Share prices of several multiplex companies have been falling since the Maharashtra minister stated in the Assembly that there will be no ban on carrying outside food inside the cinema theatres in the state.
If implemented, the moviegoers will be free to carry outside food inside the multiplex from August 1, 2018.
The government also stated that the multiplex owners should be selling food products inside multiplexes at the maximum retail price (MRP) and should not charge any premium over it.
Since the announcement, the share price of PVR, India’s largest cinema exhibition company, tanked around 14 percent on July 13 and is currently trading at 16 percent lower than its Friday opening price.
Similarly, share prices of Inox Leisure and Mukta Arts are trading at 12 percent and 6 percent lower than their Friday opening prices, respectively.
Why Food And Beverages Does It Matter?
Food and Beverages (F&B) is the second most significant contributor to revenue.
These multiplex companies earn a quarter of their revenues from selling food and beverages (F&B) products on an average.
F&B is the second biggest contributor of revenue after box office collections.
PVR Cinemas made Rs 608 crores during 2017-8 by selling F&B items, 27 percent of their overall operating income during the year.
Likewise, Inox Leisure earned Rs 306 crores from F&B, 22 percent of its overall revenue during the same period.
Mukta Arts earned a little over Rs 100 crore from F&B sales, 23 percent of total revenue from its multiplex business in first three quarters of 2017-18.
The numbers for the complete year 2017-18 are not available for Mukta Arts.
The F&B segment is not only a significant contributor to revenue, but it is also a high growth potential.
For instance, F&B spend per head as a percent of the average ticket price has been continuously increasing for PVR Cinemas from 28 percent in 2011-12 to 41 percent during 2016-17, according to PVR’s investor presentation (June 2017).
F&B is also a high margin business for Multiplex companies
For multiplexes, F&B business is not like any other restaurant business, it's a very high margin business.
According to the latest investor presentation of Inox Leisure, the per screen F&B revenue is around Rs. 78 lakh and the operating cost for the F&B segment is only Rs 20.4 lakh, this translates into an operating profit margin of around 75 percent.
Similarly, for PVR, the gross margin on the F&B segment is about 75 percent during 2016-17, according to the investor presentation of the company.
Why is Maharashtra So important?
Around 25 percent of the total screens for these multiplex chains are in Maharashtra.
PVR had 157 screens in Maharashtra out of a total 625 screens across India as on March 31, 2018.
Inox had 118 screens in the state out of a total of 496 screens and Mukta Arts, 11 out of 55 screens are in Maharashtra.
So if the ban gets lifted, it's going to have a significant impact on the revenues of these multiplex chains.
First Published: IST