Listed multiplex players still a hit despite slowing economic growth

Nobody seems willing to give entertainment a miss, despite slowing economic growth and its impact on household incomes. At least that’s what the recent updates from the two key listed multiplex players — PVR and Inox Leisure — are indicating. The upcoming new releases also underline that the possibility of lower footfalls in multiplexes is unlikely even in the foreseeable future.

“We have not seen any impact of consumption slowdown impacting box-office collections. The box-office is doing well as the quality of content over the last couple of years has significantly improved, driving people to cinemas,” said Nitin Sood, chief finance officer, PVR. 

Therefore, although the PVR and Inox stocks have declined 7-8 per cent in line with the leading indices (the Sensex down 7 per cent) in the last three months amid worries over first-day first-show movie offers by Jio Fiber, as well as the overall consumption slowdown, they could find favour with investors once again.

Analysts also echo similar views. According to Bhupendra Tiwary, analyst at ICICI Securities: “Given the good movie content and reasonable ticket size (vs other entertainment medium), customer footfall in the movie theatre will remain strong. This should propel box office and food and  beverage (F&B) revenue segments.”

While move ticket segment accounts for 53-56 per cent of overall revenues of PVR and Inox, F&B’s revenue share is 26-27 per cent. Advertising accounts for the rest.

Moreover, unlike as expected earlier, the impact of Jio’s first-day first-show movie offering is not expected to be meaningful. According to both the companies, there is a release gap (typically eight weeks) between the theatrical release date and the date of making movies available on other platforms such as DVD, DTH, TV, OTT, among others, which has been maintained by producers. 

Besides customers’ preference for theatrical experience, price differential could be another supportive factor, in this case, for multiplex or single cinema theatre. For instance, currently, Jio’s offer is only to premium category of subscribers with monthly plans ranging from Rs 2,499 to Rs 8,499.

What’s more, the slowdown, in fact, could play in favour of multiplexes if the past is anything to go by. 

Sood said: “During similar economic cycles in the past, PVR has not seen any impact on attendance at its theatres. In fact, in a few studies done abroad, during similar stress periods, indicate that people look at avenues to go stress free and a movie break is one of the best options.”

There is a caveat, though. The slowdown could hurt advertisement revenues of multiplexes. 

Inox’s management highlighted that the slowdown has weighed on its advertisement revenue growth, with lower spends by customers. PVR, too, mentioned some moderation in advertisement revenue growth. 

However, given the advertisement segment’s smaller revenue share of 10-11 per cent, overall top line growth will remain intact, led by the expected strong footfall as mentioned above.

“We expect strong performance during Q2FY20 despite anticipated lower ad revenues, driven by strong footfall led by healthy content and robust growth in the F&B business,” analysts at Sharekhan said in their recent note on Inox.

PVR expects 15-20 per cent revenue growth for FY20 with double-digit growth, excluding the performance of SPL (which it acquired).

While there are worries over the likely slower screen additions by multiplexes — given the stress in the real estate space — the jury is still out on the same. For now, multiplex stocks are likely to see good investor support in the near term. While PVR is trading at eight times its FY21 estimated enterprise value to earnings before interest, tax, depreciation and amortisation (EV/Ebitda), the same for Inox stands at five times.

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