Pyramid Saimira to transfer 40% in arm to strategic partner

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Pyramid Saimira to transfer 40% in arm to strategic partner

PS Saminathan said that the he planned to list both the production and distribution arm of Pyramid Saimira, adding that he planned to transfer 40% of stake in production subsidiary to a strategic partner.

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Excerpts from After the Bell on CNBC-TV18 Watch the full show » ALSO READ See latest News about Pyramid Saimira See previous management interviews See what other Experts & Brokerages are saying about Pyramid Saimira Nifty BSE | NSE 28/05/12 Are Mutual Funds betting on Nifty?

Q: In terms of your distribution and production arms right now, what was the key rationale, why didn't you just get a strategic investor without demerging these two businesses because you would get a fair bit of a valuation premium? You highlighted that you would get Rs 250 crore from the distribution business. Why are you demerging it, what is the strategic rationale behind this?

A: The rationale is that the distribution business and the exhibition business now has to independently derisk itself. Previously, we looked at it as a holistic one. Now, because of the methodology of risk mitigation, we have decided that exhibition and distribution cannot cross-subsidise each other. So, the distribution business should look after its business interest on its own and expand on its own.

If you do that as a separate company, independent of the parent company's identity, its growth would be much faster, as its growth also would be independent of any problems that might come to the parent company. In the last one year, the parent company did suffer losses and also had some amount of negative publicity and things like that. So, we wanted to move the production and distribution into separate legs, so that its growth is never hindered because of the goodness or badness or lack of it in the parent company.

Q: I believe you are looking at tapping the market for some money - USD 75-100 million is the number being talked about. Could you comment on that front? I believe you had a QIP approval. But now the GDR route is being talked about?

A: We thought that the GDR might give us a better valuation than the QIP route. We are taking the shareholders permission. The board has approved up to USD 100 million GDR or ADR issue. We will be taking the shareholders approval through a postal ballot to be commenced. Most likely, god willing, if the valuation improves we will make the GDR. But because of the infusion of these funds as well the parent company is getting much better funds, which will also revive our exhibition sector significantly.

Q: At what price level would you be looking at tapping the market for the GDR? Your stock is currently priced at about Rs 25. What is the dilution threshold that you have, the maximum that you would be willing to dilute?

A: We would be willing to dilute additionally around 25-30% only. But we are looking at a significantly higher valuation than what is our current market cap valuation.

Q: Any timeline for that fund raising and what is the primary use that you need this money for?

A: Basically to infuse more money into the exhibition sector. We have lost around Rs 150 crore in the exhibition sector. We want to recapitalise the company properly. Right now, we have around 450 plus screens under our control and management. We want to re-expand to the base level without increasing the risk parameter of our business.

Q: The promoters hold about 25% stake in the company. How much of your 36 lakh warrants which you issued on October 2007 what percentage of that have you converted really and I believe you've taken a new resolution in June 2009 for another 1 crore warrants to the promoters? Are you planning to infuse some funds via that route as well?

A: We converted around 15 lakh shares at the rate of Rs 310 and the balance money was forfeited by the company and added to the general reserve. The promoters are willing to take additional 1 crore equity shares - might be at a higher valuation than the market cap valuation of the company as of today - and the promoters are putting that money to infuse more confidence and more liquidity into the system for expansion.

Q: Earlier in the year, you were planning to set up Rs 250 crore private equity fund. Any word on that?

A: Definitely I believe in the next 2-3 months we will be able to consolidate our core business then we will take up that content fund which was our original brainchild and definitely we'll go ahead with that plan as well.

Q: Now just digressing from your board meeting - just two quick questions on your court case - you were expected to have a personal hearing with the Sebi - have you had any word on that in terms of a personal hearing and even in terms of a hearing from the ED on the verdict of the case has there been any development?