WILL CINEMA STOCKS PERFORM BETTER?

Unlock 5.0 guidelines issued by the government allowing cinema halls and multiplexes to operate with 50 percent capacity, acting as a trigger for entertainment stocks, including PVR Limited and Inox Leisure.

The very next trading day after the announcement saw the stocks gain as much as 10 percent and 15 percent respectively at the time of the opening of markets. While the multiplexes and cinema halls will open, it is highly unlikely that the public will start going to watch movies from the outset. The fresh cases being reported even now are alarming and people will prefer personal safety over entertainment.

Multiplexes, along with hotels and airlines, were among the worst-hit businesses as stay-at-home orders to counter the Covid-19 pandemic froze operations. PVR reported a net loss of Rs 184 crore in the quarter ended September, owing to continued fixed costs but no revenue contribution. The company’s revenue fell 95.8% year-on-year to Rs 40.5 crore, while it suffered an operating loss of Rs 84.1 crore against an operating profit of Rs 318 crore a year ago. And while the company tried to rein in expenses by cutting jobs and negotiating with their landlords (to save on rent), it wasn’t enough to prevent a meltdown of sorts.

Also with the proliferation of OTT platforms (like Netflix and Hotstar), there is a very real risk that movie theatres might become redundant. Many people have already proclaimed the death of cinemas.  OTTs have gained a lot of ground since March putting cinemas at stake.

Shares of PVR Ltd. rose the most in more than a month after the nation’s largest multiplex operator managed to reach rent waiver settlements for some screens. PVR managed to reach settlements for more than 60% of cinemas for complete rent waiver for the lockdown period and significant discounts after reopening, according to its media statement. Of the total 831 screens, the company has managed to receive permission to open over 575.

As of now, cinemas have been reopened, occupancy rates can go as high as 60–70% during big releases. So this will affect them. It’ll pull the average down under simple arithmetic. Also, they will have to implement strict SOPs including cleaning and sanitizing halls after every show, offering protection kits to the staff, cleaning places with frequent touchpoints, etc.

So, now the question arises “Will cinema stocks perform better and maintain their previous position by the end of the year 2020?”