PremiumMUMBAI: Shares of PVR Ltd and Inox Leisure Ltd were up 3-4% in early deals on Tuesday on the National Stock Exchange. Note that multiplexes have been bearing the brunt of the fresh covid-19 wave, as resultant restrictions have meant cinema screens will largely remain shut. Of course, these concerns reflect in the shares of PVR and Inox Leisure, which have declined by nearly 24% and 11%, respectively, so far this calendar year until Monday.
Even so, there are certain factors that bring comfort for investors of these companies. As Karan Taurani, analyst, Elara Securities (India) Pvt. Ltd, said, “Yesterday’s vaccination opening up is a positive." The central government has decided to open up vaccinations for all adults over the age of 18 from 1 May. Further, vaccine manufacturers are empowered to release up to 50% of their supply to State Govts. and in the open market at a pre-declared price.
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Premium ICICI Securities Ltd’s analysts said in a report on 20 April, “We estimate >50% of screens are shut due to lockdown or low demand and the worst-case scenario of 100% screen shutdown for a few weeks looks possible. However, faster-than expected vaccination (on new liberalised and accelerated phase 3 Covid vaccination), and decline in Covid cases would be hugely positive."
Even so, rising covid-19 cases increase the need for restrictions and that would weigh on occupancies of multiplexes in the near future.
As such, PVR and Inox Leisure are expected to be able to cope with the crisis thanks to enough capital at their disposal. According to Taurani, “The impact of this second wave may not be as bad on stock prices as 1) both companies (PVR and Inox Leisure) have enough capital (Inox plans raise Rs300 crore in coming weeks) to sail through the cash burn for another six months and 2) a solution in the form of vaccination being available and 3) developers agreeing upon a revenue share arrangement until business recovers to about 70% pre covid level."
“PVR and INOX however have enough funding arrangements to sail through this situation. Unlike earlier, multiplexes are equipped with learnings from the previous shutdown and are better prepared this time," point out ICICI Securities’ analysts.
To be sure, from a near-term perspective, revenues of PVR and Inox Leisure would naturally be under pressure in these trying times. As such, investors would do well to evaluate how these firms are managing their costs. From a medium-term perspective, big movie releases would help improve sentiments for these stocks.
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