The multiplex industry was one of the worst hit sectors last year owing to the Covid-19 pandemic-induced lockdown that discouraged public gatherings. The industry, which employs more than 200,000 people and accounts for nearly 60% of revenues of the film business, is estimated to have lost upwards of ₹5,000 crore in revenue. While there was some recovery in the third quarter, things may continue to look bleak for the short to medium term, experts say.
“The second Covid-19 wave could derail strong recovery witnessed in the third quarter (3Q). For movie exhibitors, the strong Covid-19 upsurge in the top five states poses new risks,” pointed out ratings agency India Ratings and Research (Ind-Ra) in a report.
The top five states—Maharashtra, Karnataka, Gujarat, Uttar Pradesh, and Tamil Nadu—account for 56% of the movie screens for PVR and INOX, the top two multiplex chains in India. According to Ind-Ra, the ban on film and TV shoots by the Maharashtra government is negative, especially for broadcasters. Earlier this month, the Maharashtra government announced closure of multiplexes and cinema halls while Delhi and Kerala have allowed theatres with 30% occupancy. Ind-Ra expects such fresh curbs to adversely impact the recovery for movie exhibitors.
Revised Covid-19 restrictions due to the recent spike in the number of active cases will hinder economic activity and, thus, delay recovery in the media and entertainment (M&E) sector. The risks to recovery are significant for movie exhibitors, followed by broadcasters and print media, Ind-Ra says.
“However, should the rise in cases be contained, the overall M&E outlook [may] remain positive as movie exhibitors [could] witness normalisation of operations in the second half (H2) of FY22 (H2FY22). The recovery expectations were also supported by a strong real gross domestic product (GDP) growth outlook for India in FY22,” it said.
Analysts also expect the phase 3 of the vaccination programme to act in favour of the movie business. “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-19 vaccination), and decline in Covid-19 cases would be hugely positive,” says Sanjesh Jain, research analyst, ICICI Securities, in a report.
Elara Capital’s Karan Taurani, too, feels that ramping up the vaccination drive for other age groups is the only respite as of now. “Yesterday’s news about the opening up of vaccination [to all adults] is positive news. However, staggered lockdowns across different states this time around and a staggered opening in different states will be a bigger negative. It is very important for the majority of the key states to be open with at least 50% occupancy for large content release. The staggered lock/unlock situation lasting for much longer than expectations, too, can be a drag for the near term,” argues Taurani.
He, however, feels that the impact of this second wave may not be as bad on stock prices of multiplexes. “Both companies (PVR and Inox) have enough capital to sail through the cash burn for another six months, a solution in the form of vaccination is available, and developers are agreeing upon a revenue share arrangement until business recovers to 70% of pre-Covid-19 level,” he says.
Meanwhile, saving costs remains key for multiplex players. In H1FY21, PVR had cut monthly expenses to ₹283 million, down 67% YoY. Similarly, in Q2FY21, INOX cut its employee cost and other overheads (excluding power and fuel, rent, and common area maintenance charges, or CAM) by 72% to ₹100 million/month. Multiplexes have also secured complete waivers on rents during the lockdown period and concessions till March of this year on low occupancies. “On a normalised basis, PVR’s rent + CAM cost (per quarter) is ₹1.5 billion and that of INOX is ₹1 billion. The evolving situation may warrant multiplexes to renegotiate again with mall owners for waivers or concessions as applicable,” the ICICI Securities report argued. “Unlike earlier, multiplexes are equipped with learnings from the previous shutdown and are better prepared this time.”
Industry experts also believe that new movie releases may be postponed and, hence, the next two quarters may be a washout for multiplexes. “This may also force a few producers to evaluate selling their movie rights to OTT players as the latter continue to invest aggressively (this could affect near-term content supply for multiplexes, but it would be a transient impact),” ICICI’s Jain noted. This means that at least for the short term, multiplexes' loss could be OTT's gain.
