As economic activities and recovery gather pace, shares of multiplex companies PVR and Inox Leisure have jumped around 10 percent and 30 percent, respectively, in a month.
With cinema halls, theatres and auditoriums reopening in Maharashtra from October 22, investors expect demand recovery to accelerate, improving revenue outlook.
The two companies are also expected to announce their September quarter results (Q2FY22) on October 22 as excitement builds around the reopening of cinemas in Maharashtra, which accounts for 25-30 percent of Hindi box office collections. To begin with, cinemas will open at 50 percent capacity.
Multiplex firms took a big hit as cinema halls remained shut due to coronavirus restrictions that forced people to stay indoors.
Analysts have turned positive on the two stocks as festival season is on and restrictions have been eased greatly on falling infections and vaccination picking pace.
“As the impact of the pandemic fades, there could be revenge travel, revenge shopping and who knows even revenge movie watching,” said an analyst requesting anonymity.
Some even don’t see over-the-top (OTT) platforms as a big risk now. In a report on October 5, HSBC Securities and Capital Markets (India) analysts said, “Big Hollywood studios announcing exclusive theatrical releases highlights the financial limitations of streaming.”
“Though the domestic box office is still lukewarm, recovery trends overseas (50 percent average recovery rate in July-Sep ‘21) are impressive,” the report said.
While these developments are encouraging, the path ahead won’t be easy. For multiplexes, normalisation is still a few quarters away, say analysts.
They foresee another wash-out quarter, with both firms expected to report a loss at the EBITDA (earnings before, interest, tax, depreciation and amortisation) level.
Until Q1FY22, both companies had reported EBITDA losses for five quarters in a row after adjusting for the impact of Indian Accounting Standard 116 (IND-AS 116). At the end of the June quarter, analysts said PVR and Inox had sufficient liquidity.
In its Q2FY22 earnings preview, IDBI Capital Markets & Securities Ltd said, some of the factors to watch include, “1) Revenue trajectory post opening of cinemas in Maharashtra 2) update on interaction with producers for a) content line-up for H2FY22 & FY23 and b) likely OTT-first release of more content.”
Impact on the cost elements, commentary for screen addition for FY22/23 and on pick-up in growth of advertisement revenue also needs to be tracked, it said.
Notwithstanding the recent appreciation, the two stocks are still around 15-20 percent below their pre-pandemic highs seen in early 2020.
A weaker content pipeline can play spoilsport. Investors would do well to keep a tab on the quality of content and the performance of new releases at the box office.
The risk of a potential third wave also remains. For now, multiplex stock prices seem to be factoring in an optimistic scenario.
