"Hollywood (Mission Impossible – Dead Reckoning Part One's release this week) coupled with regional movies picking up well while Hindi movies remain a WIP (a key monitorable)," added the brokerage.

The goods and services tax - GST Council reduced the rate of GST on food and beverages earlier this week from 18% to 5%.

The brokerage also stated that it prefers multiplexes to broadcasters and that it anticipates PVR Inox's ad revenues to gradually improve and its spending per head (SPH) to remain robust owing to proactive measures. "With the strong content pipeline, we expect recovery in footfall, if content delivers. We continue to maintain 'buy' on PVR Inox with a target price of ₹1,990," the brokerage said.

According to the brokerage, PVR Inox shares may see 40% upside from the price of ₹1,426. In the past couple of trading sessions the PVR Inox shares has been trading near its 52-week low levels. According to technical analysts, there is no major traction in this counter and any bounce is getting sold into, remains an under performer with 1350 as next support and and 1430 as resistance.

F&B GST rate reduced – no P&L impact, but provides tax certainty

The brokerage in its report stated that the GST rate on food and beverages provided at movie theatres will now be reduced from 18% to 5% and this would not have any impact PVR Inox's profit & loss account.  

According to the brokerage, the company did not take advantage of input tax credit and had already booked F&B GST at 5% with the assumption that food supplied in movie theatres would be treated similarly to restaurant services, which are subject to 5%.

"Currently, the average spending on F&B at cinemas is ~50–52% of ticket price, lower than the global average of 70–75%. Pre-booked snacks will continue to be taxed at 5%. This clarification helps resolve an industry-wide issue and provides tax certainty to the business," the brokerage said.

Hollywood/regional films gaining traction but Hindi still WIP

The performance of Hollywood and regional films is anticipated to improve after a weak Q4FY23. For the collection of Hollywood films, the brokerage anticipates the gap to narrow significantly (compared to pre-covid).

"We expect 'Mission Impossible – Dead Reckoning Part One' releasing this week to mint ₹120–140 million on its opening day given its successful franchise and star cast," the report said.

There are several Hindi films released in August and September, including "OMG 2" (featuring Akshay Kumar), "Gadar 2" (starring Sunny Deol), and "Jawan" (starring Shahrukh Khan). While films like "Satyaprem ki katha" continue to do well at the box office, with a net collection of ₹700 million, Hindi films still struggle with poor content. Additionally, on July 28, 2023, the movie "Rocky aur rani ki prem kahani" starring Ranveer Singh will be released.

Q1 some positivity

The average ticket price (ATP)/SPH is expected to increase by 2.5%/5% sequentially in Q1FY24, according to the brokerage. An industry rebound is likely if high-quality content, particularly for Hindi films, takes the stage. With that, 'PS2' and 'The Kerala Story' were well received.

"We expect both multiplexes and OTTs to coexist due to two months of exclusivity and cut in content budget by some OTTs. PVR Inox is expected to spend ₹8–8.5 billion on adding movie screens and is sprucing its menu offerings (especially at Inox)," said the brokerage.