Regional movies’ revenue doing little for Inox, PVR

Multiplex players – PVR and Inox Leisure – are bearing the brunt of Bollywood’s failure at the Box Office. The recent duds including Laal Singh Chaddha, Dobaaraa, Raksha Bandhan, and Shamshera have forced investors to shun related players’ stocks amid fears of sub-par earnings.

Shares of PVR and Inox Leisure have slumped 14.6 per cent each over the past one month, as against 0.7 per cent rise in the benchmark S&P BSE Sensex. And analysts see more pain ahead for the stocks.

“Bollywood’s performance has dented prices of PVR and Inox Leisure. While there may be some bounce back due to the overall market sentiment, there are structural risks to the sector which may put further downward pressure on stock prices,” said AK Prabhakar, head of research at IDBI Capital.

PVR and Inox Leisure reported highest-ever revenue and net profit in the April-June quarter of fiscal 2022-23 (Q1FY23). The former’s revenue and PAT stood at Rs 1,000.4 crore and Rs 68.3 crore, respectively, while the latter’s was Rs 589 crore, and Rs 74 crore.

However, this improvement in earnings was driven by higher Food and beverages (F&B) revenue, lower employee costs, lower advertisement and finance costs, and higher other income.

Revenue from Net Box Office Collection rose 16 per cent for PVR, and just 2 percentage points for Inox Leisure over pre-pandemic level (Q1FY20) in Q1FY23. Moreover, Inox Leisure clocked a mere 6 per cent increase in footfall above the pre-pandemic levels, and saw a per cent decline in occupancy levels during the recently concluded quarter. PVR, on the contrary, is yet to touch pre-pandemic footfall level.

Bollywood vs Regional movies

Multiplex players had pinned hopes on regional cinema after the jaw-dropping success of KGF (Chapter 2), RRR, and Vikram. However, the latest releases including Macherla Niyojakavargam, and Liger have bombed at the Box Office.

“There are only a couple of regional movies that do well at pan-India level. Thus, even if we see some blockbuster regional movies, they won’t be able to fill the revenue gap. Multiplexes need a good show from Bollywood movies to regain muscle. Pinning hopes on regional movies is too optimistic,” cautioned Deepak Jasani, head of retail research at HDFC Securities.

Hindi movies accounted for 46 per cent of PVR’s total revenue at the end of Q1FY23, down from 47 per cent in Q1FY20. While contributions from regional movies, including Telugu, Tamil, and Kannada, improved over the pre-pandemic level, they still account for revenue in the range of 1-14 per cent.

The rise of OTT
The rise of over-the-top (OTT) platforms, too, could challenge multiplexes’ growth in the medium-to-long term, analysts said.

According to G Chokkalingam, founder and chief investment officer at Equinomics Research, the Covid-19 pandemic has made OTT platforms popular.

“Apart from the perks of a wide variety of content, low prices, and the comfort of home, most of the low budget movies are being directly released on OTT platforms. Even big ticket movies make their way to these apps after two-three weeks of Box Office run. Thus, OTT will eat into multiplexes’ revenues in the long-run,” he said.

A recent report by SBI Ecowrap pointed out that the emergence of OTT, which shares around 7-9 per cent of the entertainment industry, is a “major disruption”. The OTT industry is constantly growing with over 40-odd players and offering original media content in all languages. As per reports, there are 450 million OTT subscribers in India and it is expected to reach 500 million by end-2023.

“The rise in OTT is expected to eat into cinemas viewers and profits, as more than 50 per cent of the people use OTTs more than 5 hours in a month. Also, options like Smart TV, Chromecast coming into the picture have provided seemingly unlimited choices, spoiling the viewers,” it said.

Given this, Gaurang Shah, chief investment strategist at Geojit Financial Services suggests investors shouldn’t rush to (buy) PVR post the recent correction. Minor accumulation, he said, could be done at lower levels, but with caution.

Chokkalingam, too, cautioned that the price-to-earnings (P/E) multiples of multiplex players may contract by 15-20 per cent in the absence of steady earnings growth. Business Standard