>Multiplex Sector (ANGEL BROKING)

'Exhibiting Gloomy Pictures'

Over the last one month, Multiplex stocks have witnessed sharp rally in the range of 35-50% despite looming concerns including lower occupancies and possible delays in handover of properties. Moreover, owing to the upcoming IPL season and the tiff between Multiplex operators and Producers, the Movie pipeline over 1QFY2010 is expected to remain weak. We believe that the slowdown in consumer spends and weak movie pipeline are likely to lead to stagnation in Footfalls and Average Ticket Prices (ATPs). Overall, we see no near-term catalysts for the Sector and given the recent rup up in the stock prices, we recommend a Neutral rating on the Multiplex Sector.

* Poor Content, not Slowdown - the key culprit: Amidst the ongoing economic slowdown, it has been observed that the frequency of theatre visits by moviegoers, especially to multiplexes, has been affected. Occupancies in most multiplexes have declined to as low as 25-30% levels in FY2009. We, however, believe that slowdown is only a certain factor impacting footfalls, with content being the key culprit keeping audiences away from the multiplexes. For instance, while Ghajini, released in the midst of slowdown, managed to gross Rs100cr+ domestically, a weak movie pipeline particularly in CY2008 (highest number of average and flop movies over the last three years) was mainly responsible for lower occupancies during FY2009.

* Real Estate slowdown, Funding issues impact Multiplex expansion plans: In a scenario where Multiplex operators are facing funds crunch on one hand and slowdown in the Real Estate Sector on the other, we believe expansion plans of the Multiplexes in terms of property roll outs are likely to suffer, in turn impacting their growth prospects. As a result, while the Multiplex companies had chalked out optimistic expansion plans at the beginning of FY2009, most have fallen short of meeting their target rollouts. We believe this scenario will only worsen in FY2010. Hence, we have pruned our FY2010 estimates to factor in lower
capacity addition.

* Near-term negatives to remain an overhang: We believe the Multiplex industry is facing several headwinds in the near term, which are likely to create an overhang on the Multiplex stocks on the bourses - 1) Delayed Movie releases owing to Exhibitor-Producer tiff, 2) Weak movie pipeline in 1QFY2010 owing to upcoming IPL season and 3) Stagnation in Footfalls and ATPs due to slowdown in consumer spends. Moreover, our interaction with managements indicated that occupancies during 4QFY2009 worsened (almost at 20% levels) on both qoq and yoy basis. Hence, we expect Multiplexes to report poor 4QFY2009E results, which would prove to be a dampener for the Multiplex stocks in the near term.

We have revised our estimates for the Multiplex companies under our coverage to discount execution delays in capacity addition and lower occupancies in the near term. While we remain Neutral on Fame, Inox and Cinemax, we downgrade PVR from Buy (Target Achieved) to Neutral.

To see full report: MULTIPLEX SECTOR