Film exhibition sector's recovery will get delayed to Q1 FY23 due to Covid-19 wave: ICRA

With movie releases getting deferred due to restrictions on malls and cinema, the revenue for Q4 FY2022 will be sequentially lower than Q3 FY2022, ICRA said in a note

e4m by exchange4media Staff
Updated: Jan 22, 2022 9:28 AM  | 3 min read

The multiplex owners have been hit hard by the emergence of third wave of Covid-19 pandemic. With state government's imposing restrictions on multiplex operations, the sector's recovery will get delayed to Q1 FY23, credit rating agency ICRA said in a note.

While November 2021 to March 2022 was expected to witness a strong rebound, given the strong content pipeline, which was also reflected in the box office performance of major movies released in Q3 FY2022. With movie releases getting deferred due to restrictions on malls and cinema in several parts of the country, the occupancy for Q4 FY2022 will be impacted and revenues for the quarter will be sequentially lower than Q3 FY2022.

Giving more insights, ICRA VP & Sector Head, Corporate Sector Ratings Jay Sheth added, “The industry participants were pinning recovery hopes on the festive season in Q3 FY2022 with the strong content pipeline, increased pace of vaccination and relaxations in key markets like Maharashtra adding to the optimism. In Q3 FY2022, supported by increase in occupancy (60-65% of pre-Covid levels), higher average ticket prices and spend per head, the multiplex operators are expected to report their highest revenues (since Q4 FY2020) and turn EBITDA positive."

He further stated that the strong performance by multiplex operators in Q3 was despite some restriction on occupancies in key states of Gujarat (60% cap) and Maharashtra (50% cap) and restrictions on consumption of food and beverages inside cinema halls (a high-margin segment) across a few key territories such as Maharashtra. "Furthermore, as occupancy remained sub-optimal, contribution from another high-margin revenue source viz. advertising income (comprising 10-11% of overall revenues) also remained low.”

During FY21, the profitability and consequently the credit profile of multiplex operators had taken a severe beating with low to mid-single digit occupancy resulting from the stringent restrictions and lockdown implemented for most part of the year. Moreover, as state governments eased restrictions in Q4 FY2021 leading to better occupancy, the second wave added to the woes of the operators, significantly impeding their revenues during Q1 FY2022.

To help them survive the difficult phase, apart from equity fund-raising, the multiplex operators had undertaken various cost rationalisation measures on the employee front and rental waivers/ discounts with the mall operators to keep their fixed costs low and reduce cash burn.

“With the current evolving situation, the recovery for the film exhibition sector will now stand further delayed to Q1 FY2023. However, on the positive side, unlike in the past, several large-budget movies are now ready for release – content line-up remains robust and hence recovery, post easing of restrictions, is expected to be stronger and much faster.  Nevertheless, ICRA continues to maintain a negative outlook on the sector until it achieves a full and sustainable recovery. The current adequate liquidity profile of the incumbents is expected to help them navigate short-term headwinds on profitability,” Sheth added.

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