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Fresh lockdown-like restrictions in Maharashtra, which is grappling with a second covid-19 wave, has yet again dampened investor sentiment toward multiplex stocks. Following the state government’s notification issued on Sunday shuttering theatres for a month, shares of PVR Ltd and Inox Leisure Ltd fell 5% and 4%, respectively.

According to the notification, all cinemas, theatres, malls, bars, gardens and playgrounds in the state will remain closed until 30 April. Rising caseloads are a big risk for multiplexes, posing a direct threat to occupancies even in states where theatres continue to stay open. Analysts caution of a muted near-term outlook for these companies despite their strong content pipeline with big-banner movies such as Salman Khan starrer Radhe, Sooryavanshi and 83. It should be noted that multiplex companies fetch around 30% of their total box office revenue for Hindi films from Maharashtra.

Expectations were that occupancies would get normalized from the second half of this fiscal year, aided by new movies, pent-up demand and the festive season. However, with the number of new cases in the second wave reaching the peak of the first wave, there will be a further delay in recovery of the industry.

Shares of PVR and Inox Leisure have significantly underperformed the benchmark index Nifty200 in the past one year
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Shares of PVR and Inox Leisure have significantly underperformed the benchmark index Nifty200 in the past one year

“With fresh restrictions, multiplexes are back to square one and this development is clearly negative for both the stocks. There is renewed uncertainty on rental and revenue sharing agreements of these multiplexes with mall owners. Between the two, since PVR recently raised funds, it seems to be in a better position than Inox. The latter will have to catch up in terms of garnering funds, especially if these restrictions are in place for a longer time," said an analyst with a domestic brokerage house who did not want to be named.

Low occupancies will obviously result in cash burn. Also, growing consumption of over-the-top content poses risk to multiplex operators. According to analysts at Motilal Oswal Financial Securities Ltd, the contribution of theatres in the movie revenue pie has declined to 75% in India and around 40% globally. Analysts say that over time, this could diminish the bargaining power of cinemas for exclusive screening windows.

Meanwhile, from their respective 52-week highs seen in January 2021, shares of PVR and Inox Leisure are down by around 25% each.

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