Ratings agency Crisil said even after the lifting of the lockdown, social distancing norms will reduce effective seating capacity, while fear of enclosed spaces will keep moviegoers away from cinemas for a while.
Cinema halls have been shut even before the country went under a lockdown in March to prevent the spread of the novel coronavirus infections.
"The COVID-19 pandemic is likely to halve occupancy levels at multiplexes and lead to Ebitda (earnings before interest, taxes, depreciation and amortisation) losses in the current fiscal," the agency said.
It said two-thirds of the revenues for multiplexes come from box office sales and the same are likely to plummet 55 per cent due to the low occupancies. Revenues from other streams like advertising and food and beverage sales will also be impacted due to the same reason.
"Occupancy rates of multiplexes could halve to 15 per cent this fiscal compared with over 30 per cent in the past two fiscals. Their high operating leverage, in turn, would lead to a sharp fall in profitability and cause Ebitda-level losses this fiscal," Crisil's Senior Director Sachin Gupta said.
He added that in the last two fiscals, the multiplexes delivered operating profit margins of 17-19 per cent.
On the controversy over some films going directly to over-the-top (OTT) players like Netflix and Amazon Prime before a theatrical release, the agency said the disruption is temporary and over time, both the platforms can co-exist.
"We expect equilibrium will be restored between film producers and multiplexes once occupancy levels start rising, because the latter accounts for more than half of the former's revenue," it said.
"We see the virus as a material threat to multiplexes, not over-the-top platforms," it added.
The multiplex operators have invoked the force majeure clause in their rental agreements to save rentals, which is a major fixed cost, it said, acknowledging that legal validity of the same is yet to be established.
They have also deferred maintenance and capital expenditure outlays, but these measures will not help much once operations are restored as lower occupancy will lead to operating losses.
The agency expects multiplexes to resume operations by the September quarter and occupancy levels will normalise only next fiscal year.
Crisil Director Nitesh Jain said liquidity management has become critical and multiplexes will also have to reset their cost structures, adding ones with strong balance sheets and ability to raise funds will be better placed, but prolonged closure and lower occupancy will impair credit profiles.
The agency said multiplexes it rates command a 45 per cent revenue market share and it had placed the sector on 'Rating Watch with Negative Implications' in March after their shuttering. AA ABM ABM