A Mint news report on 30 June said that Inox Leisure Ltd is in talks to buy Satyam Cineplexes Ltd. Through the deal, Inox Leisure intends to strengthen its presence in north India where PVR Ltd, India’s biggest multiplex operator (post-Cinemax acquisition) has a strong presence.

In its total screen portfolio, Inox Leisure has the lowest number of screens in the northern region. Indeed, consolidation is going to be the name of the game for the multiplex industry, say analysts, adding that it will give companies bargaining power. The good news is that multiplex stocks are already a hit so far this fiscal year. PVR and Inox Leisure stocks have gone up by about 40% till now.

What’s more, expansion plans, decent March quarter numbers and the expectation that the goods and services tax (GST) will see the light of the day are reasons that will keep the multiplex stocks in fashion for some more time.

Multiplex companies hope that the implementation of GST will help in improving their profitability, as the entertainment tax burden could come down. If this tax is subsumed into GST, then entertainment tax rates are expected to be lower than the average rates the multiplex companies pay currently.

Also, the total indirect taxes paid on inputs in 2013-14 by PVR and Inox Leisure were about 50 crore and 20 crore, respectively, wrote Standard Chartered Plc analysts in a note on 18 June, adding, “we understand that if GST gets implemented, these payments could be offset against the entertainment tax that these companies pay to the governments—leading to significant cost savings for the industry."

Meanwhile, both companies announced decent earnings in the three months ended 31 March in an otherwise seasonally weak quarter. PVR saw good revenue growth and an improvement in operating profit margin whereas Inox Leisure reported a net profit for the March quarter against a loss in the same period last year.

Both companies are looking to add many screens in the current fiscal year, which will boost revenue. Inox Leisure is considering an addition of about 83 screens and PVR intends to add 60-70 more screens in this fiscal year. At the end of last fiscal year, Inox Leisure and PVR had 310 screens and 421 screens, respectively.

Finally, while all these factors will keep sentiment upbeat for the above stocks, it’s worth remembering that ultimately, much depends on the movie content pipeline.

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