After a strong Q3 show, multiplex operators face near-term headwinds

While January could be a washout, footfalls are expected to recover once the virus impact wanes

The December quarter performance of listed multiplex operators is expected to be their best in seven quarters. The gains were aided by a recovery in footfall, relaxations on occupancies, and new movie releases in the quarter. Barring seven states, which had allowed 100 per cent occupancies, most states had a 50-per cent cap in place for multiplexes.

While the country’s largest operator is expected to cross the Rs 500-crore mark in revenue, Inox Leisure could close the quarter with sales of Rs 280 crore.

Given the start-stop nature of operations in 2020-21 and 2021-22, the top line for the two firms in the third quarter was better than the combined sales over the preceding seven quarters.

Naval Seth of Emkay Research says that footfall is nearly back to pre-Covid levels for the major movies released in December. While Sooryavanshi was the top grosser in the quarter with net box-office collection of nearly Rs 200 crore, Spider-Man: No Way Home and Pushpa crossed the Rs 150-crore mark in ticket sales. For the full quarter, footfall is expected to be half of pre-Covid levels.

On a two-year basis, the average ticket price growth of 3-4 per cent for both PVR and Inox is mainly attributable to price increases and improvement mix in December due to the release of 3D movies, believes Emkay Research. Given the higher proportion to local advertising, the revenues from advertising could take the longest to recover.

After a gap of six quarters, the two companies could make money at the operating profit level. While PVR is expected to post operating profit of around Rs 150-160 crore, the metric for Inox could come in at Rs 90-93 crore. While operating profit margins for the two leading players will be in the 24-26 per cent range, this is still much lower (500-700 basis points), compared to the peak in pre-Covid times, according to Elara Capital.

Analysts expect PVR to perform better on the operational front than Inox, given the stronger presence in South India, which saw better growth on the back of strong regional content.

The positive for the multiplex players amid the third wave is adequate funding, which will help them tide over near-term headwinds.

“The key comforting factor is adequate fund-raise by both multiplex chains, which will ensure their survival amid near-term cash-burn. We will also monitor the quantum of rental waivers that the multiplexes manage to get, which will be one of the determinants of cash-burn amid the third wave of Covid-19,” says Bhupendra Tiwary of ICICI Securities.

While the quarter has seen some improvement, the third wave and multiple restrictions by state governments are expected to delay new releases and recovery by three to six months.

ICICI Securities believes that with Omicron-led lockdowns across a few states, along with weekend and night curfews, January will be a washout month for multiplexes. Further there could be deferment of the release slate and likely closure of multiplexes across states if Covid cases continue to surge.

Though there is near-term uncertainty, brokerages believe that once the Omicron effect wanes, the recovery could be swift, with footfall rising on the back of pent-up demand, as was the case in the last two quarters.

Given these expectations, the PVR stock was up over 3.4 per cent on Tuesday and 11 per cent in a week, while Inox was flat on Tuesday and up 5 per cent during the past week.

Investors should await the resumption of full-fledged operations before considering the two stocks.