Prime Focus

Prime Focus

Prime Focus

 Prime Focus 

Prime Focus

We recommend a buy in the stock of Prime Focus from a short-term perspective. It is evident from the charts of the stock that its short-term downtrend which started from its April 2010 peak of Rs 365, found support around Rs 260 in late May. This downtrend retraced exactly 61 per cent fibonacci retracement of its prior uptrend (from Rs 191 to Rs 360). Subsequently, the stock resumed it medium-term uptrend that is in place since the February 2010 low of Rs 191. On Tuesday, the stock advanced 5 per cent conclusively breaching through its key resistance and 50-day moving average poised around Rs 285. The volume was above average. Both daily and weekly relative strength indices have entered into the bullish zone. Moreover, the daily moving average convergence divergence indicator is on the brink of entering this positive territory, whereas the weekly indicator is featuring in the positive territory. Our short-term forecast on the stock is bullish. We anticipate the stock to rally further until it hits our price targets of Rs 314 or Rs 320. Short-term traders can buy the stock with stop-loss at Rs 288.

via BL

Prime Focus

We recommend a buy in Prime Focus from a short-term horizon. It is apparent from the charts of the stock that from the March low of Rs 51.8, the stock has been on an intermediate-term uptrend. Moreover, it has been on a medium-term uptrend since July low of Rs 130. Recently, the stock took support around Rs 180 from the intermediate-term uptrend-line and continued to trend up. On September 22, the counter jumped 5 per cent accompanied with above average volume. It is trading well above its 21- and 50-day moving averages. The daily relative strength index (RSI) has entered the bullish zone and weekly RSI is heading towards this zone. The daily moving average convergence and divergence (MACD) indicator has signalled a buy and weekly MACD is featuring in the positive territory. Our short-term forecast on the stock is bullish. We expect the stock to move up until it hits our price target of Rs 223. Traders with a short-term perspective can buy the stock while maintaining a stop-loss at Rs 192.

via BL

Prime Focus

With a strong presence in the niche area of post-production services for films, a unique cross-border business model and a good pipeline of film projects, Prime Focus is a preferred pick within the media sector. A substantial correction in recent months has the stock trading at about 15 times its likely FY ’09 consolidated earnings per share, which is reasonable given the high visibility in earnings growth. An investment can be considered in the stock with a three-year perspective.

Prime Focus has an estimated 60 per cent market share in India. With six facilities across Mumbai, Hyderabad and Chennai, its domestic business continues to grow at a fast pace, as the use of visual and special effects in Indian films is on the rise. The business is highly profitable with operating margins at 50-60 per cent, although higher employee costs have moderated margins in recent quarters. A large pipeline of 8-10 film projects in FY 09 should ensure a steady stream of revenues for the domestic operations.

Prime Focus has built an international presence with facilities spanning the UK, US and Canada. Its first acquisition in the UK (VTR) has paid off, with Prime Focus successfully turning around the company and the facility has begun to outsource work to India. As the London operation works more on advertising film projects, it has been affected by the advertising slowdown witnessed in these markets in recent times.

Prime Focus acquired Frantic Films and Post Logic Studios for $43 million in late 2007, which gave it access to facilities and talent pools in key markets of Los Angeles, New York, Vancouver and Winnipeg. The targets have combined revenue of $25 million (Rs 107 crore) and have been associated with films such as Spiderman 3, Fantastic Four and Superman Returns. These businesses are yet to be consolidated with Prime Focus and may not contribute to profits in the next one year. However, the presence of cross border facilities have helped create a unique business model, where a significantly higher amount of work can be carried out by facilities across time zones in a cost efficient manner. Prime Focus’s tie up with Warner Bros’ Motion Picture Imaging appears to be recognition of the merits of this international operation. The benefits of the strategy are likely to pay off from FY ’10. An unexpected slowdown in domestic operations is a key risk to earnings estimates. The stock’s small-cap status may call for careful timing of investments.

Prime Focus

Prime Focus

Prime Focus - Flash note - Q2FY08 Result

Prime Focus - Flash note - Q2FY08 Result

Prime Focus: Buy

An investment can be considered in the stock of Prime Focus, a company focussed on the post-production and visual effects segment of the media sector. At the current market price of Rs 770, the stock trades at about 26 times its 2007-08 earnings per share.

Although absolute valuations are on the high side, limited competitive activity in the domestic visual effects space and a steady demand environment promises greater earnings visibility compared to other players in the media sector. Its presence in a niche and high-margin business is likely to make the stock a good exposure within the media sector.

While the stock has weathered the recent market correction well, it remains vulnerable because of its relatively small market capitalisation. Investors can consider taking exposure in small lots and use declines linked to market weakness to accumulate the stock.

Buoyant domestic operations

Corporatisation of the film industry, increasing production budgets, experimentation by film-makers and the changing tastes of Indian audiences in favour of action/fantasy/suspense films as against the traditional family drama are factors that have created a fine setting for the post-production and visual effects industry. With an integrated presence across post-production activities and a geographical spread across markets, Prime Focus is well-placed to cater to this trend.

Since its IPO in May 2006, Prime Focus has beefed up its domestic operations. It has completed the expansion of its Mumbai facility and opened a new facility in Chennai. It has also acquired a post-production outfit in Hyderabad. It is now well-placed to cater to demand from the Tamil and Telugu film industries, which are equally prolific in film releases.

There is a high degree of visibility on the demand side. While the fortunes of Bollywood may have changed in 2007, with few films making it in the box office, Prime Focus has continued to record a robust growth in revenues and profits. Being in the post-production business, the company does not bear the risk of the content gaining popularity with an audience. It can also count on steady orders from the Indian film industry, which churns out hundreds of movies a year, irrespective of how the economy does, as the demand for entertainment remains inelastic. The frenetic activity in broadcasting and the rising trend in television advertisement spends also augur well for its business.

Prime Focus’ stand-alone revenues (numbers include only its domestic operations) have been growing at a brisk 40-50 per cent in recent quarters. The trend is likely to sustain, with the South beginning to make a more active contribution to its revenue stream. However, with Prime Focus’ acquisition of the London-based VTR and its associated outfits, its Indian operations now account for less than 30 per cent of its consolidated revenue of nearly Rs 200 crore.

Overseas operations

Part of the offer proceeds helped fund Prime Focus’ acquisition of VTR, a 20 million pound post-production outfit. The loss-making unit was subsequently re-structured. Within seven months of its takeover, Prime Focus has managed to turnaround VTR. The impact of the acquisition has boosted its overall revenues, but has temporarily impacted profitability, with consolidated margins hovering in the 30 per cent range compared to the high 50s earlier. However, Prime Focus hopes to initially get at least 10-15 per cent of VTR’s projects outsourced to India where it can undertake the same work at a fraction of the cost. This could improve VTR’s margins, even as the outsourcing order flow adds to the company’s Indian revenues.

The company has managed to integrate its acquired facilities and has completed its first project with the film “28 weeks later”, a sequel to the horror/thriller movie “28 days later”. It is now working on a couple of more features with VTR. An improvement in VTR’s profitability will enhance its consolidated margins and earnings as well.

Gaining access

Even as it consolidates its newly acquired international business, Prime Focus is scouting for other acquisitions and has an eye on Los Angeles, as it will give it access to the biggest market for post-production.

The company is also considering the inorganic route to growth for its ready access to international clients.

As special effects and editing require a close interaction with the client, it makes sense to operate through a company that already has an established presence in the market.

A presence in overseas market will strengthen the demand for Prime Focus’s services domestically, especially from international players such as Fox and Walt Disney, which are increasing their focus in India.

While international operations will help expand its revenue base considerably, the domestic operations are likely to contribute the most to growth in the near-term.

Post-production services in overseas market are not as lucrative as they are in India, because of the higher employee costs.

Also, being a more mature business, it is likely to witness a more sedate revenue growth than in India where the use of visual effects is in a nascent stage. Therefore, any slowdown in growth in domestic operations will impact consolidated numbers.

Further, inorganic growth will also bring with it the usual risks of successfully integrating operations.

Prime Focus

Prime Focus

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