In this week's wrapup, we talk about PVR INOX’s monthly movie pass, telecom companies’ big tax bill and more.
For the markets edition this week, we dive into the house of brands that Honasa Consumer Ltd. has built before its IPO opens. You better know the company as Mamaearth. Click here to read the story.
Meanwhile, here’s a recap of what we wrote over the week.
Subscribe to PVR Inox?!
12 crore! That was the number of people who watched at least one movie in the theatre in India in 2022. Yup, it’s about a tenth of the population and may seem like a big number. But it’s still 16% lower than the pre-pandemic levels.
Now, cinema houses want to pull people back to the big screen faster. And PVR INOX seems to be taking the lead. A couple of days ago it announced a monthly movie subscription plan where you can watch 10 movies a month for ₹699, Monday to Thursday with some strings attached, of course. So in Monday’s newsletter we see if this strategy could be a gamechanger for the world’s fifth largest multiplex chain. You can read it here.
Telcos are in a tax soup
The Supreme Court just dropped a bomb for India’s telecom companies. A recent ruling could translate into a tax burden worth a whopping ₹14,000 crores! The reason?
An accounting treatment that became a bone of contention between Bharti Hexacom, a telecom company back in the early 2000s.
See, in the accounting world expenses can be treated in two ways. One way is to treat it as a revenue expense or an operating expense that includes salaries, utility bills, machinery maintenance. Basically all costs incurred by a business to keep its operations ticking. And this can be reduced from the revenue a company makes to determine how much tax it should pay since tax is calculated only on the money leftover after these deductions.
Another way to deal with expenses to treat them as a capital expenditure. Think of this as the money spent to acquire things that helps the company actually make profits. It could be things like land, buildings and machines. These expenses cannot be reduced from revenues. But according to the rules a company can write off the initial cost of buying these capital assets over a period of time in instalments.
But Bharti Hexacom annoyed the tax authorities when it treated a ₹12 crore license fee expenditure as a revenue expense and managed to significantly reduce its tax liability. The matter went to court and two decades later, the top court rules against it. So on Wednesday, we wrote about the whys and hows of the matter. You can read it here.
Are Indians struggling to pay bills?
“Net financial savings of Indian households is at a 50-year low.”
That one headline sent everyone into a tizzy last month. See, the net financial savings is simply the difference between the investments made in financial assets such as bank deposits and the loans taken. So if this band — calculated as percentage of GDP — is narrowing, it could indicate that people are earning less, they’re saving less money, and taking loans to fund their consumption.
But the government was quick to quell everyone’s anxiety. It pointed out that while people’s financial savings might be lower, they were actually investing more in physical assets — such as housing. Even SBI’s economic research team mirrored the same sentiment. But does that mean that we need to be stress free about the increase in loans people are taking from banks? We took a look at it on Thursday. You can read it here.
Dear Bill — should we worry about inflation or a recession?
Bill Ackman is a big deal in the investment world. He’s an activist investor. That means he buys shares in a company, controls a fair bit of a firm, and then forces companies to make changes he thinks it needs. But also, he’s made quite a ton of money buying and selling bonds. For instance, he bet many companies would default on their borrowings during the pandemic. He bought a sort of insurance against this. And netted $2.6 billion.
So yeah, when he talks (or tweets), people listen. And a couple of tweets was all it took for him to pocket a cool $200 million while he flipped from worrying about inflation to a recession in just 2 months since August, 2023. We explained how he did it in our Friday’s newsletter. You can read it here.
We hope you enjoyed our weekly wrapup. Have a great weekend!
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