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Multiplexes: A decent show

LiveMint logoLiveMint 03-10-2017 Pallavi Pengonda

The shift to the goods and services tax (GST) is expected to be positive for multiplex firms PVR Ltd and Inox Leisure Ltd. Analysts expect these firms to gain about 150 basis points in their operating profit margins. The key positive is that firms can avail of input tax credit on fixed costs such as rent, common area maintenance and so on.

The GST rate for tickets costing over Rs100 has been fixed at 28%, which is discouraging given that the entertainment tax is in a similar range for these firms. However, the industry was expecting a flat GST rate of 18% on ticket sales and the fact that the rate came in higher was disappointing.

Nitin Sood,chief financial officer at PVR, says, “The impact on cinema industry is expected to be hugely negative with profitability of the cinema industry in several states being impacted negatively.” However, big cinema chains with presence across multiple states may be able to balance it off, he adds. On the other hand, tax rates on food and beverages (F&B) will move up from an average of 12% earlier to 18% under the GST regime, which again is negative.

But the negative impact of F&B tax rates is expected to be set off by input tax credit, thus resulting in some margin boost for multiplexes. Any price hikes will be worth keeping a tab on, as that will help determine the extent of improvement in the profit margin.

Sood says a true assessment would, however, be possible only after six months.

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