Emergence of the third pandemic wave has pushed multiplex sectors recovery to the first quarter of FY2022-23, despite strong performance of movies at the box office in third quarter of the current fiscal year.

According to a report by ICRA, while November 2021-March 2022 was expected to witness a strong rebound, given the strong content pipeline, but the restrictions imposed by various State governments on multiplex operations due to the third wave has dashed imminent recovery for the industry.

While malls and cinema halls are closed temporarily in Delhi and Haryana, other States such as Kerala and Karnataka are only allowing entry of double vaccinated consumers besides imposition of night curfews in many regions. This led to postponement of most of the movie releases.

Consequently, occupancy for the fourth quarter of the current fiscal year will be impacted and revenues for the quarter will be sequentially lower than the third quarter, the report stated.

Betting on festive season

Jay Sheth, Vice President & Sector Head, Corporate Sector Ratings, ICRA Ltd, said, “The industry participants were pinning recovery hopes on the festive season in Q3 FY2022 with the strong content pipeline, increased pace of vaccination and relaxations in key markets like Maharashtra adding to the optimism. In Q3 FY2022, supported by increase in occupancy (60-65 per cent of pre-Covid levels), higher average ticket prices and spend per head, the multiplex operators are expected to report their highest revenues (since Q4 FY2020) and turn EBITDA positive.”

He added, ”This is despite some restriction on occupancies in key States of Gujarat and Maharashtra and restrictions on consumption of food and beverages inside cinema halls across a few key territories such as Maharashtra.”

“Furthermore, as occupancy remained sub-optimal, contribution from another high-margin revenue source viz advertising income (comprising 10-11 per cent of overall revenues) also remained low,” Sheth added.

Severe hit to the sector

The report said that during FY2021, the profitability and consequently, the credit profile of multiplex operators had taken a severe beating with low to mid-single digit occupancy resulting from the stringent restrictions and lockdown implemented for most part of the year. The second wave added to the woes of the multiplex operators, significantly impeding their revenues during the first quarter of the current fiscal year.

Apart from equity fund-raising, the multiplex operators had undertaken various cost rationalisation measures on the employee front and rental waivers/discounts with the mall operators to keep their fixed costs low and reduce cash burn.

“With the current evolving situation, the recovery for the film exhibition sector will now stand further delayed to Q1 FY2022-23. However, on the positive side, unlike in the past, several large-budget movies are now ready for release – content line-up remains robust and hence recovery, post easing of restrictions, is expected to be stronger and much faster. Nevertheless, ICRA continues to maintain a negative outlook on the sector until it achieves a full and sustainable recovery. The current adequate liquidity profile of the incumbents is expected to help them navigate short-term head winds on profitability,” added Sheth.