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Second Covid wave pushes recovery for multiplexes 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, according to Crisil Ratings.

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 to 22 per cent – the breakeven level in terms of operating profit – in the current quarter. Sequentially, occupancy doubled to 12 to 13 per cent last quarter and was seen climbing a new to 22 to 25 per cent 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 to 12 per cent in the first half of this fiscal and 20 to 22 per cent in the second half when restrictions on occupancy and fears of infection will hopefully recede.

A full recovery is seen only in fiscal 2023, said Crisil.

Director Nitesh Jain said temporary closures in many states, especially Maharashtra, will 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 can continue for longer, leading to deferment of film releases on big screens and continuation of cash burn for multiplexes,” he said.

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.

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 can comfortably cover operating expenses and debt servicing of these players for the next four to six 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, said Crisil.

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 from 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 per cent 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, said Crisil. ANI News

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