Multiplex stocks continue to draw a blank, squeezing returns

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It’s a no show for multiplexes just yet. Even as the economy opens up gradually, cinema halls are not permitted to operate, according to the latest unlock 2 rules. While this may not be entirely surprising, it is sentimentally negative.

Further, Disney+Hotstar said seven Bollywood films will be released on the OTT (over-the-top) platform in coming months.

In May, Amazon said seven Indian movies would premier on its Prime Video platform. Rajiv Sharma, head of research, SBICAP Securities Ltd said, “The number of online movie releases may well rise in the near- to medium-term until there is visibility on cinema halls reopening.”

Online movie releases are negative for multiplexes, delaying their recovery further once cinema theatres reopen. In the interim, after a disappointing end to FY20, multiplexes are set for a harsh FY21, with the first half expected to be a washout.

There is some comfort that these companies have a reasonable liquidity cushion for the next few months. Analysts from IIFL Securities Ltd said in a report on 9 June, “PVR/ Inox have reduced fixed costs by 70-75% to bring down monthly cash burn to Rs40/ Rs15 crore.” The broking firm added, “The proposed rights issue of Rs300 crore is likely to shore up PVR’s balance sheet. Inox has lower leverage than PVR and has options such as Treasury-share sale and real estate sale if its liquidity position were to see a significant deterioration.”

Nonetheless, investors will keep a close watch on occupancy levels once cinema halls reopen. Shares of multiplexes reflect the gloomy business conditions, declining 53-55% from their 52-week trading highs in February. With revenues likely to be beaten down in FY21, valuations don’t inspire much. “As far as the multiplex stocks are concerned, it all boils down to whether you take the short-term view or look at the long-term when normalcy returns,” says Sharma.

However, predicting normalcy is dicey given the uncertainty owing to the covid-19 pandemic. “That said, the box office remains the best source for pricing discovery for filmmakers, which they cannot ignore. This supports long-term prospects for multiplexes,” added Sharma.

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