Recovery of theatrical exhibition sector will be postponed to the first quarter of FY23 due to the wave of Covid-19: ICRA


Multiplex owners have been hit hard by the emergence of the third wave of the Covid-19 pandemic. With state government restrictions on multiplexing operations, the sector’s recovery will be delayed until the first quarter of FY23, credit rating agency ICRA said in a note.

While November 2021 to March 2022 was expected to see a strong rebound given the strong content pipeline, which was also reflected in the box office performance of major films released in the third quarter of fiscal 2022. movies being postponed due to restrictions on shopping malls and movie theaters in several parts of the country, occupancy in the fourth quarter of fiscal 2022 will be affected and revenue for the quarter will be sequentially lower than in the third quarter of fiscal 2022. fiscal year 2022.

Providing further insight, Jay Sheth, CIFAR Vice President and Sector Head, Corporate Sector Assessments, added: “Industry participants were pinning hopes for a recovery on the holiday season in the third quarter. of FY2022 with the strong content pipeline, accelerating pace of vaccination and easings in key markets like Maharashtra, adding to the optimism. occupancy rates (60-65% of pre-Covid levels), higher average ticket prices and spending per person, multiplex operators are expected to report their highest revenues (since the fourth quarter of the financial year 2020) and post a positive EBITDA.”

He further said that the strong performance of multiplex operators in the third quarter was despite some restrictions on occupations in the key states of Gujarat (60% cap) and Maharashtra (50% cap) and restrictions on consumption of food and beverages inside movie theaters (a high-margin segment) in a few key territories such as Maharashtra. “In addition, as occupancy remained suboptimal, the contribution from another high-margin revenue stream, namely advertising revenue (comprising 10-11% of overall revenue), also remained low. “

In FY21, the profitability and, consequently, the credit profile of multiplex operators took a severe beating with low to mid single digit occupancy resulting from the tight restrictions and lockdown implemented during most of the year. Additionally, while state governments eased restrictions in the fourth quarter of fiscal 2021, resulting in better occupancy, the second wave compounded carriers’ woes, significantly hampering their revenues in the first quarter of the 2022 financial year.

To help them survive the difficult phase, in addition to raising equity, multiplex operators had undertaken various cost rationalization measures on the employee front and rent exemptions/reductions with shopping center operators to maintain their low fixed costs and reduce cash consumption.

“As the current situation develops, the recovery of the film exhibition industry will now be further postponed to the first quarter of fiscal 2023. However, on the positive side, unlike in the past, several big-budget films are now ready for release – the content lineup remains robust and therefore the recovery from the easing of restrictions should be stronger and much faster.Nevertheless, ICRA continues to maintain a negative view of the sector until it achieves a full and sustainable recovery. The current adequate liquidity profile of incumbents should help them weather short-term headwinds on profitability,” Sheth added.

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