Some of key highlights of today’s call:
While I still have deep convictions regarding Phantom and its quality of earnings, especially after the recent performance numbers, I can’t help but fathom the absolute carnage that is bound to come their way due to text-to-clip innovations. Some of those disruptors are among the most hyped startups of our age (see https://openai.com/sora).
While I stand by my opinions on Generative AI being a rather distant threat, the quality of the outputs presented by OpenAI (especially with respect to minute-long videos) are both impressive and potentially threatening to companies like Phantom and Basilic. To say the least, they have shown that merely textual prompts are enough for text-to-video models to generate a 95%-studio-quality clip. Assuming you could finetune these models by incorporating existing film scene clips into the prompts (which I’m sure people are already working on), you could potentially get a 99%-studio-quality clip. At that point, most film-makers would simply switch to these lightning fast and cheap generative models, instead of having to wait for an expensive human designer to do the touch-up.
Given that an average, uninterrupted movie shot is about a minute long, I think a lot of the touch up work on movie sequences at the very least is going away from VFX studios towards GenAI startups. Obviously, a full-on movie contract would still be handled by large studios, but there are certainly signs of potential damage here.
Disc: Recently sold out (position size in previous post).
Can be relatable and helpful to-understand the impact of AI Generated Videos
Hi @pratyushmittal . Just wanted to let you know that screener has eps wrong for Phantom digital. Thank you for making our life easier with screener 
True, it should have been 6.70 instead it’s showing 5.74 but if this is the case, there would be error for other companies due to the calculations would be similar for the others in the backend.
I tried calculating based on screener results but there were preferential shares issues last qtr and the EPS also shows incorrect for the previous qtr in screener.
The number shown in q3 result is misleading.
7.8 cr of profit divided by 1.36 cr equity shares is about 5.73 rs/share.
Hi Sulabh, the PE on Screener is correct.
Companies report EPS on weighted average outstanding shares while we calculate the EPS on actual number of outstanding shares on the result date.
Booming market, outsourcing, the article though is focused on staffing, there is passing reference to AI which can increase productivity and open new doors.
Disc: invested
Exactly, with SORA the new AI in market, it will rather act as a catalyst for the VFX industry in India.
The amount of work is too high compared to current skilled manpower.
Would like to disagree here with an example. I think in such a B2B play, a tool that still requires some human input and oversight enables the service provider first. For example - if you take the recruitment space, an AI tool that says, screens CVs better than others is more likely to be adopted by the recruiter before the client. Simply because the client doesn’t have enough utilisation for the amount of money it would take to buy an account, while the recruiter will have enough work from multiple accounts to have a far higher utilisation of the tool.
Similarly, in this sector at least for the foreseeable future, the AI solutions would be enablers is my sense. For an end to end SaaS solution that say, the director of a film can use is probably at least a decade away but I realise you have more expertise on that front.
Eventually ofc product SaaS solutions do disrupt service cos but usually dont kill the latter.
Adding my notes from the concall Q&A.
Guidelines for next 15-18 months. 90-95 cr revenue in FY24, 135-140 cr revenue in FY25. FY24 will have similar margins as in the past, but going forward it will increase due to international projects. They guided sustainable EBITDA margin 43-48% and PAT margin ~30% – will depend on the mix of domestic and international projects.
Projects. They talked about “some big international feature films” which they are not allowed to disclose, “big breakthrough in the near future”. Mostly movies and some television series from prominent production houses and reputed OTT platforms. They were approached by some studios as a service partner for animated movies. They are in the closing stages of another movie by Ayalaan’s director. Planning to venture into gaming, still finalizing their position alignment.
QIP money utilization. Staggered plan over next couple of years for key infra expansion, new offices, increase of headcount, acquisitions “somewhere down the line”, improving infra in existing offices in India, expanding marketing outside India.
Other expenses. Outsourcing certain key projects.
Receivables. Overall, receivables as of Dec’24 is 40cr for the last 9m, 60% of which has been collected since then.
UK operations. “Working on it”, actively seeking projects, developing contacts, working on developing AI research facilities.
Revenue split. 55% from international projects and 45% from domestic projects in the 9MFY24. In Q3FY24, there was a slight increase in international revenues but nothing significant. The company is expecting a surge in international revenues, contributing to a total of 60-70%. “We want to make a mark on the international stage”. Lot of Netflix projects are turning to PhantomFX.
Reason for spike in revenue. Re-opening of the American market, plus domestic projects like Leo and Ayalaan.
Ayalaan. Translations and OTT platforms still to be factored in. They collected 50-60% of receivables, rest will be collected before the end of FY24. Catapulted the image of the company. Created and functionalized automation tools mostly for project management and some for creative workflow, strong learning curve.
Co-production? It was specifically stated that they were not co-producers for Ayalaan. They went into a deferred payment arrangement and it was a one-time thing. There were headwinds in the project and they wanted the project to be complete for their own showcase and marketing.
AI. Technology is evolving and they want to adapt. They are already implementing several tools and models in their pipeline.
Vision. There was a question, “Why are you spending money in the UK instead of doubling down on the North American market?” Mr. Bejoy said that he wants to be a global company, and not just an American company or Indian company. He wants to expand to the middle-east, Europe and USA simultaneously. In the future, he wants to be able to pick and choose the best quality projects across the globe instead of working on every project in one market.
Here are my impressions of watching Ayalaan (on Sunnxt OTT platform). This is not a review of the movie. Just my observations of PhantomFX’s work:
It is clear that the team must have gained a lot of experience and confidence through this movie. It was a financially and strategically right decision to become co-producer in order to be able to have this released.
By the way, the movie overall is pretty average. The lovable tattoo character and the effort went into special effects make this watchable. Good collections at the box office is due to sheer lack of cinema content with the local flavor for children.
Disclosure: Not invested. Tracking.
Its true skilled manpower is extremely important in the field. Their attrition rate should be tracked which seems to be in acceptable range for now. As for training mostly its on job in addition to formal training. From an AI perspective it will be destructive but still there is time. This field involves lot of interaction with Director before the movie is shot. Lot of planning goes in which needs human interface for now. Also this is niche area and competition cannot erupt overnight.
Thanks for sharing your thoughts, you’ve made some very relevant and reasonable points. I really appreciate it when people make differing arguments, because it generates a good discussion for everyone to understand a topic.
I think in such a B2B play, a tool that still requires some human input and oversight enables the service provider first. For example - if you take the recruitment space, an AI tool that says, screens CVs better than others is more likely to be adopted by the recruiter before the client. Simply because the client doesn’t have enough utilisation for the amount of money it would take to buy an account, while the recruiter will have enough work from multiple accounts to have a far higher utilisation of the tool.
This is a good example here. I have a slightly differing viewpoint. SORA and PIKA are not purely-B2B plays, rather they’re B2C as well. In the example you’ve provided above, you’re assuming that the cost of availing text-to-video services is going to be significant. We don’t know much about SORA pricing, but looking at the pricing provided by PIKA, even the most expensive of their tiers is only at 700$ for a yearly subscription. Even for individual creators, this isn’t a large amount, let alone for a movie studio.
Another thing to understand here is that a movie, after being shot on set, spends about 6-8 months minimum in post-production these days. This is due to multiple individual factors, though one of the most significant factors is video-editing. Even if you assume that the monetary savings of AI offerings are not going to be worth it as is, do you think a production studio would rather spend weeks engaging in a back-and-forth with a third party VFX studio instead of doing minor touchups on their raw footage by themselves, and leaving the major changes for the specialised VFX studios? I’m betting that it would turn out faster for them to simply use one of these tools and leave out all the situations where these Video generation models are suffering to be handled by the human specialists.
Eventually ofc product SaaS solutions do disrupt service cos but usually dont kill the latter.
Of course, none of these offerings are going to kill companies like Phantom or Basilic, it would be unwise to even assume so. However, considering that Phantom prides itself for providing about 3000 shorts to date and that 10-20% of their revenue is from commercials (quoting the previous quarter concall), I’m very concerned about the potential erosion of this revenue stream. As I said earlier, the movie business for now seems to be safe and sound, but might not be in the future (for minor touch-up related revenues that is).
Lemme know if what I’m saying makes sense. You should definitely invest if your conviction is strong. Sorry for the delayed response, PhD life is too busy haha!
That’s fair, thanks. Erosion of non-core revenue streams is a reasonable concern to have and depending on the adoption/penetration rate of these techs, it’s likely that we’ll get answers to our questions sooner rather than later.
Currently I’ve taken up a tracking position on the back of management guidance + confidence + my view that this space might be in the early stages of the same cycle that Indian IT has gone through for a few decades now.
Disc : Invested in phantom, basilic and Digikore .
Because the most important aspect of any acquisition i.e. acquisition price, is not disclosed so market is worried…
