Pyramid Saimira Theatre (PSTL), promoted by V Natarajan, P S Saminathan and N Narayanan, has produced 10 films since inception. It has since taken a strategic decision to concentrate on film distribution and exhibition. The company set up its first theatre in September 2005 and thereafter embarked on the mega-digital-theatre-chain project in November 2005. Till filing the prospectus, PSTL had tied up with 148 screens with 90,906 seats in existing theatres in Tamil Nadu, Andhra Pradesh and Karnataka. The company’s project is the first of its kind in the world.
The objective of PSTL is to have presence in all categories of theatres including malls, multiplexes, cineplexes and standalones across the country in Tier I, II and III locations through long-term leases, improvement in their infrastructure and conversion into digital theatres. The company is establishing an integrated network-operating center to convert films into digital formats. Digital theatres will also function as the delivery medium for other entertainment content and educational centres.
PSTL has tied up with Spirit Global Constructions Pvt. Ltd. for managing the operations of 60 malls in Punjab and Himachal Pradesh. It has a walk-in agreement with Swatantra Land and Finance to manage the operations of 22 malls in Haryana and 20 malls in Rajasthan. The malls will be fully complete with all facilities such as multi screens, food courts, entertainment zones, retail space, and parking space.
Strengths
- PSTL’s strategy of digital distribution of films in a large number of theaters simultaneously as well as improving the film viewing experience will help it to get maximum revenues from the first week of release of new film. Shelf life of films has reduced significantly and showing new films every week/fortnight is the key to success in distribution and exhibition.
- The business model is an asset-light model. PSTL has signed a pay-per-view contract with Value Media Pvt. Ltd. for 1,000 theatres for equipment and services for the digital cinema system thereby avoiding a capital expenditure of Rs 160 crore. Also, all the standalone theatres, malls, multiplexes and cineplexes are on long-term lease or revenue sharing model, further lightening the capex burden.
- PSTL has the first-mover advantage in digitisation of theatres and digitisation of films. The company will exhibit films and other content in digital mode without physical prints. This will the company Rs 60,000 – Rs 70,000 per movie per theatre and approximately Rs 20 lakh per theatre per annum.
Weaknesses
- Since June 2006, promoters have bought and sold substantial number of shares at various prices. Pre-issue, investment advisor Nirmal Kotecha’s equity stake at 41.92% is higher than promoters’ stake of 27.34% (which will go down to 22% post-IPO). This is quite low.
- PSTL is exhibiting films only for about a year. The company plans to scale up in a very big way in a short span of time. It has plans to cover 1,550 locations and manage 2,000 theatres by 2010. Negotiating, handling and managing a large number of small theater owners spread all over India will be a highly demanding job.
- PSTL is a new player in the exhibition/distribution industry and competes with other established players, some of whom have been operating for a very long time and also have deeper pockets as compared with PSTL. Its capability in Hindi film distribution is unproven. In digital distribution, the company may have to contend with the Anil Dhirubhai Ambani group, which is planning to enter the field using Reliance Communications’ optic fiber network. Also, increase in the price of content on account of competition may restrict profit.
Valuation
At the price band of Rs 88 - Rs 100, the annualised EPS for the half-year ended September 2006 on post-issue equity works out to Rs 3.3 - Rs 3.5 and PE works out to 26.4 – 28.6. TTM PE of Entertainment/Electronic Media Software is 39.7. Companies in similar business such as Adlabs Films has a PE of 36.4, and Inox Leisure 44.9. However, the business model of PSTL is different from its competitors. The company’s project is exciting and can produce fast growth at a lower capital cost (which is what stock market fancies), provided it gets executed as planned. The job will be highly demanding.