With zero revenue, PVR and INOX have long road ahead before a full house returns

In the January-March quarter, INOX incurred a net loss of Rs 82.15 crore, while PVR reported a net loss of Rs 74.61 crore.
Written by :

Watching films has been a part of the lockdown for many with the luxury of staying cooped up at home but returning to the theatrical experience still seems far off. The Centre’s guidelines for coming out of the lockdown talks of possibly opening up theatres only in August.

Having to shut shop for the past three months, two of the country’s biggest theatre chains PVR and INOX have seen their revenues plunge to zero, and unlike other sectors that have started opening up, the near future for theatres remains bleak, at least till the third quarter.

PVR and INOX announced their results in the beginning of the week, with both starting the January-March quarter strong but struggling towards the end due to the lockdown. They began closing screens starting March 11.

Over the past two months, the companies’ shares hit a 52-week-low when a few films moved to releasing directly on OTT platforms. Prior to announcing the results of the March quarter, the shares of both companies had risen, and slid soon after results were announced.

INOX incurred a consolidated net loss of Rs 82.15 crore for the fourth quarter. For the same period, PVR reported a consolidated net loss of Rs 74.61 crore.

Siddharth Jain, director, INOX Group said that the FY21 is likely to be rough, since the first quarter was a washout. “I would rather focus on FY22 now,” he said.

While announcing results for Q4 of FY20, INOX said that while its footfalls had gone up by 6%, advertising revenues had taken a hit because of the economic slowdown. This was further worsened by “building COVID-induced fear psychosis towards the end of the FY20,” the company said. Whenever theatres open up, advertising revenues are likely to plateau, or even shrink.

For the quarter ending March, food and beverage were down 24%, while advertising income had declined by 20%. Overall total revenues went down from Rs 484 crore in Q4FY19 to Rs 370 crore in Q4FY20.

Similarly, for PVR, the company said it began closing its screens in accordance with the order passed by various regulatory authorities from March 11 onwards. For the month of March, the company took a one-time write off of perishable inventory of Rs 183 lakh in March 2020. This, it said, was on account of “spoilage due to closure of cinemas pursuant to COVID-19.”

Cutting costs

PVR and INOX both invoked the force majeure clause, or the clause for unforeseen conditions, to not pay rents starting April due to the lockdown as revenues came to a standstill.

Both multiplexes have also put their capital expenditure plans on hold. PVR said that any decision on restarting capex will only be taken once cinemas are open and it sees occupancy back at cinemas. The first priority will be to finish projects which are 70-80% complete.

INOX too, will only restart its capex cycle, currently paused, once it resumes normalcy. It will defer most of it to FY22, where its capex outlay will increase, and it will look to add a significantly higher number of screens than usual.

PVR and INOX also had to put in place several cost cutting measures to ensure liquidity.

PVR reportedly put in place pay cuts. The senior management have taken a 50% cut from March 16, till it resumes operations, while the rest of the company has taken a 25% cut across the board. This, the company said at the time, brought down its people cost by about 35% from the existing level.

INOX said in a regulatory disclosure on Tuesday that it cut costs across all the functions and departments and is planning to utilise its resources better post resumption of operations. It also increased liquidity by adding additional lines of funding through short/ long term debts. This, the company’s management believes will ensure it has enough liquidity to fund business operations for at least the next 6 months.

Theatres vs OTTs

Even as they were faced with the question of whether people will return to theaters, and if there will be content to run, they got into a tussle with producers after seven films decided to go directly for an OTT release, rather than wait for a theatrical release. Both chains had said that they were “disappointed” with producers choosing to go for an OTT release. This did not go down well with the Producers Guild of India, who said that it was disappointing to see “abrasive and unconstructive messaging from some of our colleagues in the exhibition sector”.

PVR, however, sounds convinced for now that more producers will not take the OTT route, as losing out on theatrical earnings does not make economic sense. They called this period aberrative.

“There is too much at stake for them (producers and exhibitors) to let go of theatrical revenue. It still contributes more than 50-70% of overall pie of any content and if you go straight to OTT, you are letting go of overseas collection and letting go music rights - this is a lot for some to forgo,” he said during an investor call.

Looking into the future

For when theatres do open, the Multiplex Association of India released a safety plan that they could follow, but safety concerns are most likely to keep customers at bay. While PVR and INOX are banking on pent up demand, it remains to be seen how many people will be willing to go to a theatre for the experience.

INOX foresees a change in consumer habit, where people are likely to go to the movies during the week, or on a Sunday afternoon, when the crowd is lesser. “So low occupancy days will turn into medium occupancy ones,” Siddharth Jain, director, INOX Group reportedly said.

Kamal Gianchandani, PVR’s CEO echoed the same belief. He said that earlier, many big releases would see large audiences initially, which would taper off in four to five days. The company expects a change in this behaviour where people will self-select and distance themselves from weekend to weekdays. For weekdays, it is a known fact that cinemas operate at very low occupancies.

From the perspective of the producers and distributors, PVR Chairman Ajay Bijli said during the investor call that people would first like to see the safety protocols that are in place, based on which confidence will be built, and there will be word of mouth. When this spreads, mid or big size films can be released. This situation is also being seen as an opportunity, as there have been no releases for three months.

Karan Taurani, the vice-president of research with Elara Capital told Business Standard that occupancy levels will be low for a few months once things are opened up and will improve from there on. The report added that he expects occupancy to be around 25-30% for 6-8 months once things open up, as opposed to pre-COVID levels of 35-36%. 

Related Stories

No stories found.
The News Minute