Phantom Digital Effects Limited

There are some very interesting developments in Phantom & VFX industry in general that one has to watch out for. Keep in mind that the co is 60 cr only & is a microcap. one cannot expect HUL type moats here. For a microcap, what should the framework be? Here are my thoughts:

1. Base rate of success: Look at base rates here: Services exports out of bharat is growing at double digit even today, VFX industry itself is growing at 12% at a global level, VFX exports out of india (i dont think this is a tracked macro but my suspiction is this must be 15-20%). One of largest executor DNEG is growing revenue at 17% CAGR & Profits at 25%
   

   Base rate of success increases. Because pie itself is growing at 12% or more, competitive intensity becomes lower (there is enough & more for everyone out there). IT & NBFC are some of best scalable biz for small companies. VFX lies somewhere close to IT (Digital animation, creative services) & has similar base rate of success.

2. Execution Capability: The promoter is ex-Prime focus. Led their LG team. Their clients include Bahubali, Bahubali 2, RRR, Avengers, DC, Paramount, Netflix, Amazon. My suspicion is that they will execute good projects in future as well.
3. Promoter integrity: From whatever feedback i have received from fellow investors, promoters seem to not be crooks (I am always happy to seek disconfirming evidence & be proven wrong). Receivables have reduced as explained in this video: 100% Growth in Niche Micro Cap Stock?? – YouTube
4. Industry structure: 90% of VFX companies in india simply do processes & not creative work. Phantom is in higher end of VFX services. Involved in creative, pre production, & it will not be easy for a random VFX studio to come in because they lack the knowhow & processes to do creative work. Phantom creates digital assets like tigers etc, These digital assets are cumulative. They reduce the incremental cost of implementation & have a operating leverage effect since the asset is charged off in 1st use but can be reused at 0 or low costs in future iteration. This is a very interesting aspect of industry. Some of their VFX has been charged 30,000 rs per man day. This shows the value addition of work they do. 60% of employees are in creative, 20% in management, 20% in process (low value work). This shows the value addition of the work that phantom does.

Should be very interesting to see how this one plays out.

Disclaimer: Invested, biased