Multiplex revenue will triple this fiscal year due to a weak base in the last: CRISIL

Multiplexes are expected to triple revenue this fiscal year, buoyed by last year’s weak base effect and more people lining up to watch movies after the pandemic-forced hiatus.

Their revenues are expected to hit an all-time high of over Rs 6,000 crore, 13-15% above FY20 level. tickets, increased per capita spending on food and beverages (F&B) and the addition of screens – should script the growth story.

While occupancy was back to pre-pandemic levels in the first quarter, it could drop a bit for the full year as multiplexes continue to feel the heat from over-the-top (OTT) platforms. A complete recovery of the operating margin is therefore unlikely.

But strong operating results and balance sheets bode well for the credit profiles of the major multiplex operators rated by CRISIL Ratings1.

According to Naveen Vaidyanathan, Director of CRISIL Ratings, “multiplexes have rebounded well from the setback of the pandemic and recorded their all-time highest quarterly operating revenues and profits in the first quarter of this fiscal year. Occupancy is back to pre-pandemic levels of around 32%, thanks to some big-banner releases.Although there have been headwinds over the past two months due to social media outrage and calls at the boycott, the scene could change in the coming months, aided by the holiday season and a strong content pipeline. This should improve occupancy to around 30% this fiscal year, from 16% this fiscal year. the previous year.”

Rising ticket prices and F&B revenues would also support revenue growth. The average ticket price is expected to be 240-245 rupees, about 20% higher than the pre-pandemic level. Operators have steadily raised prices in a context of high inflation. Spending per head is expected to be 115-120 rupees, up nearly a third from pre-pandemic, due to a combination of price hikes and a wider menu of choice for moviegoers.

According to Rakshit Kachhal, Associate Director, CRISIL Ratings, “Lower occupancy impacts the profitability of multiplexes due to high fixed costs. Therefore, while operating profitability will likely rebound to 16-17% this fiscal year after the losses of the past two fiscal years, it will be below the pre-pandemic level of around 18-19%. Films that leverage the multiplex experience will be crucial for operators to achieve full recovery of occupancy and operating margin.

Over the past two years, OTT has grown in popularity, especially after theaters were hit by pandemic-induced shutdowns. But multiplexes are expected to take advantage of the 8-week exclusivity window given to cinemas for new Hindi film releases from August 1, 2022. In addition, cinemas still account for more than half of a film’s collections, emphasizing the importance of this medium for film producers and distributors.

Multiplex operators would need to undertake significant annual capital expenditure of Rs 600-800 crore in the medium term to bolster their screen portfolio which would be largely funded by internal accruals. The strong liquidity and balance sheets of the two major operators – which have raised Rs 2,150 crore via equity over the past two financial years – have helped keep the gearing below 1x. Interest coverage should improve to 7-8 times this fiscal year, supported by the recovery in profitability. All of this means improving players’ credit profiles.

The occupancy and quality of the content pipeline amid intensifying competition from OTT will be worth watching.

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Sallie R. Loera