Phantom Digital Effects Limited

[lazy_investor]

To be honest I have a contrarian view on this AI hype similar to what Aswath Damodaran pointed out in a recent video: AI Winners, Losers and Wannabes: Valuing AI's Boost to NVIDIA's Value! - YouTube

As it becomes easier for end users to leverage these AI tools the major winners on the margin front will be the providers of these AI tools not the consumers. The consumers will just end up fighting for margins with their competitors who will also now be equally capable to utilize these tools as the recent developments on the AI front have made it easier to use it for an end consumer. So using an AI tool doesn’t give its consumer a competitive edge as the friction for their competitors to utilize the same tools has decreased. This might still take some time to play out though and might be irrelevant for the current fundamentals of the business.

[Venky_Thiriveedhi]

They are looking for Python skilled professionals to build / enhance their VFX production pipeline product workflow. Including integrations with other VFX s/w and with any new AI products coming in the market.

I guess there were will be some 3rd party standard software readily available in the market, but may not be suitable to PhantomFX workflow needs requiring them to build their own s/w which works as per their custom needs and also derived from customer needs and other s/w integrations.

PhantomFX is a VFX service provider . They will be using different latest VFX softwares available in the market (including latest AI software) to provide these services. The custom software development will be only for their internal usage and at this stage, I believe they will not be getting into business of selling it to other VFX companies.

Coming on the AI aspect, as discussed before, every VFX company will be already using AI software or will use it in future. The decision to buy these AI s/w will depend on ROI they provide assuming the purpose is to speed up the same task done by humans or basis the Value add it provides like the AI s/w providing a feature to do certain task which humans were not able to do at this stage. This is just like adopting to any latest technology available in the market and is a common course of action for the business.

[sahil_vi]

VFX like IT industry is a linear industry in the manpower they hire. There can be some operating leverage WRT reusing digital assets too, of course, but largely a VFX company has to scale up its employee base in order to delivery higher revenues.

This is where tracking small services businesses on EPFO enables the investor to track whether the management is walking the talk or not.
https://unifiedportal-epfo.epfindia.gov.in/publicPortal/no-auth/misReport/home/loadEstSearchHome

By doing this we can track phantom’s hiring across last K months & see monthly growth in hiring. This enables us to see whether they are sufficiently staffed to grow or not.

Date Of Credit	Amount	Wage Month	No. of Employee	ECR	City	MoM Employee Growth	MoM Amount growth
11-APR-2023 11:09:46	1,026,254	MAR-23	312	YES	Chennai
11-Apr-2023 11:14:22	294441	Mar-23	88	YES	Mumbai
11-Apr-2023 11:20:03	108637	Mar-23	31	YES	Hyderabad
	1,429,332	Mar-23	431		All	1.058968059	1.076086245
12-MAY-2023 23:42:48	1,067,817	APR-23	333	YES	Chennai
12-May-2023 23:37:01	288920	Apr-23	89	YES	Mumbai
12-May-2023 23:48:50	136895	Apr-23	47	YES	Hyderabad
	1,493,632	Apr-23	469		All	1.088167053	1.044986049
13-Jul-2023 20:50:48	366715	Jun-23	114	YES	Mumbai
13-Jul-2023 20:58:09	1157052	Jun-23	364	YES	Chennai
13-Jul-2023 20:46:26	195804	Jun-23	61	YES	Hyderabad
	1,719,571	Jun-23	539		All	1.149253731	1.151268184

Phantom data sheet.xlsx (14.5 KB)

As we can see, phantom is hiring quite aggresively across all 3 locations & last month growth specially was quite aggressive. At least they seem to be walking the talk when it comes to most important raw material of success in services business: Employee hiring

Disclaimer: Invested, biased

[tpatel]

I tried to understand employee distribution across key job functions, employee skill sets and employee area of study for Phantom FX and Red Chillies VFX. I analyzed Red Chillies because it seemed very similar in size and have only vfx busines segment similar to Phantom. Prime Focus has other business segments apart from vfx and it wasn’t straightforward to do a like-for-like comparison with Prime Focus.

Conclusion - % Employee distribution across key job functions (Roto/MM/Paint, Compositor, FX, Lighting, Animator) looks to be similar in Phantom and Red Chillies. However, there are more number of Phantom’s employees who are skillful with required set of skills compared to the number of skillful Red Chillies employees. In almost all the required core skills/tools, Phantom has higher % of employees possessing these skills compared to Red Chillies. Similar observations are for the area of study where Phantom has higher % of employees with degree from specific area of study as compared to Red Chillies.

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Raw Data - I have used LinkedIn and have manually compiled bucketization of employees across key job functions. All the positions (Jr/sr/lead) are included in the overall number for that job function,
(PS - I have used Google Bard previously for similar purpose and I find it semi-accurate compared to manual analysis. In this case, Google Bard’s accuracy for employee count across job roles was semi-accurate (±10% error) but the overall % distribution of Bard was more or less matching data from manual analysis)

1. Employee distribution across job functions
   
   

   
   
   
   While I have no knowledge or expertise in this field, as per my understanding, Roto/MM/Paint and Lighting seems to be the low end job functions (mainly post-production activities). The distribution of employees in these low end job roles for both the companies seems to be ~35% and rest ~65%.
   

2. Skill sets
   
   

   
   
   

3. Study Area
   
   

   
   
   

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Appendix

1. Org structure of Phantom (As per Google Bard)

* Bejoy Arputharaj - Founder / CEO / VFX Supervisor
    * **Visual Effects Department**
        * Ravindran S - VFX head (1)
        * VIJAY DAS - Creative Head & Visual Effects Supervisor (1)
        * Mohinder Subramaniam - Creative Head (1)
        * Compositor Artist (50)
        * Lighting Artist (40)
        * Animator or Animation Artist (30)
        * Match Move or Roto Artist (20)
        * FX or Houdini FX Artist (10)
    * **Computer Graphics Department**
        * Anish Sreedhar - Head of CG (1)
        * Modeler (20)
        * Rigger (15)
        * Texture Artist (10)
        * Layout Artist (10)
        * Render Wrangler (10)
        * Simulation Artist (5)
    * **Production Department**
        * Kris Prasad [KP] - Head of Production (1)
        * Production Manager (5)
        * Production Coordinator (10)
        * Production Assistant (20)
    * **Strategy Department**
        * Ravikumar P - Chief Strategy Officer (CSO) (1)
        * Strategy Manager (2)
        * Analyst (5)
    * **Creative Department**
        * Asif Bhushan - Senior Creative Head (1)
        * Balaji V - Senior Vice President - International (1)
        * Chandrashekhar Thanvi - Creative Head (1)
        * Creative Director (5)
        * Writer (10)
        * Art Director (5)

2. Org structure of Red Chillies (As per Google Bard)

CEO

    Executive Team
        Chief Financial Officer (CFO)
        Chief Marketing Officer (CMO)
        Chief Sales Officer (CSO)
        Chief Operations Officer (COO)

    Departments
        Creative Department
            Head of Creative
                Compositors (50)
                Lighting Artists (40)
                Animators (50)
                Match Move or Roto Artists (20)
                Fx or Houdini Fx Artists (20)

        Production Department
            Head of Production
                Producers (20)
                Production Managers (20)
                Coordinators (20)

        Business Development Department
            Head of Business Development
                Business Development Managers (10)
                Sales Executives (10)

        IT Department
            Head of IT
                IT Engineers (20)
                IT Support Staff (10)

3. Phantom’s career page to understand job roles and responsibilities - Careers @ PhantomFX

[Vivek_Chadha]

what would be the impact of 28% tax (ob gaming) on phantom digital? can we any see slowness in vfx for gaming industry?

[Venky_Thiriveedhi]

Nice insights on hirings and employee distribution Sahil ji, Tarang ji

These hiring figures justify the 75-80% growth promised by the company

• To my knowledge this is the highest available growth figures among all listed/unlisted VFX companies and also among all listed IT Services companies

• Hiring is happening across 3 locations equally …signifies their strategy to work across markets, unlike Redchillies which heavily caters to SRK and Hindi movies… PhantomFX don’t have office in Karnataka and Kerala, but they also provide services to these industries too…recent one I came across is “2018”, it’s a Malayalam super hit movie

The recent multiyear OTT deal from Netflix also highlights their strategy to diversify between Movies and OTT, Indian vs International content and de risking themselves

If you observe their recent job postings… again a nice operational strategy, indicates the growth will happen for sure

• Recently expanded their HR team with 3 new hires…this would help in ramping up hiring and other HR functions

• Hired a Senior Creative Head with International film experience… this would help in building new team around him and also get some new projects and probably he could pull some ex colleagues into PhantomFX

• All their openings were for experienced people with 2-4 years or above experience levels except this week’s post calling for freshers…this has strengethned their lower mid and mid level organisation pyramid…adding freshers under them would make it easy and this number might go big and this might happen in shorter time

VFX is going to play key role for the rise of Indian cinema to International level, RRR paving the way and now Kalki trying to take it a step further and many many more to follow with even bigger budgets which we haven’t imagined before. VFX industry is going to immensely benefit with demand coming from different platforms both within India and across the world. PhantomFX is nicely positioning themselves to ride this wave.

[Ashish_Munjal]

really great information. Is there a way to understand the Salary against each skill set. This is needed for a separate purpose . Where we can find Skill Year exp Annual salary .

[Venky_Thiriveedhi]

PhantomFX work as per IMDb. Sort it by descending date to see the latest Movies/ OTT they are working on

With Phantom-FX (Sorted by Popularity Ascending) - IMDb

Their Pipeline looks big with around 10 movies/OTT at different stages of production. Plus they would still be working on new seasons for popular on going web series in OTT.

Not sure of the criteria to be listed here, but I guess this list is not comprehensive, as from different other sources I see that they had worked for movies like Adipurush, 2018, Maveeran etc; which were not listed in this page.

[hunter]

Results are out… Sales figure is 23.65 crores which is up by 25% qoq and nearly 100% yoy. Profit is 6.05 Crores. Employee expenses and other expenses also on higher level.

How should we interpret the results? Hiring senior employees will definitely reduce the margins on near term but will surely help on long term particularly in foreign projects.

Guys kindly input your feedback too.

[Venky_Thiriveedhi]

Q1FY24 Result … As expected, very good set of numbers from PhantomFX. Growing at a rapid pace compared to its peers and strengthening it’s position in VFX world.

Revenue and PAT increased big on YoY basis and even on a QoQ basis it was a very high growth figures. This justifies the 75-80% growth guidance for FY24.

EBITDA margin is at 38%. It is higher than 33-35% projected earlier …this is good considering they were hiring experienced people at higher rates from the market …hiring interns might give them some more cushion in coming quarters, but they might hace other expenses lined up too

Note, PhantomFX is listed on SME platform, though optional it is still providing results on Quarterly basis (mentioned it explicitly as some people tend to take these things for granted) …hope company will also share quarterly business updates in coming week

[Prashantnegi76]

Change in CFO.

[Vivek_Chadha]

More Hiring! They are actively hiring!

[Venky_Thiriveedhi]

IPO of one more VFX company Basilic Fly will be open this Friday. They are raising funds to start offices in Hyderabad, Salem and to expand their existing Chennai, Pune and Vancouver offices.

Company is of Similar size as PhantomFX (396 vs 475 employees as per LinkedIn).

Unlike Phantom digital, Basilic Fly works only for International movies. They are TPN Certified and has worked with Disney, Marvel, Netflix, Amazon including Apple tv, Paramount which I guess Phantom is yet to be associated with ( as of date auditing from Paramount is going on).

It has seen tremendous growth last year and is expecting to continue its high growth and with margins similar to PhantomFX.

Please go through this video where the Management answers investors questions related to VFX Industry growth, Company’s growth, Margins, AI impact for VFX, Writer’s strike Impact and many other questions related to WC Cycle, Receivables, Attrition, Bench strength etc;.

IPO Meet - Basilic Fly Limited

They had addressed most of the questions well…but the team seems to have not prepared well on the Order book and on the Growth related questions which I guess they would address it better in future interactions with other Media channels.

It’s IPO is priced at 97 and it’s GMP is around 140-150 … looks like there is a lot of interest because of its low PE of around 8.5 (basis FY23 and post issue equity) and some say this might break records in terms of oversubscription …probably it will list at a very high premium and would start trading at valuations similar to PhantomFX

It is good to see and hear from one more player and clear apprehensions if any over this industry. This surely will increase Investors awareness of VFX Industry which was and will be one of the fastest growing industry in coming years.

On a side note, given the employment opportunities this VFX export industry is creating, I feel government needs to have a serious look at it and provide support to them like it did for IT Services with tax incentives

[sahil_vi]

biz quality wise I’d value basilic lower than phantom(more commoditized work, no direct relationships with studios vs phantom having direct relations with likes of netflix). But valuation is cheap at ipo price probably listing too so it’ll probably rerate but I am more comfortable holding phantom

Disclaimer: invested in phantom, biased.

[amol_srivastava]

Hi sahil.

The margins of Basilic are pretty good and comparable with phantom digital. They also have a rich body of work behind them and experience of working with marvel and the other huge studios.

Also the IPO is coming out at frankly pretty great valuations.

Would you please consider elaborating on what you consider as commoditized work / no direct relation with studios for basilic.

Also on a different note , the recent price action of phantom digital suggests market is noticing basilic ipo to be cheap and maybe preferring basilic(definetely a competitor to phantom)at these valuations. I maybe wrong here though as phantom can be considered a less liquid scrip.

Disc : invested in phantom , biased, no recommendations.

[Venky_Thiriveedhi]

In terms of valuation… at CMP of 484, PhantomFX MCap is 563 Cr.

Coming on to Basilic Fly

Equity shares post issue will be = 1.7 Cr (Current) + 62.4 Lakhs (IPO) = 2.324 Cr shares

MCap at IPO Price of 97 = 2.32 * 97 = 225 Cr

It’s GMP seems to be in the range of 150 to 250 rupees. So, chances are that it will list between 250 to 350 and post listing gains depends on the over subscription records it is going to set

Let’s look at it’s MCap at different price points …correct me if there are any large calculation mistakes

At 250 rupees = 581 Cr MCap
At 300 rupees = 697 Cr MCap
At 350 rupees = 813 Cr MCap

These valuations are inline with PhantomFX and I don’t think Basilic Fly will be available cheaper post listing too, unless anyone knows secrets of getting sure shot IPO allotments at cheaper valuations

In terms of investment strategy, especially for long term investors…we need to remember that our bet is primarily on VFX industry growth and within this we are looking at companies who are able to deliver growth at similar or higher rates.

Deciding whether one company is better than the other will be a futile exercise as each company would have its own strategy and execution that turns out better than the other in long run. In this scenario, our strategy is to take a basket approach, sit back and enjoy healthy race between them.

[hitesh_gangwani]

Basilic Fly

There are ongoing legal disputes involving company ,promoters and directors for basilic Fly

Can anyone explain is there is great red flag or minor issue

It will be helpful

Was thinking to apply for ipo after reading this post

[Rahil_Dasani]

there are only 4 proceedings in totality, these are tax proceedings, an are worth less than 1cr.
no red/green flag

[Amnesiac]

Mr.Rajinikanth E.S was the CFO of Phantom, after the IPO he moved to Krishca Strapping Solutions which recently had their IPO. I think some of the members here own both these scrips. In the Basilic Fly IPO meet, they mention Rajinikanth as their IPO advisor, we don’t see the person though, may not be the same person. All 3 companies are from TN. Should there be any significance attached to this at all?

Rajinikanth E. S. - Biography

[tpatel]

Going through AR2023, came across an interesting revelation. As we already knew, company’s working capital in FY23 was affected by -22Cr due to ‘other current assets’ (non-receivables) which is the primary reason for negative OCF (apart from receivables). Turns out that 17Cr (73% of EBIDTA) is - ‘Advance for film Distribution rights’.

Highly likely this is for film ‘Ayalaan’ where Phantom FX Studios seems to be one of the production companies as seen from wikipedia and movie’s teaser. It is rumored that the film’s release date is further postponed from Diwali 2023 to Pongal 2024. Reason/bottleneck for the delay is rumored to be VFX work. [1] [2]

Update - It is indeed purchasing of film distribution rights from KJR studios (initial distributor of Ayalaan). Below is the AR snippet.