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Prime Focus Ltd – The Beneficiary of Digital Media

Prime Focus Ltd - Stock Analysis

Fact - Prime Focus Ltd has won 6 Oscars in the last 10 years in the Best Visual Effects Category

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(A) About

Prime Focus - Logo

Prime Focus Ltd is engaged in the business of post production activities including digital intermediates, visual effects, 2D to 3D conversion and also other technical and creative services to the media & Entertainment industry.

Infact, It is the first company in India to offer a high-end post production finishing system, film scanning, and also recording system.

Similarly, Its the first in South Asia to offer a 4K DI facility and also is one of the world's largest providers of end to end post production services.

Prime Focus - Business

(B) Journey

Prime Focus - Journey

(C) Shareholding Pattern

Prime Focus - Shareholding pattern
Prime Focus - Shareholding

(D) Board Members

(E) Business Segments

(i) International Creative services

DNEG is company's International creative services division, offers clients, a compelling, full service solution that also allows grouping of services and global sourcing for complete end-to-end delivery of projects of any size.

(ii) Global Technology Business

Company's global cloud technology business, Prime Focus Technologies (PFT) is also the creator of AI-enabled enterprise Resource Planning (ERP) software, CLEAR for the Media and entertainment industry.

Moreover, it offers broadcasters, studios, brands and service providers solutions that help them lower their total cost by automating business processes around content and managing their business of content better.

(iii) India Film & Media Services

To meet the demands of the OTT sectors. India film & media services business has also maintained its position as the largest production post production and creative services provider to the film, Broadcast, Advertising and OTT industries in India.

(F) Revenue Segmentation

(G) Key Clients

Prime Focus - Clients

(H) Cost Structure

Prime Focus - Cost Structure

(I) Financials

Prime Focus - Financials

Company has grown its revenue at 17.59% in past 10 years, while PAT grew at a CAGR of 30.23%. Moreover, company’s operating and Operating margins increase from 19% in FY14 to 21% in FY23.

Prime Focus - Du Pont Analysis

Company sales to total assets improved from 0.5x to 0.7x over the past 10 years. While its assets to equity increased from 8.6x to 269.4x in the past 5 years.

(J) Management Discussion

Outlook

- According to Price-water house Coopers the global Entertainment & Media industry is expected to grow at 4.6% CAGR.

- Meanwhile OTT video grew by 22.8% in 2021 and expected to grow at a 7.6% CAGR till 2026.

- Further video game segment grew by 32% between 2019 & 2021. It is further expected to grew at 8.4% CAGR till 2026.

- Moreover, internet advertising revenue is anticipated to increase at a CAGR of 9.1%.

- In tech/tech enabled services the company will continue to expand its customer base by signing contracts to cross sell tech enabled services and also by improving income from existing customers.

- Meanwhile, its subsidiary DNEG provide creative services like visual effects, stereo 3D conversion and animation services. In the last 10 years DNEG has won 6 Oscars awards all for Best Visual Effects category.

Opportunities

Open New Markets through Government Agreements - New technology standards and government free trade agreement also provide opportunities for the company to enter into newly developed markets.

New Customers through Online Channels - Moreover, company has invested huge amount of money in its online platform over the past few years. This investment also opened up a new sales channel for the company.

(K) Strengths & Weakness

Strengths

(i) Strong Brand Portfolio

Over the years Prime Focus has also invested in building a strong brand portfolio. This brand portfolio can also be very useful if an organization wants to expand into new product categories. 

(ii) Outstanding Performance in New Markets

Prime Focus has also accumulated experience to enter new markets and achieve success. The expansion has also helped organizations create new revenue streams and diversify business cycle risks in the markets in which they operate.

(iii) Highly Skilled Labor

By investing enormous resources in the training and development of Prime Focus employees, they not only create highly qualified employees but also motivate them to achieve more. 

(iv) Mergers and Acquisitions

Moreover company has successfully integrated additional companies through mergers and acquisitions. Over the past few years, company has also successfully integrated several technology companies including Reliance Media Works to grow its business.

Weaknesses

(i) More Investment is Needed in New Technologies

Given the scale of the expansion and the multiple geographic regions in which the company will expand, Prime Focus’s overall integrating processes require more money to be invested in technology. 

(ii) High Labor Outflow

With higher dropout rates compared to other organizations in the industry, Prime Focus, and have to spend significantly more on employee training and development than their competitors. 

(iii) Product Marketing

Although the product is successful in terms of sales, its positioning and unique selling proposition are not clearly defined, making it vulnerable to attack from competitors in this sector.

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References:  Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets & Management Interviews, Industry Publications.

Disclaimer: The report only represents the personal opinions and views of the author. No part of the report should be considered a recommendation for buying/selling any stock. Thus, the report & references mentioned are only for the information of the readers about the industry stated.

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