the shareholding structure, FIIs own about 12.08% of the company and DIIs own about 21.02%. We have treasury shares of 4.23% and the public owns 10.78%. The share price currently is about INR 354, which gives us a market cap of roughly INR 3,642 crores.

So this, ladies and gentlemen, was a brief snapshot of our financial and operating parameters. I would now like to open this up to any questions that you might have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from the line of Abneesh Roy from Middleware (sic) [Edelweiss] Securities.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [2]

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Yes, it is Edelweiss Securities. Congrats on the extremely good set of numbers. My first question is, in terms of screen openings, it seems a bit slow at around 27 screens in first half. In the presentation, I can see 44 screens in H2. Does it mean around 71 screens is the target? And how confident are you on the 44 screens, considering 27 in the first half?

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Alok Tandon, INOX Leisure Limited - CEO [3]

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Well, Abneesh, just to answer your question, we -- as you said, we've only opened 27 screens till now. And yes, we opened only 6 in this quarter which we're talking about. It all depends on permissions and licenses of various properties, not that we are not ready with the properties. We are totally ready with a few of our properties and just waiting for licenses to fall into place, and we'll be ready to open them. And as I said in my presentation that we have another 44 screens to open, which we are quite confident that we'll be able to open by 31st of March 2020, taking our tally to 71 screens for the entire financial year. So talking about the numbers, we are hopeful that we will get the licenses because the work is nearly complete and we should be able to open these screens and properties.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [4]

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Sir, related question I think most investors have is current liquidity pressure, which most developers and financials are facing. In that context, FY '21, how is the visibility in FY '22, more importantly, because I think FY '21 a lot of the mall development will be in the final stages, but FY '22, based on your understanding, can that be a dampener in terms of screen openings?

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Alok Tandon, INOX Leisure Limited - CEO [5]

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Not as of now, because I know that some work has also started in the properties which we'll open in 2022. So you're right that 2021 openings, we have already got positioned, the work is on its way. We are doing work everywhere. But 2022 also we've started doing work. The malls which we are supposed to get a handing off in late 2021, for the 222 opening -- 2022 opening, the work is going on, and I do not see any problem over there.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [6]

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Sir, my second question is on advertising. When I see HUL, they have spent very aggressively on advertising in a very slow demand environment, and they are the bellwether. And when I see the other multiplex, they have seen a 15%, 16% ad revenue growth. In your case, yes, it's still a growth in challenging times but screen openings have happened for you. So in that context, a 5% number looks a bit on the lower side. Is there any one-off here because of base? Or there was some issue with any advertisers so this could recover back to the industry-leading growth in coming quarters?

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Alok Tandon, INOX Leisure Limited - CEO [7]

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Well, there was an economic slowdown, and people just pulled back from advertising. And when you talk about competition, it's because they acquired another chain. And when you add up, yes, it's coming to 15%. But when I look at INOX, we have had a few advertisers, a few verticals we did not advertise because of the slowdown. And I do not see this as a long-run issue. It is something which was there for a quarter, a blip, and I feel that this will be overcome in the next couple of quarters, which -- where we'll be talking about growth in advertising rates -- advertising income.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [8]

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And sir, those advertisers which did not were from the typical auto, real estate, those kind? Or if you could elaborate there?

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Alok Tandon, INOX Leisure Limited - CEO [9]

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No, no, absolutely right. They were auto, they were real estates, BFSIs. So those were people who just, I would say, tightened the strings, nothing else.

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Abneesh Roy, Edelweiss Securities Ltd., Research Division - SVP [10]

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And sir, last question, any plans to sell some of your signature products to Swiggy, Zomato, F&B? Any plans on that because maybe some of the other players are planning that?

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Alok Tandon, INOX Leisure Limited - CEO [11]

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Yes. We are looking at it, and we'll be shortly talking about our entire new initiatives.

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Operator [12]

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The next question is from the line of Darpan Thakkar from HSBC.

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Darpan M. Thakkar, HSBC, Research Division - Analyst [13]

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Congrats for the good result. So on ad revenue growth, again, 5% for this quarter. Do you see for the full year it will come back for the second half in double-digit growth?

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Alok Tandon, INOX Leisure Limited - CEO [14]

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Darpan, could you repeat your question, please?

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Darpan M. Thakkar, HSBC, Research Division - Analyst [15]

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My question is, for this quarter, it's 5%, which is very low compared to what we have done historically. So in the second half of the year, do you see this growth going back to double digit?

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Alok Tandon, INOX Leisure Limited - CEO [16]

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Yes, absolutely. We are looking at a double-digit growth. And as I have just earlier said, this is just a blip, and we are very hopeful that we will come back on track.

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Darpan M. Thakkar, HSBC, Research Division - Analyst [17]

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Okay. And what will be the same-screen comparable properties ad revenue growth for this quarter?

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Alok Tandon, INOX Leisure Limited - CEO [18]

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Well, I would not like to talk about the same-screen growth. But we know overall, it's a 5% growth for the Q2 FY '20.

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Darpan M. Thakkar, HSBC, Research Division - Analyst [19]

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Okay. And what will be the total CapEx for the year? So I mean, [certainly] CapEx was INR 50 crores, INR 60 crores was spent on recent -- Inorbit Mall property. And -- so what will be the total CapEx for this year?

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Alok Tandon, INOX Leisure Limited - CEO [20]

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So Darpan, we are looking for around INR 250 crores in overall CapEx for this financial year, which improved with 71 new screens, of course. So in the first half, around INR 100 crores is already done, and we are looking for INR 150 crores in the next -- I mean, H2.

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Operator [21]

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The next question is from the line of Yogesh Kirve from B&K Securities.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [22]

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So if we go back a few quarters, I mean, in the second half of FY '18 and the first half of FY '19, we were seeing that F&B spend per head was growing in double digits. And what we have seen over the last 3 to 4 quarters that the growth is more like about 7% average for the last 4 quarters. So going ahead, I mean, what sort of expectation we can build? I mean, is it the 6%, 7% a new normal or there's a scope for increasing it further?

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Alok Tandon, INOX Leisure Limited - CEO [23]

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Well, there is a scope to increase it further. We all are working to ensure that our SPH goes up quarter-on-quarter. And I would say, the 9% to 10% growth, which we are looking at going ahead, and that is something which we all are working towards.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [24]

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Okay. Secondly, just more of a confirmation. So has there been a revision in any lease accounting related any assumption for estimate?

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Alok Tandon, INOX Leisure Limited - CEO [25]

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No. Yogesh, this is the same, which we have mentioned in the Q1. Nothing has changed in the table.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [26]

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Right, sir. And sir, in terms of the margins, I mean, do we see any levers in terms of the cost trend of the efficiencies? I understand the overall operating leverage related to some of the revenues. But what are the -- so what sort of an EBITDA margin can we build going ahead?

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Alok Tandon, INOX Leisure Limited - CEO [27]

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Well, we always endeavor to increase our EBITDA margins. And this time, it's at 20% for the Q2 as well as for the entire half year. Well, this is something which we want to achieve quarter-on-quarter and more the better. So today, I will not be able to tell you the margins that we are looking at. But yes, definitely, we want to increase this margin in the coming quarters. And that's for any company that the EBITDA margins have to go up. So we all are working towards this entire exercise to ensure that we have a good top line and good EBITDA number and a great PAT number as well as the margins.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [28]

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All right. Sir, we see there's room for expansion, right, even from these levels. I mean, I understand this quarter was very strong in terms of the footfalls and occupancies. But there are room for improvement from these levels as well?

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Alok Tandon, INOX Leisure Limited - CEO [29]

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Absolutely right.

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Operator [30]

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The next question is from the line of Jinesh Joshi from Prabhudas Lilladher.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [31]

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Yes. A couple of questions from my side. I understand that recently we refurbished our property at Inorbit Mall, Malad. So what I want to know is that, how are the initial trends shaping up in terms of ATP, SPH and occupancy? And lastly, is there any plan to kind of launch more such megaplexes in future?

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Alok Tandon, INOX Leisure Limited - CEO [32]

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Yes. We have plans. We'll be opening the next megaplex in Lucknow soon, so -- and take it to other cities also. And we have talked about increase in ATP and SPH, we just launched the property, we are getting good reviews, we've seen that the occupancy has improved and also the various formats which we have, because, as you know, it's the world's only cinema with a maximum number of formats. We have seen that people are coming to watch a movie in different formats, whether it's MX4D, whether it's Insignia, whether the LED projection or ScreenX, which will be the first one to launch in India. So we've seen that people are coming, liking the experience. And we'll be able to talk about ATP and SPH, maybe it's too early to talk about it. But in the last couple of weeks, we've surely seen that we have been -- our footfalls and occupancies have increased in this property.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [33]

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Okay, sir. And sir, I understand that OTT and cinema viewing can coexist together. But have we undertaken any kind of a study to understand the viewing trends on OTT? I mean, what type of content is typically consumed over there? Is it sports, originals or movies? I mean, if you can share any operating data on that front, it will be really helpful.

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Alok Tandon, INOX Leisure Limited - CEO [34]

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Well, we all know and you rightly said that the content consumed on OTT is totally different than that consumed in a cinema hall. On a cinema, you have movies which are there. And a true connoisseur for movie has already seen it before it hits an OTT platform. And globally, there are windows, which have got a time line between a movie hitting an OTT and it coming on a screen. The content consumed, I would say OTTs are more web series, are more, I would say, are various other documentaries which are shown. It's not a movie. There are very few movie people who watch a movie on an OTT. So going forward, the trend would continue. And that, I would say, is benefiting everybody because the content which is on OTT is very sleekly made. And today also, the people who are creating content for our cinema screens have literally come of age, and we've got some true world-class moviemakers in India. So the content, I would say that they are competing with each other in terms of content, they want to better each other, that's one. And number two, the content consumed is totally different.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [35]

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Okay. Sir, one last question. I mean, the film distributor share has declined to about 43.5% during the quarter. So is it because the movies have run for a longer duration? Or is there something more to it?

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Alok Tandon, INOX Leisure Limited - CEO [36]

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Yes. Yes. Movies have run for a longer duration. If you look at the movies which we had in Q2 FY '20, Mission Mangal, The Lion King, Super 30, Chhichhore, Saaho, so these all had long runs at the box office. And because of that, the distributor share has marginally come down.

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Operator [37]

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(Operator Instructions) The next question is from the line of Abhishek Joshi from CGS-CIMB.

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Abhishek Joshi, CGS-CIMB - Analyst [38]

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Sir, my question is, do we have any specific strategy about the premiumization of our screens, like how -- what percentage of total screen should be in the premium category? And is there any specific strategy to premiumize the existing screens or a particular CapEx allocated each year coming -- going forward in 2 to 3 years?

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Alok Tandon, INOX Leisure Limited - CEO [39]

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Well, Abhishek, if you look at our premium screens today and no better thing to talk about rather than what we opened in Malad, the megaplex, where we've got 6 different formats, and all of them are premium, whether it's an Insignia, whether it's a ScreenX or MX4D, LED, IMAX, these are all premium screens. And today if I count, we have around 52, give or take one up or down, premium screens in the country out of 598. So that's the percentage we have. Going forward, we will have premium screens, but it all depends on where we're opening a multiplex. And it will depend on the cost structure of the property and the paying potential of the people over there. And also the genre, the languages works out there. So today, sitting here, I cannot tell you that how many more premium screens we'll be opening, but we will be opening for sure. And more or less in the same percentage, in the same ratio as we have today.

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Abhishek Joshi, CGS-CIMB - Analyst [40]

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Sir, another question was, how many screens do we have in Tier 2 and Tier 3 cities? And how much does the revenue metrics differ from the average revenue metrics in these kind of cities -- Tier 2, Tier 3 cities?

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Alok Tandon, INOX Leisure Limited - CEO [41]

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Well, if you talk about revenue metrics yes, surely ATP is less, SPH is less. But then even our CapEx is less for those properties. A few things we don't compromise on is the projection and sound, the acoustics, the firefighting and the cleanliness of the toilets. So these things we do not compromise on whether we are in a metro or a Tier 4. But otherwise, because of the CapEx investment, we have a less ATP and a less SPH. But returns, I would say, more or less is the same whether it's a metro or a Tier 4 city, that does not change.

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Abhishek Joshi, CGS-CIMB - Analyst [42]

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Sir, what percentage of screens do we have in Tier 2, Tier 3 and Tier 4 cities right now?

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Alok Tandon, INOX Leisure Limited - CEO [43]

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Well, well, if I count in a metro a Tier 1, we should be having about 45% to 50% -- about 50% to 55% of our screens in metros and Tier 1s and remaining spread across the length and breadth of the country, whether it's Tier 2 or Tier 4.

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Operator [44]

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The next question is from the line of Keshav Lahoti from Angel Broking.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [45]

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Congrats on a great set of number, what a PAT like 300% jump, good numbers. Just had 2 small questions. I just wanted to know, when I see the Q2, there is a box office jump of 51%. But when I look at F&B, so there is a 48% jump year-on-year. So what I'm seeing is box office jump is more than F&B. So I just wanted to know how much headrooms are left in F&B? Like earlier, we are doing a kind of big jump in F&B. So are we at peak or there will be more jump like having good food offering, increasing the menu? Just your thoughts on that.

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Alok Tandon, INOX Leisure Limited - CEO [46]

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Well, we -- if you come to any of our Insignia properties today, you will have more than 200 items on the menu. We have a menu which is changed after every 3 or 4 months so that menu fatigue does not set in. So a lot of effort is going on to increase our F&B spend where patrons are concerned. And when you talk about absolute, that it's a 48% increase in F&B compared to 51% in the box office, the [more] we had of any footfall quarter. And there are times when people who just come to enjoy the movie, and they do not want to spend on food, for which we are taking a lot of corrective -- I wouldn't call it a corrective action, but a lot of steps, which we've been doing for the last couple of quarters, is to ensure that we sell more food per patron, we have a point-of-sale wherever he's standing, which includes the buying of food through his app. We have got Food Busters. So we're ensuring that a guest who comes to us buys food and is not turned away because of the long lines. But yes, in a heavy footfall quarter, there are times when people do not buy food because they want to come and just spend on the movie ticket. But as I just said that we are working towards it and ensuring that there are more people who buy food, we sell more food per patron and ensure that where he stands the POS is over there for him to buy his stuff.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [47]

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Okay. What is your box office collection in terms of English, Hindi and regional?

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Alok Tandon, INOX Leisure Limited - CEO [48]

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Well, it depends. On average, we have about 15% to 20% which is regional. The same amount is English and the remaining is Hindi, which is about 60% Hindi.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [49]

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Sir, I'm talking about this quarter, you have the number?

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Alok Tandon, INOX Leisure Limited - CEO [50]

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Well, this quarter, we have -- 65% we have Hindi. I'm just pulling out my data. We have about 13% to 14% English. And remaining, we have regional -- the other Indian languages collection.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [51]

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Okay.

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Alok Tandon, INOX Leisure Limited - CEO [52]

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So I repeat 68% Hindi, 13% English and remaining the other Indian languages.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [53]

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58% English?

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Alok Tandon, INOX Leisure Limited - CEO [54]

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68%, 13%, 19%.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [55]

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Okay. One last question. As we have seen, like Q2 was quite weak for advertising front. Just wanted to know how the Q3 have started? I know it will have gone better than Q2. Is it off a level of, let's say, Q1 of this year or Q4 of last year? How is it panning out?

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Alok Tandon, INOX Leisure Limited - CEO [56]

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Well, let me just correct that. I won't call it a weak Q2 quarter where advertising is concerned, it was an economic slowdown and everybody feels the brunt of it. Whatever we've seen in October, the sales -- the advertising revenues have slowly picked up. And I'm hopeful that Q3 will be a good quarter where ads are concerned.

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Operator [57]

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The next question is from the line of Girish Pai from Nirmal Bang.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [58]

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Just want to go back to the question on advertising. Alok, did you mention that you will see double-digit growth for the full year? Or are you referring to the second half?

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Alok Tandon, INOX Leisure Limited - CEO [59]

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Well, I would say, for the full year.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [60]

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Full year, okay. Second question regarding refurbishment costs. Has the CapEx on refurbishment increased? And it is being done at more frequent intervals now than what you've seen in the past. And is the refurbishment cycle shortening in your view?

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Alok Tandon, INOX Leisure Limited - CEO [61]

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No. It's the same what it was earlier. The cycle remains the same. So it depends that maybe 4, 5 years after the property is opened, we take it under renovation and refurbishment. So the cycle is the same. It's not changed at all. And going forward, yes, we have more properties coming up for refurbishment, but the cycle is still the same.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [62]

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And per screen CapEx for refurbishment would be how much in your view? Absolute amount?

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Alok Tandon, INOX Leisure Limited - CEO [63]

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Sorry, please go ahead.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [64]

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What would be the CapEx per screen, I mean, refurbishment CapEx per screen on average?

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Alok Tandon, INOX Leisure Limited - CEO [65]

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Well, I cannot give a number to that refurbishment CapEx because it depends on what we are doing over there. If we are changing a total format, for example, I'm putting in a new format in an old screen, yes, it will be a couple of crores. But maybe if I'm just hitting the upholstery and the carpets, would be a few lakhs. So it depends on what I'm doing and what I'm changing. So I can't give a particular number to that CapEx for renovation.

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Operator [66]

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The next question is from the line of [Arisha Potra] from Sharekhan.

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Arisha Potra, Sharekhan - Analyst [67]

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Sir, just wanted to be understand on the advertisement piece a bit more in detail. Was it on account of lower number of minutes sold? Or was it your ad rates?

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Alok Tandon, INOX Leisure Limited - CEO [68]

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Well, it was lower minutes because there were people who did not want to advertise, or people who were advertising wanted to advertise for a shorter duration. So that was the reason why it was only a 5% growth you saw. It was not for the rate which we had.

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Arisha Potra, Sharekhan - Analyst [69]

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Okay. So -- but when is the rate negotiation expected for advertisements?

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Alok Tandon, INOX Leisure Limited - CEO [70]

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Well, there's nothing in terms of rate negotiation. We have got different rates for different movies, for blockbusters, for mega blockbusters, for festive season. So I wouldn't call it a rate negotiation. Yes, we have got various rates and slabs for different parts of the year and different time and different movies.

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Arisha Potra, Sharekhan - Analyst [71]

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Okay. On the tax rate front, we came to understand that there has been a reduction in corporate tax by the Finance Minister. But somehow we see the Q2 tax rate to be around 25%. Are we not getting the benefit on account of growth exit? Or have we not opted for it?

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Alok Tandon, INOX Leisure Limited - CEO [72]

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Well, as of now, we're just evaluating various options, and we will be able to take this call more towards March of 2020, and then we can discuss on this.

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Operator [73]

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The next question is from the line of Vahishta Unwalla from CARE Ratings.

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Vahishta Unwalla, CARE Ratings - Analyst [74]

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Yes. I'd like to know what is the usual time period gap between a movie release date and its release on OTT platforms, maybe about 6 weeks, 3 weeks or something?

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Alok Tandon, INOX Leisure Limited - CEO [75]

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Well, globally, the phenomena is 12 weeks. That's the window which we have. But in India, it's about 8 weeks between it comes on the screen, and it seats -- and it comes on an OTT.

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Vahishta Unwalla, CARE Ratings - Analyst [76]

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Okay. And given that we have had a great performance in the first half of this year and October is almost over, any comments on how Q3 has started?

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Alok Tandon, INOX Leisure Limited - CEO [77]

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Well, we all know that War was fantastic. We also know Joker did well. So we are quite excited about it. And I just commented the lineup we have for this quarter, whether it's Housefull 4 coming, Made In China, [Mykias], we have Marjaavaan, various movies, Dabangg 3. So I would say that we're looking forward to this quarter.

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Operator [78]

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The next question is from the line of Harsh Shah from Dimensional Securities.

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Harsh Shah, Dimensional Securities Private Limited, Research Division - Research Analyst [79]

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Congratulations for a great set of number. Just wanted to understand that your screens presence in southern region is lower compared to your larger peer and from what we gather [that's whether it will come the] Hello?

(technical difficulty)

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Operator [80]

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The line for this participant got disconnected. I'll go over the next participant in the queue. Next participant is from -- the next question is from the line of [Manuelvan Med] from Laurel Investment.

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Manuelvan Med, Laurel Investment - Analyst [81]

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Once again, congratulations on a fantastic set of numbers. What we've noticed is that there is a lot of change that has happened in the properties of INOX right from the dressing of the staff to the materials that are being used INOX, et cetera. And even the kind of SKUs that are being served, as you mentioned earlier, around 200 different food items that are being rolled out on the menu. Now these changes tend to sort of add on to the overheads. And given the fact that we've last -- the last 2 years have been extremely good and have been -- the performance has been improving quarter-on-quarter. I was wondering if somewhere this performance is leading, maybe, to some sort of aggression on these changes and maybe on the cost side, are there some excesses that you feel that are happening versus what was happening earlier?

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Alok Tandon, INOX Leisure Limited - CEO [82]

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Well, as a company, we'll never do something which is very costly in terms of -- we will not go out of the pocket to do things. We'll have to -- we always ensure that our costs are under control, and at the same time, we look at how to increase our top line. Having said this, you talked about uniform being changed. I would say that we, as a company, change uniforms after every 2 years. So instead of having the old uniform, we get a designer who can design new uniform so that it gives a fresh look. Where food is concerned, yes, we have in our Insignias more than 200 items, and they do very well. So -- and cost is still under control. Our contribution from F&B has not increased at all.

So what it means that, yes, apart from we being cost cautious are also ensuring that the top line, the revenues keep on increasing and the guest gets a lot of variety. For him, it's -- if I talk about food, he should eat food with the movie, not like earlier days, where he had food before or after the movie. So these things we are cognizant of and ensuring that whether it's a good look and feel of the property, whether the smartly dressed staff we have or different type of items we serve on a menu is nothing but like a hotel, where you ensure that the guest gets the best, and that's something which we are striving for.

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Manuelvan Med, Laurel Investment - Analyst [83]

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There's one more suggestion cum query at my end, that now that we've reached a stage where sort of in terms of the brand, in terms of the recognition of us as an exhibitor and in terms of the presence being reasonably wide, is there any chance for loyalty program or something like that, so that there can be a repetition in terms of footfalls? I mean, after a very long time, we see an increase in the number of footfalls in a significant manner. But one was wondering if there is some thought process so that that continuity is maintained.

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Alok Tandon, INOX Leisure Limited - CEO [84]

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Well, very soon, soon you'll hear about that. And we've got this feedback from various people for having a loyalty program, and we are working on it, and we will be announcing it shortly.

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Manuelvan Med, Laurel Investment - Analyst [85]

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Okay. And -- is it -- some color into what kind of a loyalty program it's going to be like or something on those lines?

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Alok Tandon, INOX Leisure Limited - CEO [86]

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Well, I will not like to talk about that, please.

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Operator [87]

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The next question is from the line of Urmil Shah from IDBI Capital.

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Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [88]

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Also firstly, on the gross margin on [SME] which has seen a bit of improvement in this quarter, and there has been a consistent improvement versus Q2 of last year. What is the trajectory that we are looking at on this front?

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Alok Tandon, INOX Leisure Limited - CEO [89]

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Well, again, as I said earlier, I would not like to talk about numbers or what we want to do. But yes, where the gross margins are concerned, we would like to maintain with those margins. We have improved it because of volumes, because of economies of scale, because of menu engineering. And I would feel that this is something we would like to continue with. I cannot say whether we'll be further improving it because it's a tough thing to improve these numbers because we are already quite good where our gross margins are concerned. But having said this, we will ensure that these numbers stay the way they are going forward.

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Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [90]

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Sure. So would it be safe to assume that you would look at maintaining the H1 gross margin?

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Alok Tandon, INOX Leisure Limited - CEO [91]

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Yes. That's right.

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Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [92]

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Sure. Sir, and secondly, just on the screen count front, you mentioned that almost a lot of the screens are ready and only the licensing is remaining. Would that be still safe to assume that that is the case for a majority of the 44 screens?

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Alok Tandon, INOX Leisure Limited - CEO [93]

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Will it be safe to assume what, the maturity? Sorry, could you...

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Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [94]

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For majority of the 44 screens added, it will be safe to assume that only the license is remaining?

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Alok Tandon, INOX Leisure Limited - CEO [95]

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Well, I would say, it's right for about 55% to 60% of the screens, that's right, that we're just waiting for the licenses. For others, the work is in progress, and we should be applying for licenses soon.

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Urmil Shah, IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media Analyst [96]

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Sure. The last bit of thing, Kailash, for you. It's good to see the maiden dividend coming in. Any thoughts on the dividend policy?

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Alok Tandon, INOX Leisure Limited - CEO [97]

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Well, let me answer that for Kailash. I'm sorry to butt in. But I would say that we are a free cash flow positive company, and we are the only ones in the industry to be so. We, as a company, would keep on giving dividends till the time we are cash flow positive. And that's how we look at the dividend policy.

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Operator [98]

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The next question is from the line of Yogesh Kirve from B&K Securities.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [99]

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So if you see in the market, we're seeing about 200 to 300 screen additions annually and some of the screens are at the premier end -- premium end. So my question is, are we as active in the premium end of the market as we are in the overall market?

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Alok Tandon, INOX Leisure Limited - CEO [100]

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Well, I would say, one word, absolutely. You've seen over the last couple of quarters, how we have opened Insignia screens. I just talked about a megaplex, which has got great format with high-end format. So we are aggressive about it. We have stand-alone Insignia properties as well as Insignia screens being a part of a normal property. We have got various technologies with us. So we've been active, and we will continue to be so.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [101]

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Right. Good to hear that. And secondly, in terms of what is a limiting factor behind [sir our] investments or the growth? Is it the number of malls, which are developing? Or -- so basically, it's our own call regarding how aggressive to be in terms of the screen additions and going for any particular properties?

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Alok Tandon, INOX Leisure Limited - CEO [102]

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Well, we are quite aggressive about our growth, and that's why we have signed so many screens, 941, apart from the ones we'll be opening this financial year. So we are very aggressive. Yes, you're right. It depends on the malls, when the malls come up, how soon they come up. And I answered to one of the questions earlier that I cannot, or I'm not seeing a slowdown in 2020 and 2021, including 2022. Whatever properties we have signed are coming up. And -- but so yes, we are totally dependent on the development of malls.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [103]

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Okay, sir. And finally, so for our established properties or the properties which have been there for like 1 year or 2 year, can you give us some understanding of what sort of return ratios do we make on those internal return on capital? Any sense or any ballpark that you can share?

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Alok Tandon, INOX Leisure Limited - CEO [104]

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Well, we don't discuss these numbers. We don't talk specifically about properties on return ratios, and what we just say is that we -- the only thing -- a couple of things we look at, as we spoke about, is having the highest what we call, EBITDA to capital invested ratio, and that's something we'd like to talk, but not about individual properties.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [105]

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Sir, if you look at the portfolio of the properties -- another way to ask the question. If you look at the properties which have been there for more than 12 months, right, which was there at the end of the September 2018. And what sort of return ratios have been made on those properties? I'm not asking on the individual property, but on the -- all properties taken together which we have been involved in.

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Alok Tandon, INOX Leisure Limited - CEO [106]

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Well, while we don't talk about the properties, also we just show what we have done. For example, return on capital employed is something which we have already talked about at 26.5%. Return on equity is 19.9%. So these are numbers which we speak about, not about properties which are more than 12 months old or 24 months old.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [107]

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Can you talk about what sort of return ratio do we have in mind when we or do we target when we decide to take on any particular property or screen?

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Alok Tandon, INOX Leisure Limited - CEO [108]

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So basically, we are looking for normally an IRR of around 15% plus. That's what we look as an internal benchmark.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [109]

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IRR of 15% which is on a pretax basis, right?

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Alok Tandon, INOX Leisure Limited - CEO [110]

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Of course.

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Operator [111]

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The next question is from the line of Rohit Dokania from IDFC Securities.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [112]

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I'm sorry, I joined the call a bit late, if I'm repeating the question. I just wanted to understand, so I see a very strong comparable growth in footfalls. Congratulations with that. And that is also much, much better than where our larger peer has reported. So I just want to understand as to what has led to the significant sort of improvement in the comparable property footfall growth?

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Alok Tandon, INOX Leisure Limited - CEO [113]

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Well, I would say, how we market our properties, how we have marketed movies, how we've gone to the market to get more footfalls to ensure that we have got people who are excited about the movie, bulk bookings. So there have been various factors which have gone into it to ensure that we get good footfalls for the movies, which are -- which have released.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [114]

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Is it also a function of content, sir, in terms of the kind of content that has come and where our screens are located is -- that -- would this increase [up to some bit but that is it]?

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Alok Tandon, INOX Leisure Limited - CEO [115]

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Well, absolutely, it is the content that I talked about that, that content has been amazingly good in the last quarter. Whether it was movies like we had The Lion King or we had Chhichhore, we had Dream Girl, or we had, I would say, Mission Mangal, which did amazingly well. So yes, it is because of content.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [116]

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Yes. Sure. I understand. I was more referring to -- from a relative perspective, so is it a function of the kind of content that has come that for us the footfall growth is like comparing this 22% and for our larger peer, it is more like 6, 7-odd percent. So I was just wondering, is there a differentiated content that works better in our locations or something of that sort?

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Alok Tandon, INOX Leisure Limited - CEO [117]

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No, I don't -- the content is the same for everybody. So there is a lot of marketing, which is done around the unit, and we have done a lot of innovative marketing in the last couple of months, especially in a few properties, and that has led to a lot of new footfall growth in those properties. Yes. I mean, if you visit to any INOX next time, you will observe, I mean, that we have done some specific marketing there.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [118]

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Sure, sir. The second and the last question was, what would be your cash tax rate in terms of what you actually paid?

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Alok Tandon, INOX Leisure Limited - CEO [119]

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So till now, we were on 35% around. And now of course, we are moving to 25% regime in -- so that decision will be taken in next 2 quarters. So as we said that that's something we'll evaluate and come to know only in March 2020. That's the time we take an appropriate decision. And of course, we are carrying some net credit, so we get some benefit of that and until now.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [120]

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Sir, I was actually asking about that [to max there]

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Alok Tandon, INOX Leisure Limited - CEO [121]

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I think that's also around 30% in terms of cash.

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Rohit Dokania, IDFC Securities Limited, Research Division - SVP of Research [122]

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30%, great.

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Operator [123]

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The next question is from the line of Amish Kanani from JM Financial. The line from Amish Kanani has got disconnected.

The next question is from the line of Ashish Kanodia from AMBIT Capital.

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Ashish Kanodia, AMBIT Capital Private Limited, Research Division - Research Analyst [124]

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Just following up on the like-to-like footfall growth. Can you throw some light on what kind of like-to-like footfall growth you have seen in the metro cities versus Tier 2, 3 and 4 cities? Have you seen any slowdown in the growth in smaller towns?

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Alok Tandon, INOX Leisure Limited - CEO [125]

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Well, we have not seen any slowdown at all. What we have seen when we compare, we compare for the entire country. But the growth we've seen in metro is the same we've seen in many other tiers. So there is no property -- there's no, I would say, tier with less or with more.

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Ashish Kanodia, AMBIT Capital Private Limited, Research Division - Research Analyst [126]

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Okay. Okay. That's helpful. Secondly, on the food and beverage spending, what is the difference between a spending in metro city versus smaller town? For example, if out of 100 footfalls, if you see a 60% kind of a conversion in metro cities, what is the headroom in smaller towns to grow in the F&B spendings?

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Alok Tandon, INOX Leisure Limited - CEO [127]

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Well, I would say, for the entire company, there's a lot of headroom. We are working to ensure that more people come to the counter to buy food. We're ensuring that more people buy more items. So I would like to say that we will max out in metros. Headroom is there, and we, as a company, are working towards that.

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Ashish Kanodia, AMBIT Capital Private Limited, Research Division - Research Analyst [128]

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But still, what would be the difference between your metro cities, multiplexes versus a smaller town? [Is there] a number, but a qualitative?

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Alok Tandon, INOX Leisure Limited - CEO [129]

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No, the only difference, I would say, is in spend per head, the rupees, which -- but not in number of people who come and buy food because people who buy food are the same whether it's a metro or a Tier 4. The people who come to the counter to buy food are still the same, the percentage remains the same. It's only the difference is the spend per head in a metro compared to a Tier 3 or a Tier 4 city.

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Ashish Kanodia, AMBIT Capital Private Limited, Research Division - Research Analyst [130]

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Okay. Great. And just last, what is the average lease term for our properties? And what is the lock-in period for those properties?

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Alok Tandon, INOX Leisure Limited - CEO [131]

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Well, we normally sign a property for 18 to 20 to 25 years with a short lock-in of maybe anything between 3 to 7 years. So that's how we work.

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Ashish Kanodia, AMBIT Capital Private Limited, Research Division - Research Analyst [132]

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Sir, this 3 to 7 years lock-in is from your side? I mean, you can give a notice of 3 to 7 years and exit a property, but on that...

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Alok Tandon, INOX Leisure Limited - CEO [133]

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Let me correct that. When I say 25 years, then the lock-in could be -- could be about 7 years. Otherwise, on an average it's about 3 to 5 years. Here I'm not -- we will not leave the property. But after the lock-in period gets over, then INOX has the right to move away, but the developer is locked in for the entire tenure. That's how it is.

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Ashish Kanodia, AMBIT Capital Private Limited, Research Division - Research Analyst [134]

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Great. And what percentage of our lease would be fixed versus variable?

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Alok Tandon, INOX Leisure Limited - CEO [135]

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Well, this is something we can get back to you or find, I may not know that, that how many are fixed and how many are variable is something which we can surely get back to you.

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Operator [136]

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Due to time constraint, that was the last question of this conference. We will now hand the conference over to Mr. Alok Tandon for closing comments.

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Alok Tandon, INOX Leisure Limited - CEO [137]

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Thanks a lot, everyone, for taking interest in the company. And thank you, once again, for being in this call. Thank you, and wish you all a very happy Diwali.

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Operator [138]

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Thank you very much, sir. On behalf of IDBI Capital Markets and Securities, we conclude this conference. Thank you for joining us, and you may now disconnect your lines.