Contained Covid-19 cases, the rapid pace of vaccination, upcoming big-ticket movie releases, and strong out-of-the-home consumption trends, combined with positive global news-flow around box office collections, turn us positive on multiplexes.
We upgrade PVR and Inox to Buy from Hold with revised Dec’22 TPs of Rs1,880 and Rs535, respectively, based on 13x Dec’23E pre-IND-AS EBITDA. However, our preference lies with the latter due to its relatively lower leverage. That said, although other factors are now falling in place after an interval of 15 months, delivery on the content front remains the key. We believe that it will take some time for the accrual of actual benefits of industry consolidation and full recovery to be reflected in the numbers.
Promising vaccination rate: With 32% of the eligible Indian population fully vaccinated, the pace of jabs has picked up significantly in the last few months. We expect about 51% of the eligible population to be fully vaccinated by Dec-end, and almost all eligible Indians receiving at least one dose. All major states/cities, which contribute significantly to box-office collections, are in a good shape. Furthermore, the consistent drop in daily Covid19 cases should contribute to overall improvement.
Consumer revenge spending gives credence: After the second wave, there has been a consistent month-on-month rise in domestic air travel, with the number of flyers rising by 41% in Sept’21 vs. Jul’21. Hotel occupancies have also inched up to 50-52% in Aug’21 from 47- 49% in Jul’21. In addition, net passenger bookings for railways for the first eight days of Oct’21 were up almost 74% vs. the same period in 2019. Restaurant dine-ins have come back with a bang as well. Lastly, PVR’s footfalls have touched 68% of 2019 levels for recently released non-Bollywood movies (Exhibit 14) despite the ceiling on capacity. All these trends clearly indicate that consumer confidence in outdoor activities has increased, pointing to a return of audiences to cinemas, if quality content is provided.
Upcoming content line-up: Bollywood producers have announced the release dates for many big-ticket movies, which should bring the crowd back to the cinemas. In Nov-Dec alone, 6 big-ticket flicks are set to be released, with another 8 lined up for Q4FY22. Most of these movies feature stars whose pre-Covid releases crossed Rs1bn in NBOC. A slew of regional and Hollywood films should also boost footfalls. Social media has played a crucial role in the success of various small-mid budget movies at the box office in the last 2-3 years. We believe this will be the case in post-Covid times too.
Encouraging global box office collections: When compared with pre-Covid-19 collections, this year’s Top-10 films accounted for just 40% of the total seen in 2019, with Chinese films accounting for a major chunk of it. Excluding the Chinese films, collections this year stood at 23% of their pre-Covid levels. Recent Hollywood releases like ‘No Time To Die’ and ‘Venom: Let There Be Carnage’ have performed well. Improving confidence in movie going and strong global box office collections led to Disney deciding on exclusive theatrical releases vs. simultaneous OTT releases with a content window of 30-45 days.
Outlook: With all states permitting the reopening of cinemas – though with restricted occupancy levels – and big-budget films lined up for release, cinemas are treading slowly toward normalcy. Amid the solid pace of vaccination and a consistent fall in new Covid cases across the country, we are building ‘business as usual’ from Q1FY23. We continue to be positive on the medium-term prospects of multiplexes, driven by limited out-of home entertainment options for Indians, the possibility of market share gains with weaker players’ inability to expand, and single-screen owners finding it difficult to manage ongoing cash losses.
Key risks:
1) a resurgence of Covid-19 cases resulting in 3rd wave
2) a structural increase in the revenue share to producers/distributors and lower content windowing
3) lack of high-quality content
4) higher-than-expected rental charge inflation.
Source:Emkay Global