Occupancy trends key to sense theatre chain PVR's cash flows: Analysts

Company sharply reduces employee costs and rental charges, but has to offer heavy discounts on tickets and snacks

With theatres shut, PVR’s revenues in the September quarter were negligible for a second consecutive quarter. While sales were higher on a sequential basis, screening restrictions meant revenues were down 96 per cent over the year-ago period. Income from movie distribution and non-operating income accounted for the bulk of quarterly revenues. 

As in the previous quarter, the focus remained on cost-control measures. There was a sharp reduction in employee costs and rentals/maintenance charges. While employee costs are down 61 per cent, rent and common area maintenance (CAM) charges were down 86 per cent. These two account for two-thirds of overall expenses. 

Employee count across all functions was down from 11,000 at the end of March to about 6,200 at present, while salary cuts have been between 25-50 per cent. Though unlock is underway, the theatre chain believes occupancy restrictions of 50 per cent will mean there may not be a need to increase employee count. 

The other key cost head is rentals and CAM. For 60 per cent of the 173 cinemas (831 screens), the company has received a full rent waiver for the lockdown period and expects to move towards a revenue share arrangement with most property owners as malls open. The company also got similar waivers on CAM and is hopeful of discounts for the rest of the year. 

The key near term trigger for the stock will be the traction after theatres open. While 70 per cent of its screens have got approval across 16 states and Union territories, reopening in Maharashtra (November 5, outside containment zones) and Telangana, as well as occupancies will be critical as the two states account for over a quarter of screens.

The company expects ticket prices and spending on food and beverages, which are being discounted heavily to encourage footfalls, to increase as new content is released and occupancy rises. While advertising has been a non-starter in the first half of the financial year, it could pickup as demand returns. 

The Street is bullish on PVR’s long-term prospects on expectation of further consolidation, ability to withstand competition from over the top applications and liquidity to deal with cash burn over the next couple of quarters. Though the stock is down 46 per cent from the highs of February, investors should be cautious, given social distancing and near-term cash flow challenges.