Pyramid Saimira Theatre Ltd.

Background:

• Pyramid Saimira Theatre Ltd. (PSTL) was incorporated in June 1997 as ‘Pyramid Films International Pvt Ltd’. It was converted into a Public Ltd. company in August 2000. Subsequently its name was changed to the present in August 2004.
• PSTL was initially engaged in the production of Tamil films and releasing them on various modes including theatre. Besides this, the company was engaged in procurement of other film contents and exporting the same. The company has also exported television software to various countries such as Singapore, Malaysia, Mauritius, France and United Kingdom.
• PSTL has produced 10 films, however, in 2004 the company took a strategic decision to discontinue the film production line and decided to concentrate on exhibition sector, more specifically in the field of ITES to exhibition sector.
• The company is in the process of creating a nationwide chain of theatres under its management and operational control. The project has been christened as the ‘Mega Digital Theatre Chain’, launched in November 2005.
• Promoter’s shareholding pre issue is 69.26%. Post issue shareholding is yet to be ascertained as Promoter’s contribution to the issue has not been announced.

Object of the issue:

• To create a theatre chain having a tie up with theatres and multiplexes on long lease and invest in infrastructure up-gradation of the theatres.
• To convert theatres into digital exhibition systems by installing digital projectors, servers, VSAT terminals and such other audio & video equipments as needed.
• To invest in a central network operating system control center which will enable service provisioning for and including content conversion, transmission, rights management, theatre management & networked collection / revenue management.
• To meet expenses of issue and general corporate expenses.

Strength:

• PSTL is having presence in all categories of theatres including mall, multiplexes, cine-plexes and standalone theatres. It has been acquiring theatres on long-term leases and improving their infrastructure to bring it on par with modern standards to offer a high quality viewing experience.
• The company is in the process of establishing an integrated network operating center, which will convert films into digital formats and transmit them using satellites to various theatres across India in a secured encryption mode. This would exhibit films without a physical print. This process will save Rs.60,000 – Rs.70,000 per movie per theatre and approximately save Rs.20 lakhs per theatre per annum.
• PSTL would create a vertically integrated theatre chain by moving a step up the value chain and taking over the responsibility of distribution of films. This will create a content supply chain through agglomeration of content and the elimination of intermediaries, thus saving costs.
• Bennet, Coleman & Co. (BCCL) has subscribed to 5 lakh equity shares of the company at a price of Rs.80 per share for 2.52% of pre issue share capital. The company has also entered into an advertising agreement with BCCL wherein PSTL has agreed to place advertisements of its products, services and brands amounting to Rs.400 lakh in print publications and non-print media of BCCL.
• Total income increased 70.96% from Rs.291.89 lakhs in FY05 to Rs.499 lakhs in FY06. The company has achieved over FY06 revenue in the first 6 months of FY07 i.e. Rs.5,253 lakhs as on September 30, 2006.
• Similarly, Net Profits of the company increased exponentially to Rs.171.54 lakhs in FY06 from Rs.1.05 lakhs a year ago. 185.43% of profits of FY06 have been attained in 6 months ending September 30, 2006 at Rs.489.63 lakhs.

Weakness:

• The technology being used by PSTL for transmitting and exhibiting films is unique and not tried and tested. The company proposes to use a satellite based distribution mechanism of films, which is relatively new. Besides, it is exposed to risks such as satellite link failures, hardware and software failure of the servers, delays in conversion of the film negatives into digital formats and other such risks, which could lead to delays in distribution of the films and other content to the theatres in the chain.
• Out of 148 screens in the chain, 110 screens are located in Tamil Nadu. Currently PSTL predominantly exhibits Tamil language films with a comparatively lower number of Hindi and English films being screened. Thus the company’s market is currently restricted to the Tamil speaking market and is not completely diversified.
• The company faces competition from some of the large and established players in the industry like PVR, Inox Leisure, Adlabs.

Valuation:

• PSTL intends to raise Rs.84.44 crore from the issue for a project cost of Rs.111.19 crore.
• Income of the company has grown at a CAGR of 56.97% from Rs.82.19 lakh in FY2002 till FY2006. Similarly, net profits have grown at a CAGR of 236.37% from Rs.1.34 lakh during the same period.
• Post issue EPS, annualized for September 30, 2006 results, will be in the range of Rs.3.33 – Rs.3.46, while P/E will range from 26 – 29 for a price band of Rs.88/- to Rs.100/-. Industry average P/E is 108.55.
• Net worth of the company is Rs.19.35 crore in FY06 and Rs.39.4 crore for six months ending September 30, 2006. Return on Networth is 8.86% and 12.43% respectively.