Multiplexes: key rerating candidates amid unlock

Some states provided relaxation of curfew timings and granted permission for cinema halls to operate at 100% capacity.

Nov 10, 2021 03:11 IST India Infoline News Service

Multiplexes have been among the worst-hit sectors from the pandemic-induced lockdown. They are also among the last sectors to open up to the public as the situation normalizes across the country. One of the key markets of multiplexes- Maharashtra (~25-30% of their revenues) opened cinema halls for the public on October 22. This ended a shutdown of nearly 18 months and marked nationwide opening of cinema halls. Initial response to this reopening has been rather encouraging with near-full cinema halls during Diwali. Some states provided relaxation of curfew timings and granted permission for cinema halls to operate at 100% capacity.

Amid a solid pipeline of movies (Hindi, English and regional languages) over the next 6 months, multiplexes are all set to restore their old glory. This of course is contingent upon the pandemic running out its course. Given the rapid vaccination and reducing number of COVID cases, that seems to be the case for now. Easing of restrictions around capacity, timing of operations and vaccination requirements would provide further impetus.

How are multiplex players catalyzing growth?

Listed multiplex companies – PVR and Inox Leisure are geared up to drive occupancy to pre-pandemic levels and have adopted a host of measures towards this end.

Prominent initiatives include:

• Providing short-term concessions to film producers on both film hire charges as well as on theatrical window (shortened from 60 days to 30 days)
• Accelerated focus on non-movie revenues – showing live events like the ICC Cricket T20 Men’s World Cup 2021, gaming (PVR has tied up with Nazara), events and shows for corporates and individuals
• Enhance non-theatre F&B consumption through both delivery and dine-in (without having to buy a movie ticket) tie-ups with Zomato, Swiggy, eazyDiner, ITC's Kitchens of India, etc.

Besides, these multiplexes have also negotiated rental concessions for over 80-85% of their screens. A move that will keep a check on fixed monthly overheads, and thereby curtail losses.

Is the good news baked into current stock valuations?

Stocks of PVR and Inox Leisure have had a strong run over the past three months with gains of around 29% and 39%, respectively. However, the good times seem to have just begun for these companies. As occupancies and average ticket prices start nearing pre-COVID levels (likely from 1QFY23), advertising revenues could also gather momentum. This, in turn, will start reflecting in the financial performance of these companies, providing further boost to the stocks. Structural concerns around OTT threatening multiplexes seem overdone as the latter offer a complete experience of movie-watching to viewers (big screen, outing, food, etc.). Exclusive theatrical releases of upcoming big budget movies from Disney and Warner Bros is another enabling factor.

Both the companies are undertaking gradual expansion and are opening new screens to capitalize on the unlock scenario. They could post strong double digit growth in earnings once occupancies normalize. While PVR is the leader in this space, Inox Leisure enjoys a net debt free balance sheet. Overall, both these stocks could witness rerating over the next few months.

The author of this article is Sheetal Agarwal

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