Why Any Food Pricing Curbs Will Impact Multiplexes
The revenue multiplexes earn by selling everything from samosas and popcorns to colas and milkshakes faces a potential risk.
Maharashtra plans to come out with a policy to regulate prices after the Bombay High Court agreed with a petition that prices of eatables are exorbitant in cinema theatres, according to a PTI report.
While it involves just one state, it’s still a concern as margins are typically higher on food and beverages as they are sold at a premium to prices outside the cinema halls. India’s largest multiplex chain PVR Ltd. and second-placed INOX Leisure Ltd. get about a quarter of their revenue from the sale of food and beverages. PVR has 25 percent of its screens in Maharashtra while the state accounts for 22 percent of INOX’s properties.
Shares of PVR and INOX were trading with steady gains after volatile opening. Food and beverage is a core revenue stream and an important driver of profitability for multiplexes not just in India but globally, brokerage Kotak Securities said. Ticket sales alone do not cover operating costs, it said.
The latest development stems from a public interest litigation being heard by a Bombay High Court division bench comprising justices S M Kemkar and M S Karnik. The petition challenges prohibition on outside food inside theatres. “The price of food and water bottles sold inside movie theatres are, indeed, exorbitant. We have ourselves experienced it. You (multiplexes) should sell it at the regular price,” PTI quoted Justice Kemkar as saying.
The state government agreed to come out with a policy, details of which are awaited.
The Multiplex Association of India will issue a statement after reviewing what the court said, Nitin Sood, chief financial officer at PVR, told BloombergQuint.
Multiplex owners said the Bombay High Court hasn’t given any verdict yet and it has asked the state government to file its response in six weeks, Kotak Securities said quoting PVR. The association will engage with the government, the brokerage said.
In the advent of any adverse policy or court verdict, they will appeal in the higher court, it said. The brokerage doesn’t expect any significant adverse outcome.
The case is not about pricing but allowing outside food in inside multiplexes, said Rohit Dokania, Research Analyst at IDFC Securities. Since they have the “right to admission reserved”, they can bar outside eatables in cinema halls.