PVR Ltd Research Report By Motilal Oswal

Benefits from reduction in effective indirect tax rates and availability of input credit … PVRL is currently subject to multiple indirect taxes: (a) entertainment tax of 26.9% in FY16 on net box office collection (ticket sales constituted ~54% of FY16 revenue), (b) service tax of 14.5% on advertising revenue (~11% of FY16 revenue), and (c) blended VAT of 8% on F&B revenue (~25% of FY16 revenue). Service tax of ~INR760m paid on rent, maintenance and other expenses relating to properties was expensed out in FY16, as credit wasn’t allowed. Multiplexes largely operate through leased premises and incur significant lease rentals and infrastructure costs, on which they pay service tax. However, in the absence of significant service tax/excise liability, they are unable to set off the service tax paid by them. Once all taxes are subsumed under GST, the credit of tax paid on rentals and infrastructure services will be available even against tax collected on box office collections and F&B revenue. This will lower operational costs and drive margin expansion.