Riken Mehta
moneycontrol.com
Follow me on Twitter @mehtariken
Prime Focus Limited,
a leading player in visual graphics and animation reported consolidated
net sales of Rs 235.51 crore in the fourth quarter of FY14 over Rs
196.90 crore, a year ago. The company reported net loss of Rs 8.38 crore
in this quarter. The profitability was impacted due to an unrealized
quarterly loss on foreign exchange and a non-cash Deferred Tax charge of
Rs 7.27 crore. The operating margins of the company improved from 7.51
percent last year to 11.21 percent in this quarter.
Prime Focus
recorded consolidated annual net sales of Rs 833.72 crore, a jump of
9.32 percent compared to Rs 762.16 crore, a year ago. The company’s
bottomline turned profitable in FY14 with profits of Rs 32.96 crore
compared to loss of Rs 20.31 crore.
In an exclusive interview with moneycontrol.com,
Vikas Rathee, Group COO, Prime Focus Limited said
the resurgence in demand for 3D to continue into FY15. He is hopeful of
achieving robust revenue growth rates in FY15. He expects interest cost
to come down in the coming quarters on the back of closure of the
backend and cheaper dollar financing.
Here is an edited transcript of the interview.
Q. Could you brief us about Q4 FY13 performance? How do you see your performance for the coming quarter?
Prime
Focus posted healthy growth in top-line in Q4 (20%), which was
bolstered with 2 big Hollywood films Noah and The Amazing Spiderman 2.
Due to a one time increase in costs, there was a dip in margins for Q4.
Profitability has also been impacted due to an unrealized quarterly loss
on foreign exchange and a non-cash Deferred Tax charge of Rs 7.27
crore. We expect the margins to return to earlier levels in the coming
quarters on the back of cost appropriation over various projects and
realization of benefits of working on VFX projects out of India.
Q.
The company has posted a revenue growth of 20.17%. Can you tell us how
much revenue contribution came from new businesses? How do you see
revenue growth going forward along with PAT and margins guidance?
Share
of Revenues from new businesses has increased from 69% to 79% in FY14.
We expect the resurgence in demand for 3D to continue into FY15. Our key
focus is also to continue to increase the share of VFX in our total
revenues for FY15. We believe our capex phase is behind us. Overall, we
expect stable growth in demand for our creative services business and we
expect to increase our market share.
PFT (Prime Focus
Technologies) continues to grow at a rapid pace in 12M FY14, where it
grew 100% year on year. We continue to add new customers as well as get
more demand for our products and services from existing customers. PFT
has also expanded inorganically with DAX in the US and the initial
progress since closing has been very promising – we see significant
opportunity for PFT in the largest media market globally. Although it is
difficult for us to project similar growth rates from such a high base,
we feel we should again expect very robust growth in revenues from this
segment in FY15 as well.
Q. Employee cost and other
expenses were significantly higher in this quarter. Was there a wage
hike in this quarter? Tax component was also high. Brief us on the same.
We used Q4 as a quarter to bolster our capacity
in VFX, which led to a one time increase in headcount in Q4, which
should stabilize again post release of Sin City 2. Both PFT and Prime
Focus Limited on a stand-alone basis had strong PBT and as such taxes
are a reality. However, the Tax component contained a non-cash deferred
tax charge of Rs.72.7mn for the quarter, which is the tax benefit we are
getting due to the loss we incurred last year due to the redemption of
the FCCBs. We will continue to monetize this benefit in FY15 as well.
Q. What was the total debt at the end of FY14? Will the interest cost come down in the coming quarters?
We
have managed to stabilize the debt levels in the Company. Our total
debt as of 31st March, 2014 is Rs 800 crore, which includes the Rs 45
crore of the OCD raise which was completed on 31st March itself, i.e.
was reflected in our Cash balances as well. What is important to note is
that we continue to shift the debt towards Buyers Credit and Financial
Leases structures, which are a lot less onerous and cheaper sources of
financing capex for the company.
Of the total debt, Rs 92 crore is
towards Property loans, which are on the back of the key delivery
centers owned by the Company in LA and Mumbai in relation to our
Creative Services business, together currently valued at over Rs 200
crore. This also includes the NCD issued to Standard Chartered Private
Equity in the parent Prime Focus Limited, including its accrued
Redemption Premium value, totaling at Rs.228.3 crore as on 31st March
2014.
We continue to focus on leveraging our foreign company
balance sheets to source cheaper financing for the overseas operations.
You would notice a good reduction in our average interest rates and we
feel we should continue to see a decline in our interest costs as we
move forward, on the back of closure of the backend and cheaper dollar
financing.
Q. Give us a brief idea on how much money will be used to retire debt and working capital from Rs 45 crore fund raising plans?
Of
the total OCD raise, 25%-30% would be used to retire debt, while the
balance would be used to fuel the growth of PFT’s international
business.
Q. Which are the upcoming movies in this quarter and next?
Our
list kicked off on May 30 with the release of Walt Disney Pictures
Maleficent, from director Robert Stromberg, and continues next week with
the amazing Edge of Tomorrow from Doug Liman / Warner Bros. Pictures,
which releases in the US on June 6
Unfortunately we can't mention
all the films we're working on yet, but here's a few that we're really
excited about: Maleficent, Edge of Tomorrow, Transformers: Age of
Extinction, Earth To Echo, Hercules, Into The Storm, The Expendables 3,
Sin City: A Dame To Kill For, The Interview, Kingman: The Secret Service
Q.
Your subsidiary Prime Focus Technologies (PFT) recently acquired a US
firm, by when do you think it will reflect in your performance?
PFT’s
DAX acquisition was effective 1st April, 2014, hence DAX’s contribution
will start reflecting from Quarter April to June 2014 onwards. We are
very optimistic about PFT’s US operations contributing in a significant
manner to the numbers over the next couple of years.
Q.
Your technology subsidiary – PFT has seen a steady growth over the
years, can you elaborate on how the business has been in the last
quarter?
PFT has grown its revenue, really doubled
its revenue over last year FY14 once again. We think it is because of
two key factors - increased adoption of our cloud-based Media ERP
technology platform, CLEAR and of course introduction of new products
and services. Some significant wins we have had this quarter - one of
the largest South African broadcast networks have adopted CLEAR and
CLEAR-based media services. We also added additional services for BCCI
(Board of Control for Cricket in India) as a big sports client. We have
had interesting wins from a very large multichannel network which is
using us now for a significant part of their content publishing.
The
second big activity for us is digital. One, we have developed our own
business to business to consumer (B2B2C) platform, the OTT platform, for
example where we are delivering IPL (Indian Premier League) and all the
multiple sports on Starsports.com, which has quickly become the leading
web-based multi-sport OTT platform in India and globally. We have also
started digital play-outs and again given all the excitement in digital,
we have sort of started a brand new activity of actually doing digital
play-outs. We already are laying out over 20 channels now. We are now a
YouTube certified partner.
We also announced the acquisition of a
company called DAX and that is again an important milestone in the
lifecycle of PFT. This is a company that has a cloud based platform that
is being used by all the leading studios that are producing content in
Hollywood and we saw a team that had uniquely similar blend of media and
IT skills. Through DAX we also got access to key customers in the US
such as Warner Bros. Television, CBS Television, Fox Television,
Lionsgate, Legendary, Starz Entertainment and Showtime. We feel it has
been a very satisfactory quarter and even better year for PFT, and we
continue to make rapid strides in the global market.
Q. Are there any new markets that you will look at for your VFX, 3D conversion business?
On
the VFX and also in 3D we have made rapid strides and there is good
momentum on the back of the success of blockbuster Hollywood movies such
as Gravity, Noah, The Amazing Spiderman 2, etc. with a number of
upcoming high profile releases such as Maleficent, Edge Of Tomorrow,
Transformers and Sin City 2 as I mentioned earlier. We see good momentum
across both these fronts in FY15 and we will surely leverage this
momentum to capitalize on growth opportunities. We have recently started
addressing the China market via a JV. We recently did work on our first
contract in China for 3D conversion for a film called Iceman 3D and
continue to make rapid strides to increase our market share in China.
Q. Could you brief us about expansion and capex plans for the coming years?
We
feel we are done with all the expansion and bulky capex that we have
incurred in bringing up our business to the level it is today. The
benefits of the investments should accrue for us over the next several
years. We do not foresee any major capex for the coming years as we hope
to now consolidate our global offering across the various businesses.
Q. How do you see the overall industry outlook for the next one year?
We
expect the Industry to remain buoyant. VFX in Hollywood is an evergreen
segment, which continues to grow each year with audiences at large
preferring to see more of sci-fi and animated films over dramas or
live-action. 3D had flattened for a couple of years before Gravity
happened, which has again led to a resurgence in the demand for 3D,
especially in Asia.
The market for Media ERP type of solutions is
still in its infancy stage. Broadcasters face many challenges today like
flat revenues, rising operating costs and a new set of customers -
highly demanding digital consumers. Virtualizing content supply chain
operations, driving efficiencies and media process outsourcing are
increasingly becoming their top priority. PFT’s CLEAR Media ERP
technology and cloud-enabled services are helping content enterprises do
more with less. We are happy to be riding the early growth wave in this
segment with huge potential.
