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The reduction in goods and services tax (GST) rate on movie tickets bodes well for multiplex stocks, analysts said in their research note.
They believe that the move by the government gives them flexibility of pricing mechanism, which is a positive.
GST on movie tickets costing more than Rs 100 has been reduced to 18 percent from 28 percent, while tickets lower than Rs 100 has been reduced to 12 percent from 18 percent. The announcement was made on Saturday after the GST council meeting.
The reduced rates come into effect from January 1, 2019.
“We believe that reduced GST would be a big positive for both PVR and Inox Leisure. The GST on average ticket price (ATP) is likely to come lower by 9-9.2% for both the companies,” an analyst with IDBI Capital said in a statement.
Further, the expert also said that the impact of lower GST means hike in revenue and EBITDA estimates for these companies.
IDBI Capital expects PVR and Inox to partly pass on the benefit of lower GST to customers. Importantly, it provides them flexibility on the pricing front as per the performance of content.
IDBI Capital's Stock calls: PVR | Rating: Buy | Target: Rs 1,665; Inox Leisure | Rating: Buy | Target: Rs 265
Meanwhile, experts at Narnolia Financial Advisors believe that the move to bring GST to 18 percent for tickets above Rs 100 is a positive for multiplex stocks.
“The move would help the multiplex owners like PVR and INOX, as post GST, particularly in states where entertainment tax was much lower before GST, the prices had shot up. India has low penetration of multiplex compare to China and there is ample scope of growth. However, bringing GST to 12% for tickets below Rs 100 will not help much as these listed multiplex players only have 6-8% revenue form that segment,” Shailendra Kumar, Director and CIO of Narnolia Financial Advisors told Moneycontrol.
Long due
According to the Multiplex Association of India, the move was long due and will slash ticket prices by 7-8 percent.
“We felt that there was great injustice done to the sector when we were put in these heavy tax brackets, because watching a movie at a theatre isn’t a luxury. With 2.5 billion tickets sold annually, films, in many cases across India, are the only source of entertainment for the masses,” Deepak Asher, president at the Multiplex Association of India told Moneycontrol’s Tasmayee Laha Roy.
“The moment the reduced tax rates apply to tickets, we will be able to help consumers with cheaper tickets. This will increase footfall and occupancy and get more people to theatres more often,” Asher added.
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