Impact of Maharashtra Allowing Opening of Multiplexes

On the morning of Monday, 27th September, the 3 major listed multiplex stocks; PVR, INOX and Cineline opened with strong gains. The gains tapered later but these stocks are still 6-8% higher in early trades. What exactly has driven the rally in these multiplex stocks. More so, in the case of PVR, where the stock had corrected 4% on 24th September on account of a credit downgrade by CRISIL.

The rally in multiplex stocks was triggered by Maharashtra allowing multiplexes to resume operations from 22nd October, subject to safety and social distancing protocols. It may be recollected that all malls and multiplexes had been shut since April 2021 after the resurgence of COVID 2.0. Maharashtra is critical as it account for up to 30% of multiplex revenues and sets the all-India tone.

A number of big budget Hindi movies are slated to release but are going slow due to the multiplex lockdown. These include big budget multi-starrer Suryavanshi, Ranveer Singh’s 83, Akshay Kumar’s Prithviraj, Aamir Khan’s Lal Singh Chaddha, Ranbir Kapoor’s Shamshera and Saif Ali Khan’s Bunty aur Babli 2. If the operations resume, it is expected that it would be cash flow positive for multiplexes in the December quarter.

Multiplex companies, once reopened, will also gain from the assurance given by Disney. In 2021, Disney will not release any new movies on OTT up to 45 days after the theatre release. This will ensure that OTT is not a major threat in this year since the first 2-3 weeks account for a bulk of the earnings from movies for the multiplex companies.

Brokers like Nirmal Bang and Sharekhan are betting on a sharp revival in multiplex stocks resulting in strong revenue growth in FY23. Price targets for PVR and INOX have been raised by 25-30% by brokers as cash bleeding is likely to come to a halt once the multiplexes are opened. It is estimated that the movie exhibition industry has lost over $600 million since the lockdowns first started in mid-2020. The hope is that the worst may be over.