PVR, Inox Leisure hit 52-wk lows in a firm market; tank over 50% in 2 mths

Prolonged closure may significantly impact credit profiles of the film exhibition industry
Shares of multiplex operators including PVR and Inox Leisure hit their respective 52-week lows on the BSE on Monday, in an otherwise firm market, on reports that about six states want lockdown extended beyond May 3.

Individually, Inox Leisure slipped 6 per cent to hit a low of Rs 202, while PVR declined 3 per cent to hit Rs 924 on the BSE in the intra-day trade today. In comparison, the S&P BSE Sensex was up 2 per cent at 31,989 points at 11:08 am.

In the past two months, Inox Leisure and PVR have tanked 57 per cent and 53 per cent, respectively on concerns of the impact of the Covid-19 outbreak on the firms' revenues and cash accruals on account of closures of cinemas. The benchmark index has slipped 20 per cent during the same period.

On Saturday, Maharashtra, Madhya Pradesh, Bengal, Punjab and Odisha veered towards extending curbs in hotspots in their respective states beyond May 3. Besides, news agency PTI reported that the Delhi government may extend the lockdown till May 16 in the national capital 

Prolonged closure may significantly impact credit profiles of the film exhibition industry. The closures of cinema halls is expected to adversely impact the revenues of the company and lead to operating losses during the period of shutdown. Any further restrictions imposed on cinema halls going forward will exacerbate the financial impact.

“Fluctuations in profitability inherent in the film exhibition business will continue to affect operations, though the impact should be cushioned marginally by the large scale and increasing contribution from the non-ticketing business. Given the high fixed cost, multiplex players should remain dependent on occupancy, which is driven by the success of films. Availability of other forms of entertainment and new properties expose Inox Leisure to challenges of sustaining profitability and growth,” rating agency Crisil said in rating rational on March 23, 2020.

Analysts at IDBI Capital, meanwhile, expect the uncertainty over resumption of operations and social-distancing rules to weigh on the stocks in the near term. However, the brokerage remains structurally positive on the multiplexes space and believes that current uncertainty provides excellent opportunity for accumulating both the stocks.

“The movies slated suggest that multiplexes should not face supply side headwinds. We expect flow of good content to start coming from the second half of Q2FY21. Further, given the impact of pandemic, we expect even higher focus on content which augers well for content in FY22. However, we have factored lower occupancy for FY22 vs. FY20 (which had a weak Q4),” the brokerage firm said in earnings preview.

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