With hardly any revenues in Q1, lower costs didn’t rescue PVR materially

With cinemas shut owing to the covid-19 health crisis, revenues of multiplex companies have dried up. PVR Ltd’s June quarter results show consolidated revenues have dropped by a whopping 98.6% year-on-year to ₹12.7 crore. Sale of packaged popcorn and distribution of digital movie rights helped revenues.

In this situation, PVR had no choice but to focus on curtailing costs. It said its monthly operating expenses during the June quarter stood at about ₹32 crore per month. Note that this fared better than ₹40-45 crore per month guidance provided at the beginning of the lockdown. Overall, PVR’s fixed operating expenses declined by 78%, which was evidently far slower than the rate of decline in the revenues.

Like smaller peer, Inox Leisure Ltd, PVR too has not made any cash payment on rentals and CAM charges to mall developers during the lockdown. CAM is short for common area maintenance. Although PVR has made full provision for CAM in its profit & loss account and adopted a conservative accounting practice.

According to an analyst requesting anonymity, “The difference in accounting policy in recognising rental and CAM expenses resulted in reported Ebitda loss of Rs116 crore for PVR in 1Q vis-à-vis a positive ₹34 crore Ebitda for Inox." Ebitda is earnings before interest, tax, depreciation and amortisation; a key measure of profitability for companies. Of course, Inox would have reported an Ebitda loss too if it had followed a similar accounting policy, added the analyst.

Further, PVR also got a rent concession worth ₹29.8 crore during the quarter. According to another analyst, “Adjusted for the benefit of ₹29.8 crore pertaining to waiver of rental expense, PVR’s pre-tax loss was ₹381.6 crore."

Shares of PVR were trading flattish in early trade on Tuesday. In general, lack of visibility on revenues has kept sentiments muted for multiplex stocks including PVR. Small wonder, the shares are still as much as 38% away from their pre-covid highs seen in February. With no sign of reopening of the multiplexes yet, the current quarter is a washout too. Also, it is uncertain how footfalls would pan out after the multiplexes restart operations as movie watchers may refrain from visiting the theatres to avoid catching the virus.

In the meanwhile, PVR is trying its best to curtail costs. It said fixed cost run rate for the current quarter is between 22-25 crore a month, much lower than the average of ₹32 crore seen in the June quarter. Sure, this is helpful but unless revenues start to flow in, mere cost cutting won’t cut ice with investors.