Inox predicts suboptimal operations in future due to lower discretionary spending

It has enough liquidity to fund operations for the next six months.

MUMBAI: Multiplex chain operator Inox Leisure Ltd was amongst movie chains that were badly hit due to the pandemic. Nearly three months later there is no sign of when cinema halls will resume functioning. Inox said, in a BSE filing, that to ensure smooth functioning of operations, Inox has cut costs across all the functions and departments. 

It has strengthened engagement with business partners, developers and distributors and producers. It requested the state and central government for support while invested more time in planning in order to utilise its resources better resumption of operations.

The company has increased liquidity by adding additional lines of funding through short/ long term debts. The company's management believes that these certain measures ensure that the company has sufficient liquidity to fund the business operations for at least the next six months and will further add liquidity by the additional term debts from banks. For now, it has enough liquidity to continue its operations and does not expect to face any liquidity crunch.

INOX believes that normalcy could be gradually restored during the financial year ending 31 March 2021. Gradually, over time, it will be able to resume and continue its operations for the foreseeable future.  However, it will be unable to operate at optimal capacity even in the future, considering social distancing norms imposed by the government.

Inox highlights that it has adhered to all recommended precautions/guidelines in its operations, which includes sanitisation and hygiene, providing work from home facility to all employees, maximising audio and video-conferencing and minimising contact. It also closed employee travel and followed all government directions on the subject. However, it points out that once the lockdown ends, the company will be able to open all its offices, cinema halls adhering to the guidelines as specified by the government and will comply with all safety measures to safeguard its stakeholders from Covid2019.

Its worry is that there could be future impact on its operations if there is a prolonged lockdown situation, inability to operate at optimal capacity due to distancing norms and customers’ change in priorities and postponing discretionary spending.

Cinema chains tend to have added products and services that go along with its main movie offering. Inox expects there to be pent-up demand for its products and services but it could estimate the amount. For Q4 2020, it saw, loss after tax of Rs 2 crore.

Apart from this, the company has performed a sensitivity analysis on the assumptions used and based on economic information and assessment, with its help the company expects to recover the carrying amount of these assets. The report also mentions that it will continue to closely monitor any material changes to future economic conditions.

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