The Karnataka government has proposed a price cap of ₹200 for movie tickets, a move that has been tried before in 2017 and faces legal challenges. Previous attempts exempted special format screens and were overturned by High Courts and the Supreme Court. Even if the price cap is enforced, the impact on revenue for companies like PVR and Inox would be minimal, representing only 0.28% of revenues.
On the positive side, the box office collection in Q4 is showing signs of improvement, with ₹2,000 crore in January/February alone. This, coupled with a strong pipeline of movies, outweighs any concerns over the price cap. The recent correction in stock prices was likely technical and the outlook is now positive. The return of big banner movies, a better movie pipeline, and higher disposable income due to income tax relief should support occupancy levels.
With reasonable valuations at 9x EV/EBITDA, there is limited downside for investors. These factors make a strong case for buying PVR and Inox stocks.
