Perhaps it grew too fast too soon. Pyramid Saimira Theatre Limited, the company now under market regulator Sebi?s scanner in a forged letter case, has seen a meteoric rise and fall in just about 30 months. Having reported an almost 10 times growth in its bottomline and topline in its first full year of operations in 2007-08, the company has now posted losses of Rs 75 crore in the September-December quarter of 2008.
Just as in Satyam the pace of rise possibly got the company into difficulties that finally climaxed with the Sebi interim order of last week. The company had raised $90 million in 2007 through foreign currency convertible bonds at a 1.75 % rate, which will mature in 2012.
In mid 2006, the company had roped in Nirmal Kotecha, a stock broker cum investor, to pick up a little over 40% stake in Pyramid?more than the promoter?s share for less than Rs 10 crore.
The Chennai based company had started off as a small time, low-cost film and content production and distribution company a few years back?with three main promoters, including the current CMD PS Saminathan, former chairman V Natarajan (who exited the company by selling his entire stake to Samianthan) and N Narayanan?the company is a class of media entities that rode the boom in the sector.
Based on its initial success in film and content production, Pyramid entered other areas. It acquired screens on lease, floated subsidiaries for film distribution, content production, music and content distribution, gaming and advertising, both in India and overseas. The company tapped the capital market in December 2006 through an IPO for Rs 85 crore. In a year of listing, it acquired a number of screens on a lease basis and subsequently increased it to over 800 screens across the country.
However, to bear the huge fixed cost of the screens and to maintain its growth, the company was forced to produce a number of films/content?not its business model originally?and invested heavily in this in the later part of 2008. But thanks to diminishing footfalls, poor utilisation of screens, huge failure of content and increasing exhibiting expenditures, it ended up incurring huge losses.
According to company sources, it lost Rs 40 crore alone in Rajanikant-starrer Tamil film Kuselan and another Rs 30-odd crore in other films.
The Pyramid case has also made obvious that Sebi will have to take account of fraud as a separate issue, distinct from enforcement, that it has focused till now.
In this case, a clutch of brokers, promoters and media people connived to create a false trail. Since Sebi has a limited mandate over companies and individuals, the risks are low cost. But Sebi has done a smart thing by classifying the offence as money laundering. Punishments can be heavy.