For multiplexes, second wave pushes recovery to next fiscal

Multiplexes are set to log operating losses for the second straight fiscal as localised lockdowns, night curfews and other restrictions to contain the resurgence of Covid-19 infections will keep occupancies low for the next few months.

The sector was one of the worst impacted by the lockdown last year, being the first to shut operations, in March, and among the last to resume operations, in October.

Occupancy had started improving post-resumption, and was expected to reach 18-22% – the breakeven level in terms of operating profit – in the current quarter. Sequentially, occupancy doubled to 12-13% last quarter, and was seen climbing anew to 22-25% in south India.

However, the recent spike in Covid-19 cases will send that estimate askew and defer recovery to the second half of this fiscal. Our base case assumes average occupancy of 10-12% in the first half of this fiscal and 20-22% in the second half (refer to annexure 1), when restrictions on occupancy and fears of infection will hopefully recede. A full recovery is seen only in fiscal 2023.

Says Nitesh Jain, Director, CRISIL Ratings Ltd, “Temporary closures in many states, especially Maharashtra, would push back new film releases, at least the big-ticket ones, to the second quarter. Maharashtra is a crucial market for cinema, accounting for a fifth of the total screens in India. The resurgence of pandemic has created many uncertainties, and restrictions could continue for longer, leading to deferment of film releases on big screens and continuation of cash burn for multiplexes.”

In the milieu, CRISIL-rated multiplex operators, which account for almost half of the industry’s revenue, are expected to log cash losses this fiscal, too. They had bled ~Rs 900 crore in fiscal 2021, compared with a cash profit of ~Rs 785 crore in fiscal 2020 (refer to annexure 2).

Last fiscal, multiplex operators undertook steep cost controls, including deferring maintenance and major capex outlays. They also raised Rs 1,350 crore equity to fund losses and augment liquidity. The current liquidity could comfortably cover operating expenses and debt servicing of these players for the next 4-6 months.

To contain operating losses and conserve liquidity, the operators will likely continue steep cost controls, including deferring maintenance and major capex outlays, even this fiscal. Their ability to keep a leash on fixed cost will, however, be a monitorable.

Says Rakshit Kachhal, Associate Director, CRISIL Ratings Ltd, “Lease rentals is the largest fixed cost and they could save 70-75% (~Rs 800 crore) from waiver of rentals in the last fiscal. Their ability to renegotiate rentals for the current fiscal will be crucial to contain the losses. Besides cost controls, the ability to raise funds in a timely manner will bear watching.”

The spread of infections, the success of the vaccination drive, and the return of moviegoers – setting aside their fear of closed spaces – will be monitorables, too, as will be the players’ ability to raise funds in a timely manner.

Having said that, as multiplexes are among the few out-of-home entertainment options in India, occupancy should bounce back once the fear of infection recedes and the pace of vaccination picks up, with inoculation being opened to people aged 18 years and above effective May 1.

Besides, big-budget movies, which are temporarily being deferred, are unlikely to be released on over-the-top platforms, given that multiplexes contribute more than 50% of the total box office collection. Thus, exhibition of big-budget movies leading to recovery in occupancy should script the recovery for multiplexes, currently seen in second half of this fiscal. Crisil