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Pyramid Saimira Theatre - Reduction in theatre portfolio

Keynote Capitals presents update on Pyramid Saimira Theatre Ltd., which has reduced its theatre properties and decided to curtail its expansion plans, in view of the slowdown in the entertainment sector, stemming largely from seemingly reducing disposable income in the hands of consumers.

PSTL has decided to cut short its expansion plans, which includes closing down 25 screens in western India and 8 in northern India, discontinuing distribution of Hindi films and not going ahead with acquisitions in the UK and Europe.

However, the scale-down of operations under which PSTL recently closed down approximately 20-odd screens in Tamil Nadu and Karnataka, is a cause for concern in the near term. We believe PSTL currently operates around 760 screens, down from 802 as of June 30, 2008.

PSTL has announced plans to modernise and renovate 250 screens in south India, with an investment of Rs200Cr over the next 18 months. We believe once the modernisation is completed, both the average ticket price and average revenue per user including food and beverages would improve, as the modernisation would cover not less than 30% of the screens operated. However, with the modernisation plan likely to get completed only by March 2010, the full benefits will accrue in FY11 only. Therefore the capex of Rs200Cr may in fact put a small strain on the company in the medium term.

In the meantime, in view of the lacklustre scenario for the entertainment industry and the scale-down by the company, we have sharply cut our revenues and earnings estimates. Based on our revised estimates, the stock trades at 6.8x FY09E and 6.4xFY10E, based on stand-alone numbers and 4.8x FY09E and 4x FY10E, based on consolidated numbers.

However, in our view, most the negatives appear to be factored in the price. We retain our Buy rating.