Phantom Digital Effects Ltd’s Q4FY23 results

Quarterly Financial Summary (Rs. Crores)

For 3-months ending	31-Dec-22	31-Mar-23
Revenue	12.92	18.93
EBITDA	5.71	6.23
EBITDA%	44.2%	32.9%
PAT	3.4	4.16
PAT %	30.9%	22.0%
EPS	5.50	2.94

Q4 FY23 Performance Summary

• Phantom’s overall revenue stood at Rs 18.93 Cr witnessing a notable increase of 46.6% QoQ. The robust growth is attributed to the execution of order book and increasing demand for the services.
• EBITDA margins stood at 32.9% in Q4 FY23 compared to 44.2% in the previous quarter, witnessing a sharp fall of 25.6%. The fall in the margins is due to significant costs associated with the expansion of the employee base, needed to fulfil the order book. This is expected to increase further as the company plans on adding ~400 employees by FY24 to its current base of 600. The topline growth is expected to be linear to the increase in manpower employed.
• PAT margins stood at 22% compared to 30.9% in the previous quarter, seeing a significant 28.9% decline QoQ. The company acquired two new studios and offices in Mumbai and Chennai in Q3 FY23. Operations in the Mumbai office commenced in February 2023. The consequent impact on depreciation is seen in Q4, adding to the decline in the profit margins.

Segment Wise Performance Breakup

• International business comprises of ~60% of the total revenues while the domestic business accounts for the remaining ~40%. Profit margins are higher for international business and the company therefore expects to set up offices in Los Angeles and Vancouver to attract a wider market. The service mix is made up of delivery of visual effects services for commercials, films and OTT platforms. Films and commercials combined, account for ~80% of the revenues and OTT contributes ~20%. Client retention ratio is ~80%, with top 10 customers accounting for ~65% of the business.

Future Guidance

• The total contract value of 15 orders that are currently under execution stands at ~Rs 70 Cr. This is expected to be completed in a period of 9 months. The company expects further order inflow of ~ Rs 24 Cr coming from an OTT platform. As a result, revenue is expected to grow by ~75-80% in FY24, with EBITDA margins stabilizing between 33-35%.
• The company wants to further expand in the international market and account for a higher percentage of global orders. In terms of services, it plans on leveraging its VFX capabilities into animation and gaming line for their cinematic needs, moving forward.
• The company plans on commencing its operations in Cochin and Hyderabad in FY24 and further expand its operations by increasing its offices/studios both domestically and internationally. The current employee base is expected to increase further by ~ 400 new people coming on board in FY24. The company is also establishing a new training division for continuous enhancement of employee skillset.