Pyramid Saimira Theatre Ltd

Buy: Pyramid Saimira Theatre Ltd.
CMP : Rs 316
Target : Rs 380 and 420

India's largest theatre chain, Pyramid Saimira Theatres (PSTL) operates in all categories - Film exhibition - multiplexes, cineplexes and single screens;
Film distribution and also in content production for TV / films . Headquartered in Chennai, it commands 44 multiplexes with 113 screens, and 590 single screens. It has now expanded its (film exhibition) business to Malaysia, China and the US. Its film exhibition model is asset-light (all the theatres are rented not owned). PSTL has recently ventured into film production and TV production by launching a subsidiary, Pyramid Saimira Productions Limited

(PSPL). PSTL uses an end-to-end Digital Cinema Solution in few of its theatres, and this is set to revolutionize the distribution and exhibition system in the Indian film industry.

PSTL has got almost 45% of the "Quality screens" under its banner in Tamil Nadu and Andhra Pradesh. As screens in Tamil Nadu and Andhra Pradesh contribute 75% of the South Indian film box office collection, PSTL will benefit from its strategy of entering Tamil Nadu and Andhra Pradesh markets. The cheapest form of entertainment in Tier-I and –II cities is films. PSTL has targeted those cities with Class A and B theatres. Class A theatres would contribute 45% to the domestic box-office collection and Class B 41.8% in FY09. PSTL is the only theatre chain operating in Tier-I and -II cities in south of India and hence has the edge in scaling up the number of screens and capturing a major share of the market.

Wider release format would help producers milk a film in the first three weeks of release by distributing a large number of digitized copies via satellite and also curb piracy to a certain extent. This would create new "first release" theatres, which would fetch revenue from earlier "no revenue" areas for PSTL and also get back some revenue from the piracy market to the main stream benefiting all stakeholders of the film industry. Pyramid Saimira Productions Ltd., (PSPL), its subsidiary would also release about 30 films in the four South Indian States in FY09.

For the year ending Mar-09, the company is expected to do earnings of Rs 23.8 per share [on expanded capital]. At current price of Rs 315, it is available at fairly attractive valuations of 13 times FY-09 earnings. PSTL is well poised to ride the growth prospects of the entertainment industry.

Key Concerns: The company does not have any previous experience of gigantic scaling up of operations and managing a big size business. The film industry is highly dependent on the quality of films ("content"). If the quality of films released in the coming years does not suit audiences' taste, PSTL's net revenue would be hit. This is perceived as an industry risk and is applicable to all producers, distributors and exhibitors.