Top 4 VFX Stocks that Can Add Visual Effects to Your Portfolio

Movies like Harry Porter, Bahubali, RRR, and The Lord of the Rings are perfect examples of how digital effects can enhance storytelling and create a truly immersive experience for the viewers.

A part of what makes such a series of films work is the underlying visual effects (VFX). What we have now in terms of movie special effects is nothing short of miraculous.

VFX has come a long way over the years, and as a result, they are now an essential component of filmmaking.

Not only is India's domestic film industry demanding more special effects, but companies from overseas are also sending work to India.

For example, the dragons in the fifth season of Game of Thrones were created in Mumbai.

Government Cash Rebate: A Game Changer for VFX

In a landmark move to bolster the country's visual effects (VFX) industry, the Indian government has unveiled a groundbreaking initiative to provide direct cash rebates to international projects using Indian services.

This strategic manoeuvre is poised to catapult India's VFX and animation sector into an era of unprecedented growth and global recognition.

Foreign productions availing pure animation post-production and visual effects services in India can receive up to 30% of the qualifying expenses (75% of the contract value) along with an additional 5% bonus for significant Indian content, with a maximum rebate capped at Rs 300 million (m).

With this incentive in place, Indian studios are poised to attract a greater share of international projects, further solidifying the country's position as a global hub for animation and VFX production.

With that context out of the way, let's look at some of the VFX companies in India that are taking serious efforts.

#1 Phantom Digital Effects (PDEL)

Incorporated in 2016, Phantom Digital Effects provides visual effects to films, web series, and commercials.

PDEL is a trusted partner network (TPN) certified creative VFX studio offering end-to-end services for film, web series, and commercials to global production houses, including final compositing, 3D element creation, and animation.

The company also contributes to the production, pre and post-production of feature films, web series, and commercials. Besides working directly on a particular project, it takes up subcontracts for large VFX studios.

The company has designed visual effects for prominent Hollywood and Bollywood films such as RRR, Joker, Avengers, Transformers, Bahubali, and many more.

Phantom Digital has been authorised as an Amazon-approved VFX studio, and the firm is delivering its varied services to Amazon's Production as well as Walt Disney.

The company has signed strategic deals in India and abroad, including a groundbreaking deal with a major OTT platform worth Rs 1,200 million (m) over 4 years.

# Orders

On 29 April 2024, the company received new orders of VFX services for about Rs 170 m.

The company signed a resource planning agreement with Netflix Inc. on 26 June 2023, to provide VFX services.

On 13 September 2023, the company secured an order worth Rs 62.5 m with a substantial Rs 40 m deal dedicated to international movie production.

# Acquisitions

On 12 March 2024, the company signed a term sheet to acquire a majority stake of 80% in M/s TIPPETT Studio, USA & Canada.

The acquisition of Tippett is expected to result in a significant increase in revenue growth of 20-25% during 2024-25. Tippett has several upcoming projects with leading Hollywood production houses and studios.

This acquisition may lead to the addition of 250 to 300 employees in India, the US, and Canada which will further enhance its global footprint and capabilities.

Coming to the company's financials, the company's net sales in March 2024 were up 53.4% from Rs 580 m in March 2023.

Its net profit came in at Rs 240 m in March 2024, up 50% from Rs 160 m in March 2023.

Financial Snapshot

Particulars (In Rs. Million)	2020-2021	2021-2022	2022-23	2023-24
Sales	70		580	890
Operating Profit	0	70	230	380
Operating profit margin (%)	5.00%	43.00%	39.00%	42.00%
PAT	0	50	160	240
Dividend Payout(%)	0%	0%	0%	0%
Key Ratios
ROCE(%)	9	119	75

Data Source: Equitymaster, Screener.in

#2 Basilic Fly Studio

Incorporated in 2016, Basilic Fly Studio is in the business of post-production activities of providing high-end visual effects and 2D and 3D conversion.

BFS is a visual effects (VFX) studio headquartered in Chennai with subsidiaries in Canada and the UK. It specialises in using technology to deliver VFX solutions for movies, TV shows, web series, and commercials.

The company has completed 10,000 projects, including movies, 2,000 series, and 8,000 commercials, with 300 plus clients.

It has tapped into global markets as well, with offices in London and Vancouver.

The company plans to open 2 additional facilities in Hyderabad and Salem and is targeting international expansion in Eastern Europe and South Korea.

Basilic Fly Studio has marked a significant milestone with the launch of Lightrunner Studio in the UK, extending its capabilities to deliver top-notch visual effects for feature films, television, and advertising.

# Upcoming Projects

The company is expanding its project portfolio with new ventures from Italy, Spain, France, and North America. This includes genres of science fiction, action-comedy, franchise spin-off /prequel, docudrama series, high-fantasy American series, International Film Awards contender, family-friendly franchise, and serene drama/ romance.

Coming to financials, the company's sales in March 2024 were up 42.8% while net profit came in at Rs 360 m, up 27.7% YoY.

Financial Snapshot

Particulars (In Rs. Million)	2020-2021	2021-2022	2022-23	2023-24
Sales	170	240	700	1000
Operating Profit	10	10	360	490
Operating profit margin (%)	7.00%	6.00%	52.00%	49.00%
PAT	0	10	260	360
Dividend Payout(%)	0%	0%	0%	0%
Key Ratios
ROCE(%)	0	23	171	0

Data Source: Screener

#3Prime Focus (PFL)

PFL was founded by Namit Naresh Malhotra in 1997. It started small in Mumbai and grew to become an integrated media and entertainment services powerhouse. It is present in 18 cities (8 in India and 10 abroad) across 5 continents.

The company is engaged in the business of post-production activities including digital intermediate, visual effects, 2D to 3D conversion, and other technical and creative services to the media and entertainment industry.

PFL caters to players across the entire media industry value chain and the product life cycle of media content. Its major clients include top Hollywood and Indian studios and media companies across the globe which are Warner Bros., Disney, Netflix, Bloomberg, Disney, Star, ICC, BCCI, and Amazon.

It's the first company in India to offer a high-end post-production finishing system, film scanning, and recording system. It's also the first in South Asia to offer a 4K DI Facility. Its technology division, Prime Focus Technologies, deployed the world's first hybrid cloud platform "CLEARTM" in 2009.

It was also the first company in the world to convert an entire Hollywood film from 2D to 3D - transforming the stereo conversion services landscape forever.

Here's a table showing how the company has fared over the past 5 years -

Financial Snapshot

Particulars (In Rs. Million)	2020-2021	2021-2022	2022-23	2023-24
Sales	25360	33,860	46,440	39510
Operating Profit	5900	7970	9750	2530
Operating profit margin (%)	23.00%	24.00%	21.00%	6.00%
PAT	-560	1740	1940	-488
Dividend Payout(%)	0%	0%	0%	0%
Key Ratios
ROCE(%)	6	11	16

Data Source: Screener

#4 Digikore Studios

Incorporated in 2000, Digikore Studios is a visual effects studio that offers a full suite of visual effects services.

The company offers VFX services for films, web series, TV Series, documentaries, and commercials. It has a studio in Pune.

The company made its mark in animation and VFX. It worked with projects like Thor - Love and Thunder, Black Panther - Wakanda Forever, Glass Onion - A Knives Out Mystery, Deadpool, Star Trek, Jumanji, The Last Ship, Titanic, and Ghost Rider.

DSL has approvals from major production houses like Disney/Marvel, Netflix, Amazon, Apple, Paramount, Warner Bros., Lions Gate, etc.

# A Stepping Stone for Digikore

In March 2024, Digikore announced the forthcoming launch of the world's first cloud-based marketplace of virtual production sets.

This revolutionary platform, meticulously developed over 16 months, promises to redefine the landscape of filmmaking worldwide, and offer unprecedented opportunities for creators across the world.

Digikore's metaverse will democratise the production of content by providing an opportunity to filmmakers with small to medium budgets to create content that looks big budget.

Tailored for filmmakers and content creators with varying budgets, this Software as a Service (SaaS)-based marketplace empowers them to compete with big-budget productions while saving costs and enhancing production quality.

Here's a table showing how the company has fared in the past 5 years -

Financial Snapshot

Particulars (In Rs. Million)	2020-2021	2021-2022	2022-23	2023-24
Sales	48.9	248.8	344.4	449.6
Operating Profit	-2.5	23.6	63.6	129.2
Operating profit margin (%)	-5.10%	9.40%	18.40%	28.70%
PAT	0.3	4.7	43.7	95.4
Dividend Payout(%)	0%	0%	0%	0%
Key Ratios
ROCE(%)	12.1	13.1	25.9	75.7

Data Source: Screener

Digikore aims for substantial revenue growth within 2 to 4 years by offering virtual production sets on rent at a fraction of the cost of creating custom virtual production sets.

Conclusion

Indian filmmakers are increasing their spending significantly on VFX.

High-budget films like Brahmastra and RRR allocate 25-30% of their total production budget to VFX. The number of VFX shots in these films has also seen a considerable surge, with filmmakers now including 1,500-2,000 VFX shots in their movies, up from just a few hundred in the past.

The VFX and animation industry in India is experiencing remarkable growth, primarily due to the increasing demand for high-quality visuals in films, TV shows, and marketing campaigns.

Moreover, the industry is being boosted by government initiatives and collaborations with educational institutions. Technological advancements are also allowing studios to develop more ambitious and innovative projects.

The Indian VFX and animation industry is projected to achieve a CAGR of 20-25%, reaching an estimated market value of Rs 190 billion (bn) by 2025. The future looks promising, and we can anticipate more groundbreaking visual effects and animation work from India in the coming years.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...