PVR and Inox Leisure share price have more than halved in last three months as market sentiments were dented due to rising number of coronanvirus cases across the globe. Announcement of lockdown in India to contain the spread of the deadly virus in March has dashed any hopes of recovery in the entertainment sector stocks.
In fact, PVR share price hit its 52-week low on May 19, 2020 amid reports that production houses have moved to release their films directly on over-the-top (OTT) platforms.
The stock hit an intra day low of Rs 719.50, falling 66% from its 52-week high of Rs 2,121 touched on February 20, 2020. Similarly, Inox Leisure share price touched 52 week low of Rs 158.20 on May 19 this year, down 69% from its 52 week high of Rs 510.80 hit on February 25 this year.
The business of the two firms which thrives on gathering of people could be the last to restart even as government is in the process of easing the two-month old lockdown.
With looming uncertainty over businesses, investors are watching the stock movement sitting on boundaries. Since March 24, when PM Modi announced lockdown, Inox stock has lost 17.77% and PVR share price is down 39.20%.
While PVR share price has declined 56%, Inox Leisure stock has lost 47% since the beginning of this year. In comparsion, Sensex has dropped 25.51% as rising number of coronavirus cases across the globe and at home weakened prospects of economic growth.
Rahul Agarwal, Director at Wealth Discovery/EZ Wealth said, "The ongoing lockdown which is still in effect till atleast till May 31 has forced these companies to near zero revenue, whereas fixed costs in terms of rents and salaries have still added up. Pre lockdown, both these companies were aggressively adding new screens especially in prime locations leading to higher rental costs which are still in place. INOX Leisure has lost more than half of its share value, and although the stock has recovered handsomely from its all time lows of Rs 158.40 and is currently trading at Rs 201. We do not expect a large upside from here.
Similar trends are evident in PVR stock which has also recovered 20 percent from its lows but the upside appears to be capped at-least in the short term. In our opinion, the COVID -19 pandemic has fundamentally altered the structure of the leisure industry, with enhanced social distancing norms and widespread panic in people's mind, we do not expect a swift recovery in this segment at-least in the next couple of years.
Once a vaccine is available for COVID-19 to the general public, there is a possibility that leisure industry may pick up until then the stocks in this segment will trade sideways to lower. Our advice to investors in these stocks is to stay away and not be enticed by the sharp corrections that these stocks have witnessed."
The disruption in business is likely to continue even after the multiplexes restart operations. With streaming of movies on OTT platforms and government accepting that coronavirus may never go from India, multiplex operators are likely to take a lot time to record pre lockdown audience turnout.
ICICI Direct sees six months of impact (three months closure followed by three months of limited operation with "social distancing" norms)."This implies a washout H1FY20 coupled with possibility of box office clash of big movies. We continue to be believe that multiplexes are going to invoke Force Majeure to shield themselves from critical costs of rentals (albeit some sharing of rental burden between lessor and lessee cannot be ruled out). Closure will also mean savings in other fixed costs such as manpower (through wage cut as well as contracted component), maintenance and power costs. We now incorporate the impact of extended pain in our FY21 assumptions as well as its percolation to FY22 and cut the target multiples. We now assign HOLD ratingon PVR and Inox Leisure with a target price of Rs 1060 per share and Rs 235 per share, respectively," the brokerage said.