Inox Leisure, PVR extend gain as TN state allows 100% capacity in cinemas

Inox Leisure and PVR were trading higher for the fifth straight trading day, gaining 21 per cent and 13 per cent, respectively, during the period

Shares of multiplex operators, Inox Leisure and PVR, surged up to 8 per cent on the BSE on Wednesday after the Tamil Nadu government allowed movie theatres to operate at 100 per cent capacity in the state.

Among individual stocks, Inox Leisure rallied 8 per cent to Rs 341, while PVR was up 3 per cent at Rs 1,459 on the BSE. In comparison, the S&P BSE Sensex was up marginally by 0.04 per cent at 48,455 points. These stocks were trading higher for the fifth straight trading day, gaining 21 per cent and 13 per cent, respectively, during the period.

On Monday, the Tamil Nadu government said that the decision was taken as the number of Covid-19 infections is coming down in the state. The government had earlier permitted theatres to screen movies with 50 per cent occupancy. The decision comes ahead of the Pongal festival when new movies are slated for release and at a time when new coronavirus clusters – star hotels, IIT-Madras - are cropping up, according to Business Standard report. CLICK HERE TO READ FULL REPORT

The 100 per cent capacity in cinemas is a key positive as Maharashtra and Tamil Nadu states account for a significant chunk of collections. Over the medium term, the prospect of the sector as a whole remains intact, given limited out-of-home entertainment options available in the country.

“While near-term pressures are evident, we believe that the long-term prospects for the film exhibition industry, where PVR is the leader in terms of screens and brand equity, are intact as Indians have limited out-of-the home entertainment options. Once India recovers from the pandemic, multiplexes will see a full rebound in footfalls. The industry structure is also in favor of larger players i.e. PVR, Inox and Cinepolis could witness more consolidation. This is a consumer discretionary play where we believe there is considerable headroom for growth,” analysts at Nirmal Bang Equities said in September quarter result update.

Meanwhile, in the past year, PVR (down 21 per cent) and Inox Leisure (down 9 per cent) have underperformed the market by reporting negative returns. In comparison, the S&P BSE Sensex was up 19 per cent during the year.

On December 8, 2020, PVR said that rating agency Crisil reaffirmed its rating on the long-term bank facilities and debt programmes of the company at 'CRISIL AA/Negative'. The negative outlook reflects CRISIL's expectation of the potential weakening of the credit profile over the next 2-3 months if occupancy remains muted despite resumption of operations. Lower-than-expected ramp-up in occupancy, resulting in continued high cash losses, would remain a key rating sensitivity factor, Crisil said in rating rationale.