Asia Economy

Top Indian cinema chain warns it may run into issues if virus outbreak isn't under control in three months

Key Points
  • The extended lockdown in India due to the pandemic has cut off revenue streams for the country's largest cinema chains. 
  • PVR, which operates more than 800 screens across India and Sri Lanka, is focused on managing liquidity instead of profitability.
  • If the situation isn't under control in three months, then liquidity can become a problem, Chairman Ajay Bijli said.
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Indian cinema chain PVR will not take any 'knee-jerk reaction' due to coronavirus lockdown

The extended lockdown in India due to the coronavirus pandemic has cut off revenue streams for the country's largest cinema chains. 

If the outbreak is not under control within the next three months, then one of the largest cinema operators in India, PVR, is likely to run into problems without government assistance, according to its chairman and managing director. 

"Our fixed costs are controllable and noncontrollable," PVR's Ajay Bijli told CNBC's "Street Signs" on Wednesday.  PVR says it operates around 821 screens in 70 cities across India and Sri Lanka. 

Controllable costs include electricity and water bills, which go down when venues are not being used, he explained. Noncontrollable costs include things like rent, where many of PVR's agreements have "force majeure" clauses that exempt the company from contractual obligations. 

"It's more about liquidity management than profitability. It's difficult. The revenues are zero," Bijli said, pointing out that no one could have prepared for the pandemic. "I think the idea is only to be able to see through it, that it doesn't go beyond 2-3 months because after that liquidity can become a problem as well."

Liquidity is a company's ability to meet its current debt obligation using existing assets. 

Vehicles drive past the closed PVR Plaza cinema complex in New Delhi on March 13, 2020.
Prakash Singh | AFP | Getty Images

PVR shares are down more than 47% year to date. The stock traded down 3.68% Wednesday afternoon. Other Indian cinema chains are facing similarly low levels of investor confidence.

India is one of the biggest cinema markets in terms of admissions. Single-screen cinemas have been replaced by large multiplexes, which were some of the first businesses asked to close as India prepared for a lockdown in late March.

Even after the virus outbreak is under control, it is possible that people may not immediately flock to the theaters. 

Bijli said while the company has liquidity at the moment, it still needs government support through measures like a deferment of the goods and services tax or wage subsidies. He added that PVR will not undertake any knee-jerk reactions such as laying off staff or sending them on unpaid leave. 

"Unfortunately, if we find that we are not getting any government support, and the occupancies when we open are going to be less, then I don't think we'll have any choice but to start asking for leave," he said, adding, "That will be really, really sacrilegious."