The Maharashtra government intends to allow outside food in multiplexes; theoretically, it can significantly impact PVR’s earnings. The matter is sub-judice; we do not expect an extremely adverse outcome for PVR given several considerations. Regardless, we expect PVR to make the price-value proposition of its F&B offerings more favourable to consumers in view of these events. There is some risk to our estimates. We will track the developments closely and revise our earnings and TP, if needed, as clarity emerges. Maintain our cautious stance.

Maharashtra govt intends to allow outside food and beverages at multiplexes
Maharashtra’s minister of state for food and civil supplies recently announced that the extant law does not restrict outside F&B in cinemas. The government may place a policy document in the HC (which is hearing a PIL on the subject) following which court hearings would commence. Separately, a few media articles suggest that the government may enact a law prohibiting the sale of F&B above MRP at multiplexes though this looks unlikely.

Potential implications and way forward
F&B segment contributes 28/32% to PVR’s revenue/gross profit (GP). Maharashtra accounts for 25% of PVR’s screens. Maharashtra F&B segment would be 9/11% of PVR’s revenue/GP (KIE). Theoretically, allowing of outside food can impact volumes, pricing and profitability of PVR’s F&B business significantly. This matter pertains to Maharashtra but other states may follow suit. In our view, probability of an extremely adverse outcome for multiplexes is low. We believe, if at all outside food is permitted, its consumption may be restricted to the lobby area. In that case, PVR may not see much impact.

Regulatory risks refuse to die down
Regulatory risks remain a key concern for Indian multiplexes as state governments have the power to cap ticket prices and impose a local body tax over 28% GST. Even as PVR has stepped up its game and is likely to race ahead of its competition, we consider the developments on F&B front a dampener for stock price and valuation multiples. Stay cautious.