Multiplex revenue to triple on low base, cross pre-pandemic levels this fiscal: CRISIL Ratings

Multiplexes are set to triple their revenue this fiscal, propped by the low-base effect of last fiscal and more people queuing up to watch movies after the pandemic-forced hiatus, as per an analysis by CRISIL Ratings.

Their revenue is seen rising to an all-time high of over Rs 6,000 crore, or 13-15% above the fiscal 2020 level, it said.

As per the analysis, the sharp recovery in occupancy coupled with a troika of factors — increased average ticket prices, higher spend per head on food and beverages (F&B) and addition of screens — are expected to script the growth story.

It however added that while occupancy was back to pre-pandemic levels in the first quarter, it might drop a bit for the full fiscal as multiplexes continue to feel the heat from over-the-top (OTT) platforms. A full recovery in operating margin is therefore unlikely.  

But robust operating profit and balance sheets augur well for the credit profiles of large multiplex operators rated by CRISIL Ratings.  

Naveen Vaidyanathan, Director, CRISIL Ratings, said, “Multiplexes have rebounded well from the pandemic setback and reported their highest-ever quarterly revenue and operating profit in the first quarter this fiscal. Occupancy has returned to the pre-pandemic level of 32%, riding on some big-banner releases. While there have been headwinds in the past two months stemming from social media outrage and boycott calls, the scene may change in the coming months aided by the festive season and a strong content pipeline. That should improve occupancy to 30% this fiscal from 16% in the last.” 

Higher ticket prices and F&B income would also support revenue growth. The average ticket price is expected to be Rs 240-245, which is 20% higher than the pre-pandemic level. Operators have been steadily hiking prices amid high inflation. Spend per head is expected to be Rs 115-120, up nearly a third from before the pandemic, driven by a mix of price hikes and a wider menu of choices to movie goers. 

Rakshit Kachhal, Associate Director, CRISIL Ratings, said, “Lower occupancy impacts profitability of multiplexes because of high fixed costs. Hence, while operating profitability will likely rebound to 16-17% this fiscal after the losses of the past two fiscals, it will fall short of the pre-pandemic level of 18-19%. Movies that leverage the multiplex experience will be crucial for operators to achieve a full recovery in occupancy and operating margin.”  

The past couple of years have seen OTT gain significant traction, especially after theatres were impacted by the pandemic-induced lockdowns. But multiplexes should gain from the 8-week exclusivity window given to theatres for new Hindi movie releases with effect from August 1, 2022. Besides, theatres still account for over half of a film’s collections, underscoring the significance of this medium to movie producers and distributors.  

Multiplex operators are expected to undertake sizeable annual capital expenditure of Rs 600-800 crore over the medium term to bolster their screen portfolio which would be funded largely through internal accruals. Strong liquidity and balance sheets of the top two operators — which raised Rs 2,150 crore via equity in the past two fiscals — has helped keep gearing below 1 time. Interest coverage should improve to 7-8 times this fiscal supported by the turnaround in profitability. All that signifies improving credit profiles of players. 

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