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if covid-19 concerns persist, there could be further downward pressure for PVR and Inox Leisure stocks. (Satish Bate/HT)
if covid-19 concerns persist, there could be further downward pressure for PVR and Inox Leisure stocks. (Satish Bate/HT)

Lockdown intermission is getting too complicated for multiplexes

  • Movies skipping theatrical run is not good  for  multiplexes, as it raises the risk of more online releases
  • More online film consumption during lockdown may prove sticky even after normalcy returns

The risks for multiplex companies are increasing by the day. On Friday, Amit Agarwal, country head at Amazon India, tweeted that seven Indian movies—including Ayushmann Khurrana-starrer Gulabo Sitabo—will be premiering on its Prime Video platform. Inox Leisure Ltd, interestingly, released a statement expressing its displeasure over bypassing the normal route of new movie releases on the big screen.

Expressing displeasure is one thing; the damage is already done. Shares of PVR Ltd and Inox Leisure Ltd touched new 52-week lows on the NSE on Friday. They have now fallen as much as 60-62% from their highs in February. “Movies skipping their theatrical run is obviously negative, increasing the risk of more movies releasing online," said an analyst, requesting anonymity. “If this continues, there will be a squeeze in content supply, which may prolong the recovery once multiplexes resume operations."

Online releases of movies do not actually come as a surprise. In a report on 26 April, Emkay Global Financial Services Ltd had said: “Delayed resumption of theatres will lead to financial pain for production houses, which could compel them to opt for online release, starting with low-budget movies."

Of course, ultimately it will depend on the terms of the deal production houses get from online streaming platforms such as Netflix, Hotstar and Prime Video. Some analysts said this was a temporary phase. “Direct digital release caps the amount of collection a movie makes even for small/ medium movies and that OTT’s payments may not always be attractive," said Karan Taurani, an analyst with Elara Capital Ltd.

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Note that multiplexes are one of the worst affected sectors in covid-19 times. Audiences are expected to postpone watching movies in the theatres due to the fear of contracting the virus even after the government lifts the lockdown. This would prove to be a sort of double whammy. In the lockdown, the ‘force majeure’ clause offers relief on some fixed costs for these companies, such as rent. When the lockdown lifts, costs will rise and some analysts are worried that revenues may not compensate for some time to come.

“H1FY21 will be zero business and gradual uptick from Q3 (30% y-o-y footfall decline); 2) cut in ad revenue for FY21; 3) lower F&B revenues with cut in spends per head; 4) lower screen additions; 5) increase in debt due to higher cash burn along with payment to business creditors," Emkay analysts estimate. For multiplexes, a lot depends on how soon occupancy levels inch up. But, understandably so, this would be challenging to predict, given the uncertainty.

If covid-19-related concerns persist for even longer, this may not be the worst the stocks are capturing. The silver lining is that analysts consider both PVR and Inox as well-run companies, which means some investors will continue to see value for the long-term.

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