Operationally a strong quarter
Prime Focus posted Q1FY13 operating results in line with expectation. Apart
from the post production business which got impacted in UK, we believe the 2D
to 3D conversion business along with PFT would be future growth drivers for
the company. Forex gain of Rs125mn boosted PBT while higher tax muted
profitability. We maintain our BUY rating.
Q1FY13 results in line with expectations: Prime Focus posted Q1FY13 results inline
with expectations. Topline was at Rs1882mn (up 12.4% YoY) 1.4% below our
expectations while operating profit was at Rs572mn (up 24.3% YoY) on the back of
higher forex gain and margin expansion while PAT was at Rs210mn, down 16.4%
(down 26% YoY) from our expectations due to higher than expected tax rate.
Post production business under pressure: Post production business was under
pressure and down 41% QoQ following the slowdown in Europe and UK. Olympics
further impacted TV advertising and triggered a marked downturn in expected
activity levels across the post-production industry in UK. This impacted the
profitability of its UK subsidiary which posted losses during the quarter and is
expected to be under pressure for the next couple of quarters.
2D to 3D conversion continues to expand: This segment grew by 60% QoQ to
Rs832mn on the back of a strong pipeline of movies. The company is currently
working on Wizard of Oz and Star Wars 2 & 3. Prime Focus delivered close to 400
shots for the recently released Total Recall, endorsing its ability to cross-sell VFX
services to the 3D conversion client base in Hollywood. We believe VFX would help
the company to gain more business and increase margins going forward.
PFT continues to gain traction: Company engaged with Sony Music to transition
its video operations to the Cloud on the CLEAR platform and had several client
wins in South Africa including becoming the leading TV Spot Distribution supply
chain solution in that market. It has also extended its content localization offering-
Language Dubbing services, complementing its existing subtitling/captioning
service offering. During the quarter PFT business was up 16.8%QoQ and is
expected to post revenues of Rs789mn in FY13E.
Maintain BUY: The stock is currently trading at 5.2x and 3.8x FY13E and FY14E EPS
of Rs8.76 and Rs11.9 respectively. We believe the company is at an advanced stage
to repay the FCCB of USD79mn which we believe is the biggest hangover on the
stock. Post this we expect the stock to re-rate given its strong business model and
global dominance in 2D to 3D conversion. Hence we maintain BUY rating on the stock.
No comments:
Post a Comment