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Stock recommendation: PVR — Reduce — TP Rs 1,425
Publish date: July 18, 2018
F&B profitability at risk
The Maharashtra government wants to give moviegoers the choice to carry outside food to multiplexes. This matter, if approved by the court, is likely to eat into PVR’s profitability.
(This matter is currently being heard in the court. You can read about the petition’s key argument and the multiplex association’s counter-argument in the ‘full report’ below)
Key Highlights
- Currently, PVR’s food and beverage segment in Maharashtra accounts for 9% of revenues.
- If outside food is allowed by the court, PVR will stand to lose up to Rs 1.2 million in revenues. That’s because the PVR multiplexes will have to compete with food courts present in malls. Food courts usually have a cheaper F&B menu compared to multiplexes.
- This issue affects Maharashtra only. However, if this issue is approved by the court, the rest of India will follow suit and file petitions.
Outlook
We feel it is too soon to panic because the Supreme Court has previously ruled in favor of restaurants in similar cases. But if the court does let outside food to be allowed in multiplexes, there will be ramifications for other hotels and restaurants.
An unfavorable ruling will eat into PVR’s revenues, but the company can offset this by increasing ticket prices (Rs 75-100) and providing complimentary F&B combos.
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