In an interview with Meena Konar of Myiris.com, Vikas Rathee, Group COO, Prime Focus (Q,N,C,F)* says, "We expect the margins to return to earlier levels in the coming quarters."
1.Prime Focus reported net loss of Rs 72 million for the quarter as compared to Rs 124 million profit in Q4FY13. Could you brief us about this? 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, on the back of resurgence in the Hollywood 3D film business post Gravity - films like The Amazing Spiderman 2, Noah, Godzilla and X-Men all releasing in 3D. Prime Focus also used the quarter as an opportunity to scale up its VFX facilities in India while working on its landmark project Sin City 2, to offer the same advantages of scale and economics to its lead studios in London and Vancouver as it currently offers in the 2D-3D business.
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 72.7 million. Moreover, we have always communicated and maintained that analysts should view our business from an annual perspective rather than look at quarterly fluctuations as they form a part of our operations. 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.
2.The company has posted a revenue growth of 20.17%. How do you see revenue growth going forward?
We expect the resurge in demand for 3D to continue into FY15. Most recently, we saw a slate of films being converted to 3D - such as The Amazing Spiderman 2, Noah, Godzilla and X-Men and now Transformers - Age of Extinction. The shear economics of the Box office upside from 3D as against cost of conversion is finally being realized by the studios on the back of Gravity’s success. Our key focus is also to continue to increase the share of VFX in our total revenues for FY15. We believe we have invested ahead of time, where we used the relatively weaker global market scenario to bolster our capacities and capabilities in India by incurring capex, despite the lull. We believe our capex phase is behind us. Overall, we expect stable growth in demand for our creative services businesses. Prime Focus Technologies (PFT) 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 product CLEAR Media ERP from the same customers. PFT has also expanded inorganically with the acquisition of leading cloud-based production workflow and media asset management applications company DAX in the US and hope to grow there as well. Although its difficult for us to project similar growth rates from such a high base, we feel we should again expect a fairly robust growth in revenues from this segment in FY15 as well.
3.How do you see the overall industry outlook?
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 for virtualizing content supply chain and managing content businesses is still in its infancy stage and we are happy to be riding the early growth wave in this segment with huge potential.
4.Do you foresee any new major customers or new markets emerging in the future?
In PFT, we see future growth coming from new geographies where the technology has yet not been adopted and content continues to be managed via the traditional methodologies. We see growth coming in from markets such as US, Europe and Africa. In South Africa we have signed a media services deal with the largest broadcaster. In 3D, we have recently entered China via a JV. China is now the second largest Film market in the world, and Hollywood films continue to garner huge collections at the box office, especially in 3D. However, given the restrictions China imposes on foreign films, the local Chinese films market becomes a very attractive opportunity for Prime Focus World. 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 share in this market.
5.Could you brief us about expansion and capex plans for the coming years?
We feel we are done with all the expansion and bulk capex that we have incurred in bringing up our business to the level it is today. We believe we have invested ahead of time, where we used the relatively weaker global market scenario to bolster our capacities and capabilities in India by incurring capex, despite the lull. The benefits of the capex should accrue for us over the next couple of 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.
6.Would you like to convey any message to the shareholders of the company?
We would like to thank all our shareholders for being patient and understanding the larger vision of the Company and the promoter. Prime Focus has reinvented itself over the last 4 years, as it has transformed itself from a local post production company to a leading global technology and creative services provider to the media and entertainment industry. Despite the gloom, slowdown, difficult years and major hit on the financials, Prime Focus has stood strong and has repaid all its debt including its FCCBs on time. Despite the FCCB overhang impacting business and operations for the Group for more than a year we have delivered robust growth in revenue and EBITDA in FY14. We are well poised in each of our segments today and feel we are at that cusp of making rapid strides in the global content markets in the coming quarters and would like to once again thank all our shareholders for being with us as we successfully weathered through the challenging times.
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