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Photo: Mint

Investors should not mind PVR’s higher losses vis-à-vis Inox Leisure

PVR’s fixed operating expenses in Q1 stood at 32 cr per month, better than the guided 40-45 cr a month

With cinemas shut owing to the covid-19 health crisis, revenues of multiplex companies have dried up. The only way out is to reduce costs as much as possible. While both Inox Leisure Ltd and PVR Ltd cut costs sharply in the June quarter, the latter has taken a more conservative approach on the accounting front.

Both companies did not make any cash payments on rentals and common area maintenance (CAM) charges to mall developers during the quarter. PVR has, however, made a full provision for CAM in its profit and loss account.

“The difference in accounting policy in recognizing rental and CAM expenses resulted in reported Ebitda loss of 116 crore for PVR in Q1 vis-à-vis a positive 34 crore Ebitda for Inox," an analyst said, requesting anonymity, Ebitda is earnings before interest, taxes, depreciation and amortization.

“Inox would have reported an Ebitda loss too if it had followed a similar accounting policy; PVR’s conservative accounting is one of the reasons it enjoys a valuation premium over Inox," added the analyst.

Inox had recognized 69 crore towards reduction of rentals and nil CAM charges for the June quarter. This is when it had written confirmations for a waiver amounting to only 5% of the total amount due. On the other hand, PVR has accounted for rent concessions of only 28 crore in other income for the June quarter.

Further, the company has said that additional concessions worth 54 crore received till date would be accounted in subsequent quarters.

Also note that PVR’s fixed operating expenses during the June quarter stood at about 32 crore per month. This is better than the 40-45 crore per month guidance provided at the beginning of the lockdown.

But with no sign of operations restarting yet, PVR shares are still about 40% away from their pre-covid highs seen in February.

According to another analyst, “PVR is further poised for earnings downgrade given a washout Q2FY21 and no visibility of multiplex opening anytime soon. Sentiments for the stock could remain muted owing to bleak outlook on recovery and footfalls; and high operating and financial leverage will be a drag on overall performance in FY21 and FY22."

Even so, losses may well be contained in the current quarter due to lower costs.

PVR said its fixed cost run-rate for the September quarter is between 22-25 crore a month, lower than the June quarter average of 32 crore. While this is helpful, unless revenues start to flow in, mere cost cutting won’t cut ice with investors.

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