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Reopening Multiplexes and Hotels Despite COVID-19 Impact

Editor, TRANSFIN.
Aug 28, 2020 4:06 AM 4 min read
Editorial

The multiplexes are empty. The wedding halls bear a deserted look. The hotel lobbies echo in silence...

But hopes and expectations remain palpably, perhaps even confusingly, high!

India has gone through several stages of “unlocking” now, with its latest edition i.e. Version 4.0 to unravel from September 1st onwards.

It was Unlock 3.0 when hotels were allowed to reopen.

Now Unlock 4.0 may open up standalone cinema halls.

Naturally the stocks are rallying energetically. Indian Hotels Company (owners of Taj Hotels) is up 35% since the start of August with their bookings touching levels “70-80% of pre-COVID days”. PVR and Inox rebound 50% since May.

On average hotels and multiplex shares have gained between 30% to 100% over the last three months, outperforming the 26.5% rise in the Sensex in the same period.

It’s not just the prospect of reopening shop. Investors are looking beyond FY21 earnings. Market sentiment is upbeat and betting big on cost cuts, sufficient liquidity and better days ahead.

But is there any basis behind this optimism?

 

From Big and Fat to Socially Distanced

Take India’s mammoth $50bn wedding industry i.e. The cash cows for many hotels. Despite being open for nearly two months now, big hotel chains are seeing fewer bookings.

There are many cases where customers opted for smaller, in-house ceremonies attended only by closest friends and family. Many others simply postponed their dates to next year. The pandemic has made the big fat Indian wedding a thing of the past (at least for now). A mega days-long event with hundreds of guests of all ages dancing, eating, greeting, shaking hands and making merry in a closed hall?? No way!

Inconsistent government guidelines do not help, adding more disruption to the already limited occupancies and mandatory safety measures (regular decontamination of luggage, frequent thermal screenings, PPE costs and what not!).

To top it all, rules are varying from state to state. For example, while Maharashtra had allowed hotels in non-containment zones to reopen at 33% capacity on July 6th, Delhi’s hotel industry was given the green-light to reopen only this week.

But smaller weddings may be the only thing which is working for hotels as of now. 70% of its leads have to do with weddings and related events, says Marriott International. Though this is a dip YoY, it might just help the industry weather the COVID storm. Plus the winter season may save the day.

There is one way in which the pandemic has actually helped the local industry. Couples looking to host destination events are now searching for in-country options given the situation with international travel. So some silver lining. Indeed!

 

The Virus and the Big Screen

For movie theatres, things are more complicated. The lockdown was devastating for the country's 10,000 single-screen cinemas and 3,000 multiplexes. Many shut shop, many laid off staff. Production of films has been halted since mid-March, and the industry could take as much as two years to recover.

Meanwhile, the OTT challenge is more potent than ever before. India has a vibrant movie theatre culture, and this enabled the film industry to fend off the streaming threat for a long time. Movies ran in cinema halls for weeks if not months before being released digitally. This system is now under threat. Many titles were released direct-to-digital in recent months, and if the trend picks up steam it could spell serious trouble for the entertainment industry as we know it.

Which is why cinema owners have been batting hard for a return-to-normal. On May 20th, the Multiplex Association of India put out a plan detailing measures they were considering to ensure the safety of movie-goers.

But reopening cinemas wasn’t on the Government’s priority list. They could be allowed to reopen with limited capacity from September, but even then they face discrepancy of rules across states and the daunting task of convincing consumers that they have left no stone unturned to ensure safety and hygiene.

 

Sanguine Sentiments Abound

So what are the markets betting on? Perhaps ill-placed faith in the obsession of Indians to prefer a  movie theatre experience? Or the strong regional tradition and sentiment in favour of big weddings? Or maybe just the lure of riding on relatively cheap valuations in fundamentally solid businesses...

But one thing should be clear. If a wedding or a movie screening ends up being a source for a local coronavirus outbreak, new Government restrictions or harsher guidelines won’t be the biggest worry for these industries. The biggest worry would be that customers may become further unnerved, thereby becoming hesitant to return for a long, long time.

The stakes are high, and the risks are even higher.

FIN.

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