VFX Giants: Navigating the Technological Evolution in the Visual Effec... VFX Giants: Navigating the Technological Evolution in the Visual Effects Industry Read more

Basilic Fly

Summary

Delving into the dynamic realm of visual effects (VFX), this article spotlights three micro-cap gems—Basilic Fly Studio Ltd., Digikore Studios Ltd., and Phantom Digital Effects Ltd.—pioneering innovations in the VFX landscape. With the global VFX market poised for exponential growth, these companies navigate the surging demand with finesse. A comparative analysis between Basilic and Phantom sheds light on their project pipelines, market impact, and investment considerations. As the VFX evolution unfolds, investors are presented with a unique opportunity to ride the wave of technological advancement in the entertainment and media sector.

Introduction

In the ever-evolving landscape of the entertainment industry, the Visual Effects (VFX) sector stands out as a crucial player. With the global VFX market projected to grow at a CAGR of 10.4% from 2024 to 2032, the demand for innovative and high-quality VFX solutions is on the rise. This article sheds light on three micro-cap companies—Basilic Fly Studio Ltd., Digikore Studios Ltd., and Phantom Digital Effects Ltd.—that are making significant strides in the VFX domain.

Global Growth Trajectory: A Phenomenal Rise

The global animation and visual effects market have undergone a remarkable transformation, with an estimated value of USD 168 billion in 2021. Projections indicate a robust growth trajectory, set to reach USD 290 billion by 2024, boasting a commendable CAGR of 10.94% between 2020 and 2026.

Visual effects, constituting an indispensable element in today's media and entertainment industry, play a pivotal role in approximately 90% of films, videos, and series. The global VFX market, having achieved a value of USD 9.95 billion in 2022, anticipates further expansion. The forecasted CAGR of 10.4% for the period of 2023-2028 is expected to propel the market to nearly USD 18.02 billion by 2028, with North America leading the charge, primarily fueled by the escalating use of VFX in Hollywood productions.

Indian VFX Landscape: A Resounding Surge

The Indian VFX sector demonstrated phenomenal growth in 2023, surging by an impressive 120% to reach INR 42.6 billion. Simultaneously, the post-production segment experienced a 54% surge, reaching INR 18.2 billion. The combined force of animation, VFX, and post-production is anticipated to achieve a monumental figure of INR 180 billion by 2024.

Navigating the Dynamics of the Indian Market

1. India's Claim to Entertainment Eminence

India proudly asserts itself as the world's second-largest entertainment market, boasting a diverse array of content that captures the hearts of global audiences.

2. AVGC-XR Mission: A Catalyst for Growth

The AVGC-XR Mission emerges as a transformative force, attracting foreign direct investment (FDI), fostering innovation, and nurturing talent. This initiative signifies a significant leap forward for India's position in the global AVGC landscape.

3. Anime's Ascendancy and the Quest for Adult-focused Content

The growing popularity of anime has created a burgeoning demand for adult-focused animated content, tapping into a demographic eager for diverse and mature storytelling.

4. Metaverse Momentum and the Demand for 3D Modeling

The ascent of the metaverse has ushered in a new era, amplifying the demand for 3D modeling and real-time rendering. This shift underscores the industry's adaptability to emerging technologies.

5. Democratization of AVGC Technologies

Subscription-based and subsidized pricing models are democratizing AVGC technologies, enabling Micro, Small, and Medium Enterprises (MSMEs) and startups to access and leverage advanced tools for content creation.

The Indian VFX Renaissance: A Phenomenal Leap

Over the last five years, the Indian VFX industry has experienced a monumental 6.2x growth compared to the previous decades. Major Hollywood studios are increasingly outsourcing video editing work to professional companies situated in key cities like Bangalore, Pune, Mumbai, and Chennai.

Indian filmmakers are strategically allocating substantial budgets to VFX in the domestic market. High-budget cinematic ventures such as Brahmastra and RRR earmarked 25% to 30% of their total production budget for VFX endeavors, showcasing a commitment to pushing creative boundaries.

Basilic Fly Studio Ltd.: Pioneering VFX Excellence

Overview:

Incorporated in 2016, Basilic Fly Studio Ltd. has swiftly positioned itself as a leader in providing VFX solutions for movies, TV, web series, and commercials. Headquartered in Chennai, India, with subsidiaries operating in Canada and the UK, the company has become a global player in the VFX industry.

Key Metrics:

• Market Cap (M Cap): ₹694 Crores
• Price-to-Earnings (P/E) Ratio: 25.0
• Current Market Price (CMP): ₹299
• Return on Capital Employed (ROCE): 172%
• Promoters Holdings: 59.90%

FY23 Financial Highlights:

• Revenue: ₹79 Crores (YOY: ⬆️216%)
• Operating Profit: ₹39 Crores (YOY: ⬆️1850%)
• Profit After Tax (PAT): ₹28 Crores (YOY: ⬆️2700%)

Future Outlook:

• Aiming for 60-70% growth in top line and 30% PAT margin for FY2024.
• Expanding international markets in Europe and Australia.
• Operating margins expected to stay above 45% going forward.

Digikore Studios Ltd.: Weaving VFX Magic Since 2000

Overview:

Established in 2000, Digikore Studios Ltd. is a Pune-based company offering VFX services for films, web series, TV series, documentaries, and commercials. The company has positioned itself as a reliable and innovative player in the VFX landscape.

Key Metrics:

• Market Cap (M Cap): ₹209 Crores
• Price-to-Earnings (P/E) Ratio: 47.8
• Current Market Price (CMP): ₹330
• Return on Capital Employed (ROCE): 75.7%
• Promoters Holdings: 66.54%

FY23 Financial Highlights:

• Revenue: ₹34.44 Crores (YOY: ⬆️38.42%)
• Operating Profit: ₹6.36 Crores (YOY: ⬆️169.49%)
• Profit After Tax (PAT): ₹4.37 Crores (YOY: ⬆️829%)

Future Outlook:

• Planning to increase service contribution to at least 50% in the next 12 months.
• Aiming for 80% service contribution within 24 months.

Phantom Digital Effects Ltd.: Crafting Visual Excellence Since 2016

Overview:

Established in 2016, Phantom Digital Effects Ltd. provides high-end visual effects solutions for commercials, feature films, and web series globally. With studios in Mumbai and Chennai, the company has carved a niche for itself in the VFX industry.

Key Metrics:

• Market Cap (M Cap): ₹465 Crores
• Price-to-Earnings (P/E) Ratio: 25.1
• Current Market Price (CMP): ₹400
• Return on Capital Employed (ROCE): 75.3%
• Promoters Holdings: 63.92%

FY23 Financial Highlights:

• Revenue: ₹58 Crores (YOY: ⬆️163.6%)
• Operating Profit: ₹23 Crores (YOY: ⬆️228.5%)
• Profit After Tax (PAT): ₹16 Crores (YOY: ⬆️220%)

Future Outlook:

• EBITDA margins expected to remain at 33-35%.
• Revenue expected to grow by 75-80% in FY24 due to increased demand and effective execution.

Comparative Analysis: Basilic vs. Phantom

1. Project Pipelines:

   • Phantom: Like L&T in the civil engineering field, Phantom handles all creative work internally and has direct links with clients like NETFLIX.
   • Basilic: Gets subcontract works and needs to establish itself for direct contracts. Ongoing strikes in Hollywood might impact Basilic's foreign projects.

2. Project Impact:

   • Phantom: Potential impact on foreign projects, but less than Basilic due to its strong positioning and existing projects.
   • Basilic: Doubtful due to the ongoing strike in Hollywood.

3. Market Capitalization:

   • Phantom: Available at ₹570 Crores.
   • Basilic: Expected to reach ₹600 Crores after listing.

4. Investment Considerations:

   • Phantom: Hold if acquired at IPO price; new entrants need diligent analysis for the entry price.
   • Basilic: Potential for holding if acquired at IPO price, but new entrants must conduct thorough due diligence to determine entry price.

Conclusion: Riding the Wave of VFX Evolution

In conclusion, Basilic Fly Studio Ltd., Digikore Studios Ltd., and Phantom Digital Effects Ltd. exemplify the dynamism and innovation driving the VFX industry. As the global demand for high-quality visual effects continues to surge, these micro-cap companies are well-positioned to capitalize on the evolving landscape, offering investors an exciting opportunity to be part of the technological revolution in the entertainment and media sector. However, careful consideration of each company's strengths, financials, and market positioning is crucial for investors looking to ride the wave of VFX evolution.