Slowdown blues notwithstanding, India’s leading multiplex chain launched ‘Megaplex’ in Mumbai to house six experimental cinema formats under a single roof. Spread across 60,000 square feet, this is Inox’s biggest multiplex with a 1,586 seat capacity, 11 screens to cast 60 shows daily. These formats include IMAX, and an immersive 4D screen, among others.

“This launch is an extremely important and strategic business milestone for us. As a cornerstone of our experience strategy, Megaplex would strengthen our bond with our patrons, while offering them global formats, dining options and, above all, happy memories,” said Alok Tandon, chief executive officer, Inox Leisure.

The muted commentary from chief executives across sectors has laid bare the cracks in the domestic economy. The Reserve Bank of India and the International Monetary Fund cut India’s FY20 GDP growth forecast to 6.1% from 6.9%, and 7%, respectively due to weakness in domestic demand and consumer spending. In this backdrop, to what extent can multiplex chains like Inox buck the trend?

Analysts say the strong content pipeline will get the box office cash registers ringing despite weak advertising. “One of the key issues in the sector has been the volatility in earnings due to content, but with better stories to tell and an even spread of movie releases during weekends, we see a structural positive developing before us,” said brokerage outfit Nirmal Bang in a note to investors last month.

“We continue to remain bullish and believe that the multiplex model is a quasi play on rising urban discretionary spending as well as the preferred and cheapest mode of out of home entertainment,” says Bhupendra Tiwary, lead analyst, telecom and media, ICICI Direct.

The brokerage has given multiplex chains PVR and Inox a thumbs up, but Tiwary adds, “Inox with consistent performance and strong balance sheet will also benefit from narrowing down of valuations gap vis-à-vis PVR which trades at 30% + premium valuations on enterprise value/earnings before interest tax depreciation and amortisation basis”.

To be sure, the slowdown has taken a toll on advertising revenue, and analysts estimate that growth will decline to single-digit levels from a year ago. “The key challenge for Inox as well as PVR will be advertisement growth in the near term given the muted macroeconomic outlook,” says Tiwary.

“The biggest spending cutback has come from BFSI (banking, financial services and insurance) clients who constitute 15%-20% of the advertising revenue. There has been no spending at all from automobile clients who bring in 6%-7% revenue. FMCG clients continue to contribute ~20% of ad revenue but the price pressure has increased,” notes the Nirmal Bang report.

Also, liquidity concerns in the real estate sector may delay new screen additions for a quarter or two. Brokerage firm Nirmal Bang expects screen additions at Inox to decline to 65-70 from the earlier guidance of 80, leading to a cut in capex to ₹240 crores from ₹275 crores.

Food and beverage remains an important segment for multiplexes, contributing roughly 22% to 27% to the revenue pie. The growth engine may have hit the brakes, but the “show” will go on as long as the typical middle-class family buys movie tickets to escape slowdown blues.

The stock will continue to be in focus. “Inox over the past 1-1.5 yrs has tracked strongly on parameters such as F&B growth, advertisements monetisation as well as screen addition. This has translated into superior returns since the last one year with Inox up ~43% vs PVR 37-38%,” says Bhupendra Tiwary.

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