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Edited Transcript of INOXLEISUR.NSE earnings conference call or presentation 2-Aug-19 10:30am GMT

Q1 2020 INOX Leisure Ltd Earnings Call

Vadodara Aug 9, 2019 (Thomson StreetEvents) -- Edited Transcript of INOX Leisure Ltd earnings conference call or presentation Friday, August 2, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Alok Tandon

INOX Leisure Limited - CEO

* Kailash B. Gupta

INOX Leisure Limited - CFO

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Conference Call Participants

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* Amish Kanani

JM Financial Institutional Securities Limited, Research Division - Associate Director

* Ashish Kumar;Infinity Alternatives;Analyst

* Darpan M. Thakkar

HSBC, Research Division - Analyst

* Girish Pai

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

* Jayesh Gandhi;Harshad H Gandhi Securities Private Limited;Analyst

* Jinesh Joshi

Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst

* Karan Taurani

Elara Securities (India) Private Limited, Research Division - VP & Research Analyst for Media

* Keshav Lahoti

Angel Broking Private Limited, Research Division - Analyst

* Prateek Barsagade

Edelweiss Securities Ltd., Research Division - Research Analyst

* Urmil Shah

IDBI Capital Markets & Securities Ltd., Research Division - Assistant VP and IT & Media 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 Q1 FY '20 Earnings Conference Call hosted by IDBI Capital Markets. (Operator Instructions)

Please note that this conference is being recorded. I now hand the conference over to Mr. Urmil Shah from IDBI Capital Markets. 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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Thanks, Stanford. Good evening, everyone. On behalf of IDBI Capital, I welcome you all to INOX Leisure Limited post earnings con call for the quarter ended June 2019. On the call, from the company, we have the senior management led by Mr. Deepak Asher, Director and Group Head, Corporate Finance of INOX Group of Companies; Mr. Alok Tandon, CEO, INOX Leisure; and Mr. Kailash Gupta, our CFO, INOX Leisure.

Without further ado, I will pass on the call to Mr. Alok. Over to you, sir.

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Alok Tandon, INOX Leisure Limited - CEO [3]

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Thank you, Urmil, and good evening, everybody. On behalf of the Board and the management of INOX Leisure Limited, it gives me great pleasure to welcome you all. I would like to thank you for the time and the interest you have shown in extracting the performance of the team.

The meeting of the Board of Directors concluded about a couple of hours ago, wherein, apart from other things, the Board approved the quarterly financial results for the quarter ended June 2020 or what we would otherwise call Q1 FY '20. These results have been uploaded on the website of INOX Leisure Limited.

These results have also been submitted to both the Bombay and the National Stock Exchanges for uploading on their respective websites. I trust you had the opportunity of taking a look at them.

We have, in addition to the financial results in the statuary format, also uploaded what we call a quarterly earnings presentation. We will take you through some of the key features of the earnings, both financial as well as operating parameters for the quarter, and then we will open this for any further questions you may have.

Just to brief you on some of our achievements. INOX has had the highest EBITDA-to-capital invested ratio in the industry of 22% for trailing 12 months. In Q1 FY '20, INOX had the highest year-on-year footfall growth of 11% in the industry. INOX also has had the highest PAT margin of 8% for Q1 FY '20 in the industry.

I'm also pleased to inform you that we, for the 9th consecutive quarter, have the highest ad revenue growth rate in the industry. To add to it, INOX is the first national chain in the industry to be totally net debt-free.

With the adoption of the new Accounting Standard Ind AS 116, all operating leases are treated similar to a finance lease, and hence, the profit and loss account is charged with the interest and depreciation instead of rate. To understand the actual movement in the operational numbers, we have given a detailed reconciliation of important parameters in Slide #7 of our earnings presentation.

Brand INOX has been offering exciting experiences to its consumers like never before, with unique content partnerships with ITC for live streaming of cricket matches, extraordinary brand alliances with Indian National Rally Championship, IPL team for Rajasthan Royals, RP-SG Mavericks for ultimate table tennis and with the NBA. Such initiatives not only add a new dimension to our patron engagement but also offers huge enrichment opportunities to Brand INOX.

Now coming to the financial numbers. We are doing a Y-on-Y comparison with Q1 FY '20 being compared to Q1 FY '19. We will discuss the operational performance, which excludes the impact of Ind AS 116 as the same has no impact on cash flow.

Revenue from operations went up by 19% from INR 415 crores in Q1 FY '19 to INR 493 crores in Q1 FY '20. EBITDA increased by 6% from INR 83 crores in Q1 FY '19 to INR 89 crores in QY -- Q1 FY '20. EBITDA margin has declined from 20% to 18% in this quarter.

PAT improved from INR 37 crores in Q1 FY '19 to INR 41 crores in this quarter. That is an increase of 11%. However, PAT margin decreased marginally from 9% to 8% in Q1 FY '20.

Now if you look at the breakup of revenues. As we all know, our revenues comprise of 4 key streams: net box office, net food and beverage, advertisement and other operating revenues. So for the quarter, the net box office figures went up from INR 242 crores to INR 287 crores in Q1 FY '20. That is a growth of 19%. Food and beverage went up from INR 111 crores in Q1 FY '19 to INR 132 crores in QY -- Q1 FY '20. That is also a growth of 19%.

Advertising income went up from INR 40 crores to INR 47 crores in this quarter, which is a growth of 18%. Other operating revenues went up from INR 22 crores to INR 26 crores in this quarter, which is a growth of 22%. As a result of which, total revenues went up from INR 415 crores in Q1 FY '19 to INR 493 crores in Q1 FY '20. In Q1 FY '20, the net box office revenues now contribute 58.2% of our total revenues; F&B contributes 26.9%; advertising, 9.5%; and other operating revenues, 5.3% of our total revenues.

Now this performance was largely on the back of some significant releases that happened in the last quarter. These included: Avengers: Endgame, which we all know created history, which had footfalls of 30.91 lakhs and a GBOC, which is the gross box office collection, of INR 80.27 crores; Kabir Singh had footfalls of 19.98 lakhs and a GBOC of INR 33.61 crores; Bharat did footfalls of 14.83 lakhs and had a GBOC of INR 31.65 crores; De De Pyaar De, 10.91 lakhs of footfalls, with INR 19.71 crores as GBOC collection; and Aladdin, with 6.99 lakhs footfalls and a GBOC of INR 14.9 crores.

The top 5 films for the quarter, therefore, accounted for about 83.63 lakhs of footfalls, that is 48% of the quarterly footfalls; and GBOC of INR 180.14 crores, which is 53% of the quarterly GBOC. If I compare it to last year's Q1 FY '19, the top 5 films did 43% of footfalls and 46% of GBOC.

So those were the top 5 movies of Q1 FY '20. And now we will discuss some of the operational parameters behind these financial numbers.

Overall footfalls improved from 156.2 lakhs in Q1 FY '19 to 173.2 lakhs in this quarter, which is an increase of 11%. Occupancies also improved from about 29% in Q1 FY '19 to 30% in Q1 FY '20. On comparable properties basis, which in the retail trade is also known as same-store basis, footfalls for the quarter reduced from 154.8 lakhs in Q1 FY '19 to 146.7 lakhs in Q1 FY '20, which is a decline of about 5%. Occupancies remained stable at 29% on the same-store basis.

Overall average ticket price has reduced by INR 1, from INR 199 in Q1 FY '19 to INR 198 in this quarter. That is about a 0.4% decline. For comparable properties, the average ticket price went down from INR 198 in Q1 FY '19 to INR 197 in Q1 FY '20, which is a decline of 1% for the quarter.

The second component of revenues is food and beverage. There we have seen the spend per head going up by 6%, from INR 76 in Q1 FY '19 to INR 81 in Q1 FY '20 for the quarter. For comparable properties, the SPH went up by 5%, that is from INR 76 in Q1 FY '19 to INR 79 in Q1 FY '20. The net F&B contribution has fallen marginally from 75.6% to 74.9% in Q1 FY '20.

I'm happy to say that we've continued to and maintained the momentum of growth in advertising income that increased in the quarter from INR 40 crores to INR 47 crores in Q1 FY '20, which is a growth of 18%. So other income also increased from INR 22 crores in Q1 FY '19 to INR 26 crores. That is a growth of 22%.

Those were the key revenue components. If I come to the cost side, the film distributor share went down from 44.2% in Q1 FY '19 to 43.9% in Q1 FY '20. As far as other overheads per operating screen are concerned, these went up from 42.6 lakhs per quarter per screen in Q1 FY '19 to about 44 lakhs per quarter per screen in Q1 FY '20. That is an increase of about 3.3%.

Well, those are the key highlights of our financial numbers. In terms of new properties opened, we have opened during this quarter 4 properties, with 21 screens and 4,226 seats. These include: 4 screens and 803 seats in Lucknow Garden Galleria; 5 screens with 976 seats in Vadodara Taksh NH8; 4 screens, 756 seats in Bengaluru Yelahanka; and in Hyderabad GSM, we opened 8 screens with 1,691 seats. Hence, we've opened 4 properties, 21 screens and 402 -- 4,226 screens this quarter.

As a result of this, we are now operational in 19 states, 67 cities, with 143 properties, 595 screens and 139,797 seats. Very soon, we will be a multiplex chain with 600-plus screens across India. We expect another 14 properties and 59 screens with 10,288 seats to be opened during the remaining part of this financial year. As a result of which, by the end of FY '20, our total properties operational are expected to be about 157, with 654 screens and 150,085 seats.

Beyond this, we have a very strong visibility of pipeline based on agreements already signed. We have properties tied up for -- to the extent of about 877 screens, 129 properties and 161,427 seats. And once this pipeline is fully implemented, we will be about 268 properties, 1,531 screens and about 311,512 seats strong. So that is as far as the properties pipeline is concerned.

We are also really bullish about the coming slate of movies in this financial year. Today, Hobbs & Shaw has opened to great reviews. In this month, for example, we also expect blockbusters like Mission Mangal, which is to be released on August 15, 2019, which has got Akshay Kumar, Vidya Balan and Taapsee Pannu starring in it. On the same day, we also have Batla House, which is a John Abraham starrer.

We have, on 30th August, Prabhas starrer, Saaho.

And on 6th of September, we have Chhichhore, starring Sushant Singh Rajput and Shraddha Kapoor. We have War, starring Hrithik Roshan and Tiger Shroff, on 2nd of October. On 25th, we have Housefull 4, starring Akshay Kumar, Riteish Deshmukh and Abhishek Bachchan. In November, we expect Pagalpanti to be released on 8th of November, which is a John Abraham and Ileana D'Cruz starrer. So pretty strong content pipeline, we can see and, as I earlier said, that we are quite bullish about the entire slate of movies.

In terms of shareholding structure, FIIs now own about 12.63% of the company and DIIs own about 19.19%. We have treasury shares of 4.23% and public and others own 12.06%. The promoter stake in the company is at 51.89%. The share as of 31 -- 31st of July was INR 294.3, which gave the company a market cap of roughly INR 3,027 crores.

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

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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 Karan Taurani from Elara Capital.

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Karan Taurani, Elara Securities (India) Private Limited, Research Division - VP & Research Analyst for Media [2]

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I would just want to know, in terms of the outlook for advertising growth, so last, I think, FY '19, we saw strong growth of about 25%. And this time, it has come out about 18-odd percent. So is this pertaining to a onetime negative impact because of Avengers? Or probably this is the normal growth rate we'll see from here and going ahead?

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Alok Tandon, INOX Leisure Limited - CEO [3]

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Well, let me tell you, 18% are also a great growth. We are -- and we are quite happy with this because we knew that Q1 was the month where we had the ICC World Cup. We had the general elections. So all those things were there. But where we are concerned, our pressure is there on advertising. Our numbers will keep on growing. And as I always say, we have more feet on street. So 18% is a good growth, which we have shown. And in the coming quarters also we'll be pressing the pedal hard to ensure that our advertising momentum is there where we want it to be.

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Karan Taurani, Elara Securities (India) Private Limited, Research Division - VP & Research Analyst for Media [4]

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Okay. My second question would be regarding the footfall growth, despite Avengers being a big success, despite the movie called Kabir Singh being there, Bharat being on fire, in line with expectations, largely, De De Pyaar De was a big success. Your -- actually the portfolio is declining with this quarter by about 5-odd percent. So what is the outlook from here and going around the pipeline?

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Alok Tandon, INOX Leisure Limited - CEO [5]

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Well, again, we all know that the footfalls are totally dependent on the quality of content. And we showed an 11% growth, overall, though comparable properties that fell by 5%. But one should also be cognizant of the fact is that the top 5 movies contributed 53% of the GBOC compared to the previous quarter, which is 46% of the GBOC. Hence, we got maximum revenues and -- from these 5 movies compared to other movies, which normally keep the scoreboard peaking for everyone. And hence, there were a couple of -- and that's the reason why our comparable properties footfall went down. But overall, it increased by 11%. So it's basically that, apart from the top 5 or 6 movies, the other movies did not do well, and there were less footfalls for those particular movies.

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Karan Taurani, Elara Securities (India) Private Limited, Research Division - VP & Research Analyst for Media [6]

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So I just wanted to check, I know the data is available in terms of Hollywood movies. Have you kind of gained market share versus the competitors?

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Alok Tandon, INOX Leisure Limited - CEO [7]

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Well, this is very cyclic. It depends on which quarter a Hollywood movie comes. For example, in this quarter, we had Avengers: Endgame, which did exceedingly well and was the highest grosser where INOX is concerned. And similarly, in Q1 last year, we had Avengers: Infinity War, which again was the highest grosser where INOX was concerned for that particular quarter. So the contribution of Hollywood movies to this total pie depends on which movie is there and which quarter we are talking about.

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Karan Taurani, Elara Securities (India) Private Limited, Research Division - VP & Research Analyst for Media [8]

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Right. Just one last thing on the spend per head. You know, again, that is looking slightly muted, about 6%. Any outlook or [traction] on that [beyond April]?

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Alok Tandon, INOX Leisure Limited - CEO [9]

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Well, 6% is a margin, which I, again, feel is not bad. We are trying different ways, different permutation, combinations to increase our spend per head, whether it is having more point-of-sale or having more variety of food to be offered to our guests. We have shown an increase in footfalls. We have included -- shown an increase of spend per head and hence, our entire revenue from F&B has shown an increase of 19%. So that, again, spend per heads are concerned is basic -- it's a combination of various factors. And again, as I said for advertising, this is one area where our focus is there. And we are trying new things every quarter so that we get more spend per head where F&B is concerned.

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Operator [10]

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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 [11]

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What are your same-store revenue growth? And if you can break it down in net box office advertisement and food and beverage. And second question is on this Ind AS 116. In Ind AS 116 reporting, there is still some rental cost in your P&L. So what is that? Because my understanding, and even in your complete report, in P&L, there is no rental income now and it goes into depreciation and interest, so if you can clarify that?

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Kailash B. Gupta, INOX Leisure Limited - CFO [12]

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Okay. Darpan, this is Kailash here. So in Ind AS 116, basically defines that all the leases, which is more than 1 year has to be now accounted or treated as a finance lease. The moment if you say it is a finance lease means, basically, all the assets. Suppose we are having a lease for, say, 20-year or 18 years, you'd account for it as a asset in your books of accounts and the rental which you pay as a liability in your books of accounts.

And for the assets, you have to provide a depreciation on a straight-line method. For a liability side, you have to provide interest in your books of account. So no longer they'll be considering these leases as their operating lease. And the rental, which we are paying, we'll continue to do that, but that will be accounted as a depreciation and the interest for the period of life of assets.

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Alok Tandon, INOX Leisure Limited - CEO [13]

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And Darpan, answering a question about comparable properties. I want to...

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Darpan M. Thakkar, HSBC, Research Division - Analyst [14]

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Just on the rental income. So my question was that there isn't -- there is [3 0 1] -- particular for rental costs still in your P&L in the new Ind AS. So what is that amount? That was my question.

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Kailash B. Gupta, INOX Leisure Limited - CFO [15]

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So if you see...

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Alok Tandon, INOX Leisure Limited - CEO [16]

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Before Kailash pulls out the data, let me just tell you. In answering -- let me answer the question about the comparable properties, ATP and SPH. Well, that is given on Slides 12 and 13. So where comparable properties are concerned, our footfalls went down by 5%, which I just said in my presentation. And occupancies remained more or less the same at 29%. Whereas, where SPH is concerned, we showed an increase of 5% to INR 79 from INR 76 the previous quarter.

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Kailash B. Gupta, INOX Leisure Limited - CFO [17]

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And just to clarify, Darpan, the rent component, which is showing, as of now, is basically the CAM charges, which is called the common maintenance charges and the revenue share part. Because that revenue share part, on and off (inaudible) is accounted as the rent continue -- the way it is earlier.

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Darpan M. Thakkar, HSBC, Research Division - Analyst [18]

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Okay. And the same properties, what is advertisement growth?

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Alok Tandon, INOX Leisure Limited - CEO [19]

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Well, normally, we don't track that, Darpan, because what we have are national contracts for the entire country and tracking the advertising growth of like-for-like properties becomes very difficult. Because when we get an ROV ticket for the -- for larger number of screen time, which was about 12 months or the same quarter, which were already there. And hence, we always monitor the advertising income for the entire company rather than per screen and that's to comparable screens.

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Operator [20]

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The next question is from the line of Prateek Barsagade from Edelweiss.

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Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [21]

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Congratulations for the great numbers. My first question is on the SPH. So we've seen that SPH has improved considerably over the few past quarters. But we're also seeing the preliminary industry report for you to get the SPH. So how is the road map to bridge the gap?

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Alok Tandon, INOX Leisure Limited - CEO [22]

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See, again, what we are looking at SPH from our side is, yes, we have shown a growth quarter-on-quarter. And I said earlier, just now, when one of your colleagues asked the question, I said that this is something which we are focused on. We are pressing the pedal hard, and we are ensuring that we get more spend per head every quarter, whether it's by having more point-of-sales better, whether it's by having a different sales mix, whether it's having new menus on our -- in a concession stand and INSIGNIA screens. So the effort is there to ensure that we show a great growth where SPH is concerned.

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Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [23]

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Okay. Sir, was there a price hike this quarter? Because we've seen improvement in SPH and even in the F&B gross margin?

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Alok Tandon, INOX Leisure Limited - CEO [24]

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Well, yes. Price hike is very dependent on the type of move which we have. So there were some weeks where we increased the prices. There were some places where we did not. So the SPH increase, which you see is a mix of more people coming and buying food as well as the full prices increasing in some places and remaining constant in some other.

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Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [25]

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Okay. And sir, my second question is that so recently, there was an announcement of minimum wage hike in Maharashtra. So do you expect any kind of impact from this? And also do you see the risk of this -- the other states also taking this up?

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Alok Tandon, INOX Leisure Limited - CEO [26]

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So this happens every year. So minimum wages are increased in states. There are some states which increase it every 6 months. There are some states which increase it every year. So this is a thing which we already take in our assumption when you make a budget. And we have to follow the law of the land and hence, whether it's an increase in Maharashtra or any other states, we already provide for it and ensure that people get whatever is announced by the government. So this is something which is not new to us. It happens every quarter. It happens every year.

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Prateek Barsagade, Edelweiss Securities Ltd., Research Division - Research Analyst [27]

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Okay. And sir, just if I could squeeze in a quick one. Can you just share how the response for the ScreenX and your confidence on the content pipeline for the next 2 months?

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Alok Tandon, INOX Leisure Limited - CEO [28]

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Well, the confidence on the pipeline, I already said that we are quite bullish about this entire financial year, forget about Q2, because we have some great movies coming out, starting from Hobbs & Shaw today, which is getting some great reviews. Where ScreenX is concerned, see, we also as a company, always look at new technology.

We want to see that how do we give something new to our guests. So whether it is ScreenX or whether it is signing with MX4D, whether having IMAX screens across our country, whether we have LASERPLEX, because you would remember that we were the first people to start with laser projection, we always ensure that our guests get something new when it comes to an INOX property.

And just answering your question directly, ScreenX is getting some great reviews, and we have good footfalls for it.

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Operator [29]

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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 [30]

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I have a few questions regarding your operating cost per screen. So your property rent and conducting fee has increased 0.5% on a year-on-year basis. It looks a little low to me because I remember you people saying that on a 3-year basis, it's like 12% to 15% increase that you see on rental. So why is this number just so low, 0.5%?

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Alok Tandon, INOX Leisure Limited - CEO [31]

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Well, it depends on which quarter the escalation kicks in. There are some quarters where there are more escalations which kick in. There are some quarters where there are not. So it all depends on the escalation metrics of various properties.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [32]

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Okay. The other question I had was regarding your screen openings beyond FY '21. What are you seeing in the mall operator community regarding there is an economic slowdown, there is a funding crunch that's happening there? Do you see any issues with some of the malls in terms of their opening in FY -- second half of FY '20 or FY '21?

And is there any kind of agreement that you signed with them, where there is a penalty they'll be late that will be -- that you can levy on them if they do not deliver your property on time?

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Alok Tandon, INOX Leisure Limited - CEO [33]

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Well, we have always signed with reputed developers. And it's -- these are people who have got a great track record of delivering on time. Yes, maybe a delay of 2, 3, 4 months but not beyond that. So I do not foresee any properties not coming to us beyond 2021. In fact, we know that there are a few properties which have already started construction, and these are large properties so that they are given to us to fit out by 2020 so that we are operational in 2021.

So that fear is not there. And as I earlier said that, our developers have always given to us or delivered on time. And I do not see any concern on this.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [34]

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Is there any penalty that can be levied if the property is not delivered, on time, that is?

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Alok Tandon, INOX Leisure Limited - CEO [35]

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This happens on property to property so I will not be able to talk about it much. But yes, there are some properties where we were in a different contract than the others. So it's all very property specific.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [36]

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Okay. Lastly, this ongoing economic slowdown, how is that impacting you as a company both from a customer behavior perspective, the patron who walks into your theaters, and secondly, from your corporate customers on the advertising side? Has that behavior changed a bit in the last 2 months?

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Alok Tandon, INOX Leisure Limited - CEO [37]

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Well, we always say what affects us is only the quality of content. If the quality of content is good, we have people coming in, streaming in. And if the quality of content is not good, yes, we all know that people will not come in. So the slowdown, whatever is it, whether it's affecting the country, whether it's there, not there, for us, what's guiding us and getting in footfalls is the story with the director, the way he tells it, whether people like it or not. And that is important to us rather than anything else.

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Girish Pai, Nirmal Bang Securities Pvt. Ltd., Research Division - Head of Research [38]

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And the corporate customers in terms of ad spending?

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Alok Tandon, INOX Leisure Limited - CEO [39]

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Yes. Well, again, I said that Q1, I answered this question was slightly less, though, we are happy with the 18% growth that's because of the national elections and the ICC World Cup. But again, whatever we have seen till now, nobody has pulled back their advertising campaigns because of any reason given by you.

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Operator [40]

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

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Amish Kanani, JM Financial Institutional Securities Limited, Research Division - Associate Director [41]

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Sir, one question is about EBITDA margin growth, which has dipped without considering the Ind AS 115. So if you can just explain, what are the factors? It seems maybe employee costs was more slightly higher than normally. But if you can just explain why the EBITDA margins are dipped.

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Alok Tandon, INOX Leisure Limited - CEO [42]

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Well, EBITDA has not dipped a lot. It's gone down from 20% to 18%. And these things are very fluctuating. It happens and depends on the quarter how the movies have performed, whether it's summer, how electricity bill is, how much you spend over there. It depends on the paying propensity of the people who come for those particular movies. I'm not talking about all movies. Yes, we have given an increment in the first quarter. So that's taken a little bit of effect of the reduction in EBITDA margin. So EBITDA margin 20% coming down to 18% is not a cause of worry. And the thing is cyclic. It keeps on going up, it keeps on going down.

But all the cost parameters are in control, and we as a company always monitor it and monitor it with a fine-tooth comb.

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Amish Kanani, JM Financial Institutional Securities Limited, Research Division - Associate Director [43]

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Yes, sir, but this -- the top line growth of 19% actually should mean, if we consider that in an operating leverage kicking in, ideally, there should be a jump. And considering our business being fixed-cost-driven, ideally, one would have expected that. So that was the reason why I had asked. Maybe you're saying it's a quarterly phenomena and will even out.

So the question was, are there any structural costs drivers which are impacting our margins? And should we worry about the overall annual margins for the year in that context, sir?

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Alok Tandon, INOX Leisure Limited - CEO [44]

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No, not at all.

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Amish Kanani, JM Financial Institutional Securities Limited, Research Division - Associate Director [45]

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Okay. Okay. And sir, second question is about this -- the impact of lease. We see that the lease liability will be reflected at INR 2,192 crores and that means we are in an approach that's a little bit higher. So just -- we wanted to understand, how should we look at that? In that context, if you can just explain us the interest cost that we have put in, INR 51 crores. So how should you really look at it? Because what happens is, if you put interest and depreciation together and if you -- so that number is more than -- much more than the reduction in rental. So that's why that doesn't have PBT impact of INR 22 crores. So can you just explain this interest cost? How is it working out? And how should we look at it on a 1-year basis as well as on the entire lease payment basis?

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Kailash B. Gupta, INOX Leisure Limited - CFO [46]

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So just to answer your question, so basically, this -- the entire lease period which we have signed up with all these property developers, so it is a summation of all that and which we have -- of course, NPV has been done. And based on that, we will recognize the liability. Now the entire -- the asset part, because -- as a little bit, sir, suppose that you are paying a rent in the Tier 1 at INR 100 and you are paying, say, [INR 2] rental at the end of the -- maybe 20th year. So this -- Ind AS require to equalize the rental, actually. So basically, in the first 10 years, you will have a higher impact on your P&L, and the next 10 years, it will be a lower impact. And this is now the accounting standard treatment has been given suggested by the accounting standard.

And the second part is, I think this is all theoretical. If you see, while it has an impact on your PBT and price, et cetera, there is no cash outflow at all. It is more of a book entry rather than the business impact at all.

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Amish Kanani, JM Financial Institutional Securities Limited, Research Division - Associate Director [47]

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Okay. Okay. So sir, the point is, wherever that interest cost that we are taking, which is incremental cost, will it change every quarter or every year, and hence, these numbers will move in that context? Or is it...

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Kailash B. Gupta, INOX Leisure Limited - CFO [48]

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Not much, of course. And whenever, we will add a new property, it will move to some extent, but it will not move to a great extent. I think based on the current scenario, you can do a run rate, actually. So same run rate will continue.

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Operator [49]

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The next question is from the line of [Abhishek Joshi] from CGS-CIMB.

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Unidentified Analyst, [50]

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Sir, my question is, how many screens are premium screens as a percentage of total screens right now? And by the year-end, what would be your target?

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Alok Tandon, INOX Leisure Limited - CEO [51]

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Well, if I remember right, we have about 45 to 50 screens which we call premium out of the 595 which we have. And going forward, yes, so we should be having another about 15 to 20 premium screens in [3D].

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Unidentified Analyst, [52]

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And sir, the -- do we -- are we considering premiumization of the existing screens also? And if we are considering it, what would be the average cost of premiumizing these screens?

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Alok Tandon, INOX Leisure Limited - CEO [53]

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Well, yes, we are also looking at premiumizing some of our existing screens. Well, it all depends on where we are, what's the paying propensity so it's very difficult to talk about how much we will spend in a particular property. Neither I would like to talk about it because spending in Bombay is totally different than spending in some other place. But I would like to say that, yes, they are obviously more expensive, as we all know, compared to investments in a regular screen.

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Unidentified Analyst, [54]

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Sir, like, can you throw any light on how much expense -- yearly expenses may increase if we incur such expenses on premiumization of the existing screens per year or something.

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Alok Tandon, INOX Leisure Limited - CEO [55]

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Well, again, I would not like to only talk about the amount of spending we'll do for enhancing the experience of a guest in a premium screen by putting in -- or having recliner seats or good carpets or everything. But I would just like to say a ballpark figure is something which we spend about INR 2.75 crores to INR 3 crores per screen on an average. And when I look at our entire [PBT], the entire expense, which we have done for the financial year, it falls in that bracket. So it means that there are some properties where we spend more, and there are others where we spend less.

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Operator [56]

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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 [57]

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Now in FY '19, we added about 85 screens, which is a fairly robust number. And again, in 1Q FY '20, we have added about 20-odd screens and have these 70 to 80 screens, still, for the full year. So what has -- what exactly has changed in the last 1 year to 1.5 years which has led to a kind of improvement in the turnaround time when it comes to execution in the getting approvals?

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Alok Tandon, INOX Leisure Limited - CEO [58]

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Well, if you remember what I said in the last investor call was that today, we have a lot of focus where we have on our execution. Our entire look, feel of the property is absolutely ready before we even enter the property to take it for fit-outs. Whether the design, whether it's the amenity, whether it's the other areas, our ordering is in place. So hence, we have tried to streamline a lot of things in our projects department. And that is bearing us good numbers.

So last year, we opened 85. This year, we're planning to 80. It's also that the supply of properties has increased. So today, we have signed, as you all know, apart from what we'll open in 2020 -- FY 2020, another 877 screens.

So we are getting properties at a good pace. Our execution time lines have decreased. So we are opening now more screens in a shorter period of time. And this, we feel, and I feel personally, will continue happening in future also.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [59]

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Okay. Have you added any manpower in the project and the license team in the last year, 1.5 years?

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Alok Tandon, INOX Leisure Limited - CEO [60]

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Sorry, could you please repeat your question?

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [61]

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Have you added any manpower in the project team or the license team in the last 1 year?

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Alok Tandon, INOX Leisure Limited - CEO [62]

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Yes, as the properties increase, we have to increase our project team. And it's like any other department, that when you start growing, you have to have more people in the particular department.

And similarly, we have added a few more people in our projects department.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [63]

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Okay. And secondly, I guess, we had entered into an agreement with the ICC to showcase matches in multiplexes. In the response to it, has it actually helped us in driving, sir, the occupancy? And also how is the ATP different here as compared to movie screening?

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Alok Tandon, INOX Leisure Limited - CEO [64]

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Well yes, occupancies have increased. We have seen a lot of people coming and buying tickets for the ICC matches. There have been lots of corporate bookings also.

And answering the question with ATP, it depends on where we are. ICC tournament was a 9-hour match, and which means it took about 3 to 3.5 shows of a regular movie, and we were pricing our tickets accordingly. But more importantly, other than the P&L, I would say that such initiatives not only add a new dimension to a patron engagement, but they also offer a huge enrichment opportunities to brand INOX, and that is important. That our brand is enriched, people like to associate with us. And there, we have talked about that, apart from showing movies, we also do sports, we also do other activities. And we engage more with our customers by doing such events.

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Jinesh Joshi, Prabhudas Lilladher Pvt Ltd., Research Division - Research Analyst [65]

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Okay. Sir, last question. Now one of your peers is also into the movie distribution business. So do we -- as of now and what are your thoughts on the distribution business as such?

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Alok Tandon, INOX Leisure Limited - CEO [66]

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Well, as of now, we are an exhibition company, and I always say there that we are an exhibition company, and as of today, we will continue to stick to what our core competency is. Our core competency is to show movies, and that's something which we'll concentrate on.

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Operator [67]

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The next question is from the line of Ashish Kumar from Infinity Alternatives.

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Ashish Kumar;Infinity Alternatives;Analyst, [68]

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Congratulations for a good set of numbers. Just wanted to check with you on the advertisement revenues on a per screen basis. So if you look on a Y-o-Y basis, our advertisement revenues per screen is flat despite the fact that we had an Avengers and everything else in this quarter. Just wanted to understand, what do you think is the trajectory going forward? Do you -- do we think that we have maxed out on that line item on a per screen basis? Or do we think that there's a potential to grow that at high single digits to low double digits?

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Alok Tandon, INOX Leisure Limited - CEO [69]

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When I answered one question by saying that the advertisement was less primarily because of the general elections and the ICC World Cup. So we have not flattened out on revenues per screen where pricing is concerned. Our endeavor is to increase that. We feel that there's still -- there's a lot of headroom. And we are all working towards it.

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Ashish Kumar;Infinity Alternatives;Analyst, [70]

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And in terms of the comparable footfall de-growth, 5% year-on-year, is that something which you believe that is entirely because of the sports season? Or do you think that's something which can kind of stop, which will -- which is something which we have to build in going forward?

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Alok Tandon, INOX Leisure Limited - CEO [71]

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Well, if you look at the occupancy coming down in comparable property -- sorry, the footfall, but the occupancies remain the same. And when occupancy remains the same, it's because we're having less footfall. It means that the movies which were there were of a longer duration. And hence, we had less shows in a particular day. The footfalls are there. Because of movies being of a longer duration, we had lesser shows a day resulting in lower footfalls but nothing else.

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Ashish Kumar;Infinity Alternatives;Analyst, [72]

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Okay. So what you are saying is that this is something, going forward, we should budget in -- depending on the content obviously but there is no cannibalization on the footfall that we are seeing.

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Alok Tandon, INOX Leisure Limited - CEO [73]

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No, not at all.

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Operator [74]

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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 [75]

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As I can see in your profit and loss account, your employee benefit expense rose by 33.5% year-on-year, and other expense also rose by 22%. Can you please throw some color why such a big hike is there?

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Alok Tandon, INOX Leisure Limited - CEO [76]

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Well, you would have seen that we opened 19% more screens last year. So that's one effect. But then when we boil it down to overheads or spends per screen where staff expense is concerned, it's a growth of 11.4%. And I said earlier, primarily it's because the increment's given, and a part of it is because of the minimum wages increasing in some states. And that's the reason because of -- which the entire absolute amount has gone up.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [77]

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Okay. So how much proportion you will say due to the hike in the wages?

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Alok Tandon, INOX Leisure Limited - CEO [78]

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Well, it's very minimal. I wouldn't like to pinpoint it, but I would like to say that, yes, the increment component is about 9.5% to 10%. And the remaining is because of minimum wages and also opening new screens with -- which are luxurious screens. And that's the reason why you would see a onetime increase of absolute numbers going up, practically.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [79]

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I fail to understand why is it a onetime because new screen will keep on opening quarter-on-quarter. So how is it a onetime?

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Alok Tandon, INOX Leisure Limited - CEO [80]

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Well, because in this onetime, we've also given increments, which will not be in other quarters. So hence, the reason is the amount will increase. I'm not saying it will not increase. It will increase on the amount of screens we have opened. So that's directly proportional also to the more openings we have in a particular quarter or a particular year.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [81]

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Okay, got it. When I see the box office collection of last year and compared to this year of Bollywood and Hollywood, I see a jump of around 12%. So I believe, of 12%, I may assume it is 5% because of price hike so 7% is because of footfall increase? Or is it because of more screen opening? How should I see it?

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Alok Tandon, INOX Leisure Limited - CEO [82]

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Well, I would say, it's a mix of both. When you look at your box office collections going up, it is a mixture of increase in footfalls, which primarily is also due to increasing more screens. And yes, a part of it is also because of higher average ticket price. All the average ticket price remaining same also we've been able to get those more numbers primarily because opening more screens, and which led to more footfalls.

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Keshav Lahoti, Angel Broking Private Limited, Research Division - Analyst [83]

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Okay. So why is the reason I'm not seeing screen footfall? There is a fall of 5%, [which I realize] is somewhat flat or something.

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Alok Tandon, INOX Leisure Limited - CEO [84]

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Yes. No, I just answered that question. It is because our occupancy for comparable properties has remained the same, which means that the movies which were shown were of a longer duration. And hence, we had lesser shows per day. And that's the reason why our footfalls have come down, though the occupancy has remained the same.

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Operator [85]

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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 [86]

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I just wanted to understand the Ind AS since it reduces the PBT. So does that have any implication on the tax cash payouts?

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Kailash B. Gupta, INOX Leisure Limited - CFO [87]

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No, not at all.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [88]

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Got you. Okay. All right. And secondly, just a clarification. So we have mentioned about the lease liability and the right of use asset. So in our results, note #8, so this pertains to balance as of 1st of April or the 30th of June?

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Kailash B. Gupta, INOX Leisure Limited - CFO [89]

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1st April 2019.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [90]

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1st April 2019. And in terms of -- because of this accounting, I mean do we -- is there any -- would the management be reassessing sort of build versus lease? So does that change the business decision-making on that part?

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Kailash B. Gupta, INOX Leisure Limited - CFO [91]

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Not really, Yogesh. If you ask me, I mean this is all book entries because it doesn't affect your cash flow, it doesn't affect your taxation payout and anything.

So it is more of a book entry. But yes, it is on your balance sheet as well as P&L. I mean from that perspective, it's business is as usual. I mean I nothing changes on ground.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [92]

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But is there a case to consider buying versus leasing because of this sort of accounting...

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Kailash B. Gupta, INOX Leisure Limited - CFO [93]

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That, if you are going into buying versus leasing, it is -- buying means, basically, you are maybe investing. But it'd be heavy capital. Maybe, we'll have one property where we are putting INR 3 crores per screen, and now we have to put maybe around INR 15 crores per screen. I mean then, you are in virtually cash out situation. You can't have so many properties by buying.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [94]

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And what is the CapEx guidance for this year, especially on the refurbishment and the maintenance?

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Kailash B. Gupta, INOX Leisure Limited - CFO [95]

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So overall, CapEx we are looking is around INR 275-odd crores in this financial year. Out of that, around INR 40 crores to INR 50 crores would be on the renovation of existing screens plus the routine maintenance CapEx, and around INR 240 crores is going the new screens, around 80 screens, which we have talked about.

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Yogesh Kirve, Batlivala & Karani Securities India Pvt. Ltd., Research Division - Research Analyst [96]

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Right, right. And finally, on the screen additions. I'm not sure whether we have talked about earlier on call. So what's the outlook, I mean going beyond FY '20? I mean because of kind of economic slump we're seeing, so is there any risk that the mall -- or the property handovers might be delayed?

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Alok Tandon, INOX Leisure Limited - CEO [97]

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No, as I said earlier, I do not see any risk because we signed with all reputable developers. And I do not see that they will delay in giving us the handover. Yes, it could be for 2, 3, 4 months but not beyond that. Otherwise, I'm quite bullish that this story will continue, and we'll be opening more screens year-on-year.

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Operator [98]

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The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities.

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Jayesh Gandhi;Harshad H Gandhi Securities Private Limited;Analyst, [99]

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Sir, in one of your slides, I'm seeing that because of Ind AS 116, our PAT margins has been reduced from 8% to 5%. And I'm guessing it is mainly because, if I understand it correct, is like front-loading of expenses that has been resulted from Ind AS.

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Kailash B. Gupta, INOX Leisure Limited - CFO [100]

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Correct, correct. So it's a front-loading of your rental, basically.

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Jayesh Gandhi;Harshad H Gandhi Securities Private Limited;Analyst, [101]

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Yes. So all the things being same, as we move forward, it will keep on reversing?

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Kailash B. Gupta, INOX Leisure Limited - CFO [102]

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Theoretically, yes, because over the period of time, this should reduce. But the challenge is, if you keep adding more property, year-on-year basis, then this will -- this is a perpetual system, I mean. So the loading is not going to reduce drastically. But yes, as and when the number of new additions stops or go at a slow pace, then, of course, it will reduce.

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Jayesh Gandhi;Harshad H Gandhi Securities Private Limited;Analyst, [103]

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So what I'm trying to ask is the new norm will be -- I mean we have hit the lowest-impact margin as of today. It will keep on gradually improving, right?

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Kailash B. Gupta, INOX Leisure Limited - CFO [104]

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Right.

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Jayesh Gandhi;Harshad H Gandhi Securities Private Limited;Analyst, [105]

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In terms of -- I mean from today.

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Kailash B. Gupta, INOX Leisure Limited - CFO [106]

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Absolutely, right.

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Operator [107]

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Ladies and gentlemen, that was the last question. I now hand the conference over to the management for closing comments.

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Alok Tandon, INOX Leisure Limited - CEO [108]

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Yes. Thanks a lot, everybody, for taking the time out to be on this conference, and I hope that you will keep on supporting the company as you have been doing till now. Thanks a lot for being there.

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Operator [109]

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Thank you very much, sir.