Fewer big-budget releases to impact Q2 performance of multiplexes: Edelweiss

MUMBAI: Edelweiss has said that the second quarter of the fiscal will not be easy for multiplexes given the strong base at play and fewer big-budget releases. It will keep an eye on (1) Ind-AS 116 impact; (2) virtual print fee (VPF) issue; (3) local body tax (LBT) contagion risk; and (4) digital release time windows. It has maintained a buy on PVR.

On a more positive note it pointed out that despite a cricket-heavy quarter (IPL, World Cup), the first quarter of the fiscal box office collections remained strong with four movies surpassing the Rs. 1billion mark—‘Avengers: Endgame’ (Rs. 3.7 billion), ‘Bharat’ (Rs. 2.1 billion), Kabir Singh (Rs. 1.6 billion) and ‘De De Pyaar De’ (Rs. 1 billion).

With a handful of movies performing well, ‘Avengers: Endgame’ saved the day for multiplexes; excluding Avengers, the collections of the top seven Bollywood movies declined by 10% YoY.

GST Council mandates e-ticketing for multiplexes: In its 35th meeting, the GST Council has mandated multiplexes to follow e-ticketing in order to curtail tax leaks. This decision comes six months after the Council’s decision to cut GST rates on movie tickets, reducing ticket prices.

The decision Edelweiss noted has been appreciated as it will increase the transparency for consumers as well as the industry in terms of more accurate collection tracking and curb tax evasion.

Multiplexes—PVR and INOX—have welcomed this move stating no impact on their operations as they already have e-ticketing compliant operations. Currently, almost all multiplexes are e-ticketing compliant. Similar guideline for single screen theatres could be likely, wherein e-ticketing compliance is lower compared to multiplexes.

Inox experimenting with alternate content: Inox is experimenting with alternate content to attract a diverse audience and mitigate content risk through the exhibition of sporting events on its screens. The company has partnered with ICC to screen live matches played by the Indian cricket team in World Cup 2019 and is one of the three multiplex chains worldwide to screen live matches.

“With fewer big-budget releases in Q1FY20, we believe Inox has taken a positive step towards better utilising its screen inventory and offering differentiated entertainment experience to patrons. INOX had also tied up with the US-based National Basketball Association (NBA), wherein the multiplex operator will showcase various NBA-related aspects in and around its theatres,” Edelweiss Securities EVP Abneesh Roy.

Outlook: The expectation is that PVR’s consolidated revenue and EBITDA will jump by 22% and 10%, respectively, YoY and PAT will decline by 31% YoY. The estimate is that net box office collection (excl. SPI Cinemas) revenue will grow by 6% YoY in Q1FY20 on 12% base and 14% YoY growth in ad revenue (excl. SPI Cinemas) on a base of 6.5%. Edelweiss estimates SPH to be Rs 102 in Q1 FY20, leading to F&B revenue growth of 11% YoY (excl. SPI Cinemas).

The expectation is that for PVR the second quarter will be challenging given the high base at play (Sanju, Stree, and Gold) and fewer big-ticket releases (Super 30 and Mission Mangal). While Edelweiss maintains buy on PVR it will keep an eye on 1) impact of Ind AS 116; 2) VPF issue; 3) contagion risk of LBT; and 4) OTTs aggression.

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