Multiplex operators in focus; PVR, Inox Leisure up over 5% in a weak market

Shares of multiplex operators PVR and Inox Leisure were trading over 5 per cent higher in an otherwise weak market on the BSE on Monday amid expectation that cinema halls would be opened as part of 'Unlock 3'.
Inox Leisure has rallied 10 per cent to Rs 265 on the BSE on back of over 5-fold jump in trading volumes. At 10:20 am, the stock was trading 8 per cent higher with a combined 1.25 million shares changing hands on the NSE and BSE.

Shares of PVR were up 6 per cent to Rs 1,172 on the BSE, as compared to 0.6 per cent decline in the S&P BSE Sensex.
The Multiplex Association of India (MAI) has urged the central government to allow operation of cinema houses in non-containment zones in the country. The country went into lockdown from March 25 to contain the spread of coronavirus pandemic. As the Central government’s 'Unlock 2' is coming to an end on July 31, the Ministry of Home Affairs is preparing guidelines for 'Unlock 3'.
According to reports, the MAI is certain that cinema halls will be allowed to reopen for the public in the next phase of unlock. Earlier the Ministry of Information and Broadcasting had proposed the reopening of cinema halls to the Ministry of Home Affairs.
Analysts at Edelweiss Securities continue to maintain confidence in multiplexes’ long-term story owing to under penetration; cinemas, and multiplexes in particular, continue to remain the major revenue source for content producers; and tailwind to a shift from unorganised to organised retail.
“We believe business to resume once COVID-19 cases subside materially, thereby leading to a gradual pikcup in occupancy rates. We do believe that India remains highly under-pentrated in terms of screens or screens per million, implying ample room for expansion for leading players. In addition, we expect single screens to decline faster given survival issues in tough times. Single screens constituted 66 per cent of total screens in India in CY19 verus 78 per cent in CY15," the brokerage firm said in sector update.
“Although the prospects of cinema opening in the near term are high, there is uncertainty around movie releases and occupancy trends. Inox’s balance sheet provides some comfort, especially in terms of liquidity (in the process of raising Rs 75 crore in debt). Going forward, agreements with mall owners on rental costs and revenue sharing will be watched out for,” analysts at Emkay Global Financial Services said in company update.

Food and beverages drive revenues for multiplexes; PVR posts 25% growth

The movie exhibition business is still largely dependent on the kind of films released every Friday, but multiplexes are tweaking their strategy to derive more from consumers. Exhibitors are pushing filmgoers to have more food and beverages on their premises at a time when the chorus of people in favour of outside food into cinema halls is growing.
In July-September, growth of food and beverages (F&B) revenue for PVR and Inox Leisure was the highest in nine quarters at 25 per cent and 41 per cent, respectively.
The country’s top two multiplex companies are increasingly shifting their attention to ancillary segments to shore up revenues, cutting prices of F&B items in the process. The trend, say experts, is expected to stay in the coming quarters as operators see merit in this strategy.
As things stand, multiplexes derive most of their revenues from three sources -- box office collections, F&B, and advertisements. These account for 92-93 per cent of the revenue, with box office collections contributing the lion's share.
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In the second quarter, however, the contribution of box office collections to the net revenue for Inox and PVR was down to 55 per cent from 60-62 per cent earlier. The F&B revenue share, on the other hand, was a fourth of the net revenue from a fifth earlier, while the advertising revenue share remained largely steady at 10 per cent. The balance 10 per cent of the net revenue came from other operating income, which increased by 2-3 per cent in Q2 compared to 7-8 per cent earlier.
Analysts say the shift towards F&B was inevitable since the dependence on box office collections alone was a risky bet.
“Though the content line-up will be important for multiplexes because that will ensure footfall into movie halls, operators now are looking at what they can do in addition to getting viewers to watch films. Once footfall is there, multiplexes are in a position to entice people with interesting offers and discounts on food & beverages, improving F&B growth,” said Karan Taurani, vice-president, research, Dolat Capital.

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In Q2, the footfall for Inox grew 7.2 per cent year-on-year, while the spend per head increased 12.3 per cent over the year-ago period. PVR saw the footfall grow 16.7 per cent year-on-year, though the spend per head declined 3 per cent over the year-ago period. Analysts expect this number to improve for PVR in the coming quarters as the thrust on ancillary revenue grows.
Some analysts believe the recent controversy around outside food being allowed into movie halls was the tipping point for multiplex operators to slash F&B prices.
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In the last few months, states such as Maharashtra, Telangana and Madhya Pradesh were looking to allow outside food into cinema halls, following charges that multiplex operators were retailing products at steep prices. While multiplex companies have obtained a stay on this for now by petitioning the Supreme Court, the issue is far from over.
“The matter was a wake-up call for companies operating in the space," said Abneesh Roy, senior vice-president, research, institutional equities, Edelweiss. "What we saw in Q2 was that multiplexes were offering more discounts and offers on food and beverages to lure consumers to spend more on these products. This has resulted in growth being high from this segment for these companies,” he said.
Growth from box office collections in Q2 was 17.4 per cent for PVR and 11.2 per cent for Inox. Advertising revenue growth, meanwhile, was 13.2 per cent for PVR and 17.7 per cent for Inox.