Despite multiple challenges like COVID lockdown, substandard movies, threats from OTT platforms like Netflix and Disney Hotstar, and Boycott Bollywood campaigns, shares of multiplex chains like PVR Ltd and Inox Leisure have become darling of investors this year.
Shares of PVR are up 36% this year so far (as of September 20) while those of INOX Leisure have jumped 39% year-to-date (YTD).
So much so, Crisil, in a report dated September 20, 2022 said, “Multiplexes are set to triple their revenue this fiscal, propped by the low-base effect of last fiscal and more people queuing up to watch movies after the pandemic-forced hiatus.”
The estimates of Crisil show the revenue of multiplex players rising to an all-time high of over ₹6,000 crore, or 13-15% above the fiscal 2020 level.
The dream run of multiplex players may continue for some time considering the upcoming festive season and a strong content pipeline.
“Multiplexes have rebounded well from the pandemic setback and reported their highest-ever quarterly revenue and operating profit in the first quarter this fiscal. Occupancy has returned to the pre-pandemic level of nearly 32%, riding on some big-banner releases,” Naveen Vaidyanathan, Director, CRISIL Ratings observed.
CRISIL said the sharp recovery in occupancy coupled with a troika of factors — increased average ticket prices, higher spend per head on food and beverages (F&B) and the addition of screens — are expected to script the growth story.
“While there have been headwinds in the past two months stemming from social media outrage and boycott calls, the scene may change in the coming months aided by the festive season and a strong content pipeline. That should improve occupancy to about 30% this fiscal from 16% in the last,” said Vaidyanathan.
Is OTT a threat?
The emergence of over-the-top (OTT) platforms has been a matter of concern for multiplex players and thanks to the pandemic, theatres were closed and people seem to have become comfortable with OTT platforms. There are concerns that the multiplex sector cannot ward off the pressure from OTT platforms and a higher-than-anticipated OTT adoption curve and sub-par content of the upcoming movies are the risks.
“While occupancy was back to pre-pandemic levels in the first quarter for the multiplex players, it might drop a bit for the full fiscal as they continue to feel the heat from OTT platforms. A full recovery in operating margin is therefore unlikely,” Crisil underscored.
OTT can be a matter of concern but analysts and brokerage firms do not see it as a significant threat to multiplex players.
Brokerage firm JM Financial said as the tussle between OTT and theatres continues, the theatrical success of Brahmastra has shown that good content and spectacle movies can still attract a wider audience.
“We feel a combination of factors augur well for PVR-INOX, including (i) tremendous scope for screen penetration, (ii) industry consolidation (approximately 16% of market share across theatres for the merged entity), (iii) reinstatement of eight-week theatrical windows, and (iv) acceptance of regional movies in the Hindi language,” said JM Financial.
“With minimal leverage, PVR-INOX remains extremely comfortably placed in terms of growth plans also. While in Q2FY23, multiplexes are likely to see a quarter-on-quarter (QoQ) dip in earnings on account of the high base of Q1FY23 we continue to maintain our positive stance on INOX and PVR with a March 2023 target price of ₹665 and ₹2,220, respectively, said JM Financial.
The OTT has its place but the multiplex sector is unlikely to suffer because of it. Analysts are positive on multiplex stocks and they advise buying them at the current market price.
“We recommend investors take advantage of the current correction and lap up the stocks of sector leaders like PVR, and INOX Leisure Ltd. Overall, the multiplex sector is expected to perform well from both medium and long-term perspectives and is a proxy play on the rising per capita income and spending in India,” said Santosh Meena, Head of Research, Swastika Investmart.
Meena is bullish on the sector as he said the sector is witnessing a rebound after a three-year gloomy phase due to huge demand emanating from the subsiding pandemic effects, robust movie lineup, improved box office performance, and growing advertisement and F&B revenues.
Additionally, the merger of PVR and INOX Leisure will lead to a consolidation in the industry and solidify the merged entity standing in the growing multiplex sector.
Disclaimer: The views and recommendations given in this article are those of individual analysts and broking firms. These do not represent the views of MintGenie.
