Indian Tax Solution
Lower GST and a pipeline of films high on the theatre-experience, in Hindi, regional languages and English, have prompted analysts to enhance the earnings outlook for leading multiplexes.
According to various estimates, analysts have revised their EPS estimates for PVRNSE 2.78 % and Inox LeisureNSE 5.35 % in the range of 8-15 per cent for FY20.
The government reduced the GST on tickets priced above Rs 100 to 18 per cent from 28 per cent. And for tickets priced below Rs 100, the GST is reduced to 12 per cent from 18 per cent.
Two possibilities emerge in this situation. Either multiplexes would pass on the benefit of reduced GST or they might raise ticket prices. In both situations, multiplexes stand to gain. Increasing average ticket prices - in the range of 5-10 per cent - would boost revenues. In the past three fiscals average ticket price has risen in the range of 2-6 per cent.
On the other hand, passing on the benefit of lower GST would boost footfalls, which would help increase food and beverages revenues and in-cinema advertising as more eyeballs allow theatre owners to negotiate better deals with advertisers. Analysts believe that for at least the next six months, multiplexes would pass on the benefit of GST, which would help increase footfalls.
Furthermore, footfalls are likely to rise in the coming months given the large number of theatre-experience films hitting the screens. Over the past few years, producers have been increasingly backing films that work largely on theatre experience or on the sheer strength of novelty of content (biographies, unique concepts, and films based on history or actual events). Producers have realised that audiences require a concrete reason to visit the multiplexes as watching films in theatres is gradually losing its relevance given the high costs and availability of other sources of engaging entertainment.
In 2019, the Hindi pipeline would include Manikarnika, Kesari, Takht, Uri: The Surgical Strike, Brahmastra, Panipat, Stree 2, and Taanaji: The Unsung Warrior. Hollywood films due for release this year include Avengers Endgame, Captain Marvel, Aladdin, Godzilla, X-men, and Once Upon Time in Hollywood.
On the valuation front, according to Bloomberg, the stocks of PVR and Inox Leisure are trading at EV/ EBIDTA of 12.5 and 9, respectively, based on FY20 earnings. This is quite attractive compared to the past threeyear average EV/EBIDTA of 17.7 for PVR and 14.5 for Inox.
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