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Shares of multiplex firms, PVR Ltd and Inox Leisure Ltd rose about 10% and 5%, respectively on NSE.on Monday.
Shares of multiplex firms, PVR Ltd and Inox Leisure Ltd rose about 10% and 5%, respectively on NSE.on Monday.

Finally, some light at the end of the tunnel for multiplexes shut by covid

Restarting of multiplexes in at least one state is a positive and raises hopes that other states may follow suit

After months of waiting to restart operations, there is finally some respite for multiplexes. West Bengal chief minister Mamata Banerjee said cinema halls and open-air theatres will be allowed to operate in the state from 1 October with 50 participants or less.

Investors welcomed this news on Monday, taking shares of multiplex firms, PVR Ltd and Inox Leisure Ltd, up by about 12% and 6%, respectively, on the NSE.

While some progress is good, investors appear to be putting the cart before the horse.

Karan Taurani, analyst, Elara Securities (India) Pvt. Ltd, said: “50 people suggests occupancy cap of 25%, which is a negative—usually multiplexes have average annual occupancy of 12-14% on weekdays and 50-60% occupancy on weekends (Friday, Saturday and Sunday). This means weekend occupancy will get impacted negatively in a big way if the cap remains at 25%. Of course, it remains to be seen if the (Union) ministry of home affairs gives a go-ahead to this plan as well."

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Plus, the above guidelines are only for one region as of now. Analysts reckon other regions are bigger contributors to box office collections compared to Kolkata, or West Bengal, and hence, it is important to wait for signs of reopening theatres in other places.

On 26 April, a report by Emkay Global Financial Services Ltd said: “Key locations, such as Mumbai, Delhi (NCR), Bangalore and Pune, account for a sizeable chunk of opening-weekend box office collections."

The brokerage said Tamil Nadu and Andhra Pradesh are key contributors to regional box office.

To be sure, as things stand, restarting of multiplexes in at least one state is sentimentally positive. It also raises hopes that other states may follow suit. Perhaps, more clarity may emerge when the Unlock 5.0 guidelines are released.

Meanwhile, with revenues evaporating, PVR and Inox had resorted to aggressive cost-cutting in the June quarter. They are also negotiating on rentals with mall developers. Both have a reasonable liquidity cushion to tide over the near-term difficult patch. PVR has completed a rights issue of 300 crore, while Inox’s board has approved an equity fund raising of about 250 crore.

Even so, visibility on operating revenue is blurred and that’s critical despite the liquidity comfort. In the interim, digital consumption of movies has increased and it remains to be seen whether the trend will be sustainable in the long-run.

But, even after operations recommence, the rising number of coronavirus cases makes it challenging to gauge whether consumers would be willing to visit cinema halls to watch movies.

As such, there is a potential threat to occupancies. In other words, recovery hinges on the pandemic receding, and when that would happen is anybody’s guess.

Small wonder, then, that shares of PVR and Inox are still 42-45% lower than their pre-covid highs seen in February.

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