Crisil downgrades ratings on bank facilities of Inox Leisure to A+/Negative/A1

The rating action reflects expectation of weakening of ILL's business risk profile over the medium term. It was earlier expected that with resumption of operations in October 2020, the occupancy will improve gradually with return of content to the multiplexes.

However, said Crisil, with the recent spike in Covid-19 cases, recovery in operating performance of multiplexes will be delayed. Many states have already announced localised lockdowns, night curfews and restrictions over occupancy levels in cinemas.

These restrictions will also result in deferment of the release of strong content which was earlier scheduled to be released in the first quarter of fiscal 2022, thereby impacting operations.

Multiplexes were witnessing gradual build-up in occupancy during January to March quarter against 4 to 6 per cent occupancy in October to December 2020 quarter. Release of regional content was largely driving this improvement.

However, recent restrictions and increased fear of enclosed spaces might keep the moviegoers away for a while.

ILL had undertaken steps to reduce cost and augment liquidity over the past one year. It has negotiated with majority of mall developers for waiving off rentals for the entire period of closure of operations with revenue sharing arrangements from resumption of operations until March 31.

The company has also conserved cash by reducing its workforce and deferring maintenance outlay and capital expenditure (capex).

On August 11, 2020, ILL sold treasury shares for Rs 101.36 crore which has augmented liquidity. Furthermore, ILL also raised Rs 250 crore equity in November 2020 as a result of which its net debt improved to around Rs 33 crore as of March 31 from around Rs 112 crore as on the same date of last year.

Crisil said ILL had liquidity (cash and bank balance, undrawn committed bank lines and other liquid investments) of around Rs 160 crore as on March 31, 2021 which should sufficiently cover its curtailed operating cost and debt obligation for the next three to four months.

On April 6, ILL's board approved raising additional funds of up to Rs 300 crore through issue of securities which could further augment liquidity.

Crisil said the credit profile of multiplex operators including ILL may further weaken if the Covid-19 pandemic worsens. Moreover, multiplex operators will have to initiate fresh negotiations with mall owners, given new restrictions to contain the pandemic.

Improvement in the current situation leading to return of content and ramp-up inoccupancies while operators continue to contain operating costs and maintain liquidity will remain a key monitorable. (ANI)