Not a pretty picture for PVR and Inox in Q4, amid sharp fall in collections, footfalls

With the number of infected people on the rise since the end of February, the Centre and State governments had decided to close all malls and movie theatres along with other public areas from March 10. While these steps were necessary to contain the spread of virus, large multiplex players PVR and Inox Leisure, were severely impacted. This is evident from the March quarter results of both the companies.

The revenue of PVR and Inox were down about 22 per cent y-o-y each to ₹662 crore and ₹376 crore, respectively. The closure of movie theatres since the beginning of March and postponement of big ticket movie releases have hit revenues of both companies.

While both multiplex operators have invoked force majeure clause in their agreements to save on rental, common area charges and other costs during the lockdown period, it has not helped their bottom line. PVR reported a loss of ₹74 crore while Inox’s loss stood at ₹82 crore in the latest March quarter.

The stock of PVR has corrected 35 per cent since March this year while its competitor, Inox Leisure, has fallen by 29 per cent. Since movie theatres may only re-open by June-end, earnings will be impacted in the June quarter as well. Further with multiplexes to operate in limited capacity, the pain could continue going ahead.

On the positive side, big ticket movies are still awaiting theatre release, which would work in favour of the multiplex operators. Also these players are well placed to raise money to meet cashflow requirements. PVR has (gross) debt of ₹1,294 crore while Inox is debt free (gross debt of ₹157 crore). Inox is looking to raise ₹ 75 crore in additional debt and PVR is rising ₹300 crore through rights issue.

Subdued revenue

Box office collection, which is a major source of revenue for multiplex operators, was impacted due to virus outbreak. Both PVR and Inox generate 55-57 per cent of revenue from box office collections and 26-27 per cent from food & beverages and 10-12 per cent from advertisement income.

For the March quarter, most of the operation metrics were down for the multiplex operators. Inox for instance, reported decline in box office collection by 23 per cent during the quarter. Footfalls declined 29 per cent y-o-y and occupancy had fallen 6 per cent y-o-y. According to the company’s management, the footfalls in their multiplexes started declining towards the end of February. However, as the theatres were operational between January and February, spend per head (SPH) and average ticket price (ATP) reported growth of 7 per cent y-o-y each.

On the other hand, for PVR, box-office collection declined 27 per cent with footfalls falling 29 per cent during the March quarter 2020. But the ATP and SPH improved 4 per cent and 6 per cent, respectively, during the same period.

Revenue would remain subdued for the next few quarters even after re-opening of movie theatres as multiplex operators may not operate at full capacity due to Government imposed social distancing norms. Also, given the jobs losses and pay cuts, retail customers may postponement discretionary spends including movie tickets.

Cost savings

While the revenue growth is expected to be muted in the coming quarters, reduction in overheads expenses particularly in rent and common area maintenance charges should come as a breather for both PVR and Inox. Exhibition cost and property rentals and common area maintenance make up for chuck of expenses for these companies (nearly 45-50 per cent).

PVR, according to its management, was able to achieve significant reduction, 70-75 per cent of fixed costs, during the lockdown period. But the operating margin (EBITDA) declined to 27 per cent in the March quarter from 38 per cent from the year ago period. Similarly, Inox’s margin too declined to 11 per cent, 10 percentage points lower than last year.

Going ahead, as both multiplex operators are negotiating with developers to reduce rentals post re-opening as well, it could aid margins, as footfalls improves slowly.

Movie releases to help

During the lockdown period, few movies, mostly in the low budget category, released on the OTT platforms such as Amazon Prime. However, big budget movies await theatre release. Management of multiplex operators are confident that OTT is not a threat to theatre operators.

For instance, movies such as Akshay Kumar’s Suryavanshi , and Salman Khan’s Radhe are likely to come in October or November. Other movies such as 83 , Master,Coolie No. 1 and Hollywood movies such as Tenet, Mulan,Wonder Woman and No Time to Die are likely to release between November and December this year.

Since theatres are expected to operate at limited seating capacity, screen expansion is likely to happen at a faster pace, to accommodate the footfalls. Inox for instance is looking to open 41 screens in FY21; 86 per cent of the work for opening the new screens is complete, according to the company’s management.

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