New Zealand's Colin de Grandhomme celebrates the run-out of MS Dhoni during the Cricket World Cup semi-final match between India and New Zealand at Old Trafford, in Manchester, England on Wednesday (AP file )
New Zealand's Colin de Grandhomme celebrates the run-out of MS Dhoni during the Cricket World Cup semi-final match between India and New Zealand at Old Trafford, in Manchester, England on Wednesday (AP file )

Cricket World Cup, softer content to weigh on multiplexes’ June quarter

  • The outlook on profit margins isn’t great either. Analysts expect the measure to decline year-on-year
  • Screen additions remain paramount and so would be the management commentary on future screen additions

Investors of multiplexes companies, PVR Ltd and Inox Leisure Ltd, need to brace themselves for a soft June-quarter performance. That’s because the world cup cricket series being aired on television is expected to have had an adverse impact on advertising revenues of these companies for the June quarter. Plus, it's not as if the movie content pipeline remained impressive last quarter. Performance of movies such as ‘Student of the year 2’ and ‘Kalank’ didn’t live up to the tall expectations at the box office. Sure, it helped that 'Avengers: Endgame', 'Kabir Singh' and 'Bharat' performed relatively better.

But that wasn’t enough, said analysts. The upshot: these factors together have set the stage for subdued financial results from these companies for the first quarter of financial year 2020.

“The on-going 2019 Cricket World Cup and relatively weak content vis-à-vis 1QFY19 have acted as dampeners on footfalls and advertising revenue growth, leading to what we estimate a subdued performance," wrote analysts from Nirmal Bang Institutional Equities in a report on 4 July.

As such, investors should watch footfalls and advertising revenue closely when first quarter results are announced.

The outlook on profit margins isn’t great either. Analysts expect the measure to decline year-on-year. “The aggressive addition of new screens in our view will lead to higher costs which may not be defrayed as the screens would be running sub optimally from an occupancy perspective. This would have been compounded by the Cricket World Cup effect," said Nirmal Bang.

Needless to say, screen additions remain paramount and so would be the management commentary on future screen additions.

For the June quarter, both PVR and Inox Leisure have carried forward the momentum in screen addition, said IDBI Capital Markets & Securities Ltd in a report on 5 July. “PVR has added 27 screens and Inox has added 21 screens. We expect both to maintain their target to add 80 screens each," added the broker.

At the end of financial year 2019, PVR and Inox had 763 screens and 574 screens, respectively. In FY19, Inox added 85 new screens, reasonably more than 70 new screens that PVR had added.

In helps that content pipeline is looking robust for the rest of this financial year. But again, how movies ultimately perform on the box office is anybody’s guess. For better or worse, a good share of fortunes of multiplex companies is tied to content performance. Investors will have to stay glued to that.

So far this financial year, the PVR stock has increased by about 5% whereas that of Inox has declined by about 2%.

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