Higher purchasing power in the hands of consumers has unfortunately not improved sentiment for multiplex stocks. Stocks of PVR Ltd, Inox Leisure Ltd and Cinemax India Ltd have underperformed the BSE small-cap index since the beginning of the fiscal despite the fact that the three companies have delivered very good financial results for the half year ended September 2010.
PVR’s diluted consolidated earnings per share (EPS) went up to Rs 5.41 for the half year from a negative Rs 2.79 in the same period last year. Cinemax’ diluted consolidated EPS increased to Rs 1.27 against Rs 0.66 last year. During the same period, Inox’ diluted EPS increased to Rs 1.11 from Rs 0.21 last year.
Also See Occupancy Concerns (PDF)
Having said that, the June 2009 quarter was an anomaly as no films were released across theatres from April to mid-June 2009 on account of conflict between producers/ distributors and multiplex owners over revenue sharing, which badly hit multiplexes. To that extent, these numbers are not comparable.
So why have these stocks underperformed, when their financials have become better? In India, the March quarter is supposed to be slack for multiplexes due to examinations. So multiplexes used to be left with three quarters to cover up for the underperformance in the March quarter. But for sometime now, the Indian Premier League (IPL) has put pressure on the June quarter as well. This has resulted is just two quarters in which multiplex companies can do decent business without major distractions for the audiences. Also one of the major and somewhat obvious reasons why multiplexes have underperformed is the lack of good content.
Analysts point out that occupancies in the range of 33-35% are comfortable for multiplexes on average. In good times occupancies would be naturally be higher than 35%. Occupancies below 30% are a cause of concern, putting profit margins under pressure.
So what’s the outlook for 2011? Prospects for 2011 do not appear bright. The first half of the calendar year 2011 is likely to see multiplex operators under pressure once again, this time on account of the cricket World Cup along with the examination season and IPL. Improvement in content, of course, would be a key trigger for higher occupancies.
Graphic by Yogesh Kumar/Mint
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