MOSL: PRIME FOCUS (Buy)- Creative business drives growth-robust order book augurs well
PRIME FOCUS: Creative business drives growth; robust order book augurs well
(PRIF IN, Mkt Cap USD0.5b, CMP INR102, TP INR130, 27% Upside, Buy)
Meager growth in EBITDA, despite strong revenue: Revenue grew 20% YoY (+11.4% QoQ) to INR6.1b (in-line), led by robust growth in the Creative business. Yet, EBITDA (pre-ESOP) grew by a meager 4% YoY (+6% QoQ) to INR1.3b (8% miss) due to a 25% YoY rise in operating expenses. EBITDA margin contracted 320bp YoY (-120bp QoQ) to 20.9% (180bp). However, adjusted for one-offs (INR100m of forex translation accounting, and INR100m of Montreal set-up cost), EBITDA margin stood at 24.2%. Higher finance cost and depreciation led to a loss of INR87m (est. of profit of INR258m; INR227m profit in the year-ago period).
Creative business drives growth: Creative segment (~78% of revenue) rose 25% YoY to INR4.8b, led by growing offerings to movie content. Adj. EBITDA margin grew 230bp YoY to 26%. Also, Tech business reversed the previous quarter’s negative trend, growing by 3% YoY to INR0.8b. However, higher SGA expenses led to a 360bp Tech margin contraction to 23.6%.
Robust order book augurs well: PRIF has a strong order book of USD250m+ for the creative segment. This, coupled with the gradual shifting of operations to low-cost centers, is likely to drive strong growth in the creative segment. Furthermore, a steady ~USD200m pipeline in the Tech business augurs well. We cut FY19/20E revenue/EBITDA by 2-3%, and expect consol. revenue/EBITDA CAGR of 15%/19% over FY18-20, led by a 21% EBITDA CAGR in Creative.
Prime Focus Limited is a holding company. The Company is a media and entertainment industry services company. The Company provides end-to-end creative services, such as visual effects, stereo three dimensional (3D) conversion and animation; technology products and services, such as Media Enterprise Resource Planning (ERP) Suite and Cloud-enabled media services; production services, such as equipment rental, and post production services, such as Digital Intermediate and picture post to studios, broadcast and advertising industries. The Company's technologies include CLEAR (Hybrid Cloud technology enabled Media ERP Suite), DAX Digital Dailies and ViewD (stereoscopic two-dimensional (2D) to 3D conversion process). It has operations in Bangalore, Cape Town, Chandigarh, Delhi, Goa, Hyderabad, Johannesburg, Kolkata, London, Los Angeles, Mumbai, New York, Toronto and Vancouver. Its subsidiaries include Prime Focus Technologies Private Limited and De-fi Media Limited.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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