Phantom Digital Effects Limited (PHANTOMFX) Earnings Call Transcript & Summary

Good evening, everyone. On behalf of AKMIL Strategic Advisors, I welcome you all to the Virtual Investor Meeting of Phantom Digital Effects Limited. Thank you for taking time to visit us today. Phantom Digital Effects Limited is one of the India's leading visual effect studios providing end-to-end VFX services across films, web series and commercials. From the management team, we are pleased to have with us today Mr. Bejoy Manohar, Chairman and Managing Director; Mr. Anantharaman, Vice President, Finance; Mr. Binu Joshua Manohar, Whole-Time Director and Chief Operating Officer; and Mr. Rajesh Samal, Company Secretary. Before we begin, I would like to mention that today's meeting will be limited to 45 minutes. [Operator Instructions] With this, I would like to hand over to Bejoy, sir. Over to you, sir. Thank you.

Thank you. Hello, everyone. Very nice meeting you. I think it's been quite some time since I've conducted a public meeting. It's been a very busy months, the last 3, 4 months. I know you are all very desperate to -- looking forward to hear from us. And I, first of all, sincerely apologize for all the delays in a proper communication. So I just wanted to give you a hint on what's happening and then we'll open up the floor for question and answers. So I think I'll be able to answer everybody's -- me and my team will be able to answer everybody's queries. So as you know, Phantom is a very own brainchild, a very personal passion that pushed me towards this industry. And what started with a very small dream with 4 people has become a global organization now. And we have been continuously rewarded and recognized as a big organization with very good credibility and clientele across the globe. Now since we became publicly listed company in '22 and we've been doing so many things, very -- it actually gave us a lot of support. And all of you have stood with me for more than 3 years. And with all your support, I was able to do so many things, do many acquisitions, expand the business into so many other countries. We were able to pick up projects from a lot of new clients. And that actually helped us -- coming to public has definitely helped us to establish Phantom as a very big global organization. Now everybody across the world knows about Phantom. Every -- from the top tier production houses till a small production company either in China or in Australia, everybody knows about Phantom. So that's something that we have all achieved together. So I would like to thank all my stakeholders for supporting me throughout this journey. And other than that, recently, as you know, we completed this partnership with Zee. I'm really very happy about that because going forward, Phantom just being a visual asset service provider, we also wanted to create our own IP content, especially when it comes to animation and other platforms. So that actually -- creating IP is something that anybody can do, but taking it to the right market, that is something that we were lagging for so long, and that is what was making all this delay for us to start with some animation division. So when they express their interest, I was so happy that because this actually has given us a very, very wider picture here. So Phantom is not just a service provider anymore, we will also be able to produce content, especially on animation. And we already have a platform where we can showcase our content that is Zee platform. And Zee also is equally very much involved like how we are. They are very much involved in making this organization a global organization with a lot of -- they have a very, very clear idea on what they want [indiscernible] so that alignment actually brought us together. So we thought, okay, this is a very good initiative to work together and to partner with them. So that happened. So when it comes to this '25-'26 results, there has been a lot of unnecessary speculations and a lot of rumors, which really disturbed us as well. I know you are all as well equally disturbed like me. So I just wanted to give an explanation on why this delay is happening and what all steps we are taking and how this is going to be resolved. So you are -- and I know you have been with us for more than 3, 4 years, and I want the same support for us to cross over this small hiccup in the entire journey of Phantom. So when these results got delayed, the reason is because when this investment scheme, I mean, the talks started in December, and we started working with the due diligence process, especially PwC was the one doing the due diligence process. So they are on the top 3 companies in the industry. And that process took us for a very huge ride actually. So Phantom being a small organization, it's a small organization, and we don't have that kind of bandwidth, especially to catch up with that huge due diligence process. And at the same time, we were trying to come up with our year-end accounts closing and everything. That actually that itself has put a lot of pressure on us and our team. Though we were all prepared for everything, though we closed Phantom accounts and everything, we actually gave this auditing of both the 2 recently acquired companies, the final consolidation and everything, like we have given it to some other parties, and they are responsible for doing it. And whatever the other auditors gave us and our Indian auditing standards didn't match -- that we -- when the CCD is over -- it was overseen by me for all the process and everything, we started doing the audits in the middle of April itself, March itself, we have almost closed in the Indian audits. But when we started doing the audits for the international towards the end of April, then that's when we found out that there are a lot of requirements that needs to be matched for the Indian standards and there has been a lot of back and forth. So whatever the Indian auditors were asking and the international auditors, so that actually put a lot of delay in the process. So that is the only factor that actually affected the results. And we were -- no matter how hard we worked, like our team was working on through the Saturday and Sundays, but still it took us a lot of time. And now we have completely towards the end of the closure are very much near to announcing it, probably before this month end, we will be announcing the results. And in the next week or so, we can expect the NSE announcement and everything. So that's the current status right now. So before that, I would really want to apologize for the delay and the kind of the communication lag as well from our end. But we thought informing NSE and over call, we, I have very promptly replied. I have spoken to so many investors and stakeholders myself. My team has been doing their utmost support. So -- but unfortunately, we were not able to address everybody's concern. So I thought, okay, let us not further delay, but we will be addressing our stakeholders as much as possible. And so that their trust with Phantom continues and -- because so far, you have trusted Phantom in so many ways and you have trusted me on so many ways. And I have been driving Phantom basically without anything. Like when I started the company, I had just INR 50 to start with. So that's how Phantom started. With just my knowledge and my abilities, I have brought this company to this level, and we will definitely be able to bring it in the future, it is going to be bigger as promised. And we have -- like whatever the guidelines that we have given the last year, we will definitely be achieving it and the results are all very positive. Unfortunately, I cannot repeat the results because of the restrictions with NSE and SEBI. But whatever the expectations, whatever that was promised, we are on track on that. It's just the compliance and other parts that we were wrapping up. And -- I'm sorry, somebody is messaging something -- Yes, so we are wrapping it up and very soon we'll be coming up with the results. So that is my promise to you all. Other than that, I didn't prepare any speech and all today because I just wanted to let you know what is happening. So I didn't have any fancy presentation or anything today, but what I have is the facts to talk about. So my team is here available with us. If you have any questions, we will be happy to answer you with all your doubts and we'll be happy to give you clarity on your questions. Please keep it simple and just one question per person so that everybody gets a chance to listen to our answers. Yes. Open to question and answers.

[Operator Instructions] We'll take first question from Mr. [indiscernible].

I'm not able to understand, how difficult is it to integrate 2 balance sheets? I mean, is it -- why are we taking so many months...

[Operator Instructions]

Yes. Am I audible? So just -- I mean, I understand we have gone ahead and acquired Milk VFX. But still I can't understand why are we taking so many months to just integrate 2 balance sheets -- to consolidate 2 balance sheets? Even our competitors, [indiscernible] they acquired a company, one of us a couple of years back. So I mean -- so why the specific detail in results? I mean, what is exactly the issue with -- what's the bottleneck in integrating 2 balance sheets?

No. See, the thing is both the companies, Tippett and Milk, though we started the acquisition process, we ended the acquisition process only the last year that is Tippett got consolidated [indiscernible] So Milk got [indiscernible] that gave us very less space and this is the first time that we are doing it and our auditors really tried their best to get as much as information. And can you please step in and...

Yes. See, the pipelines of our company and the pipelines of the fellow company, the Phantom internal controls and getting the details which the Indian auditors are asking, they could not be able to publish it on an immediate basis. So it is like that we need to teach them. We need to understand the systems completely and the internal control prospects. All this we have studied much. And based on that every day and night, we need to see. Morning, we will have a meeting with Milk, and night, we will have a meeting with Tippett. And by the time we expect the details and it should be understand by the auditors. Now we've talked, communicate [indiscernible] process delay. So this is the main reason for which the delays happened.

And the Zee partnership, the money has come in from the investment has come in?

Yes. The [indiscernible] has been -- came in the month of June, mid of this.

Okay. And what are the exact plans in this vertical? What do you exactly plan to do? How big we think -- what can be the revenue in this vertical? How much can you scale up this animation vertical? And what are plans of this vertical?

So see, Zee actually is really trying to expand into the global market. So they are looking at a very good global partners as well. So the -- our connections and our expertise when it comes to global market is so huge. So they are using our expertise to grow up in the global market. So we are helping them with creating animated content. So already 2 projects for Zee has been started. So 2 films for Zee, we have already started, and it will be released consecutively through next year towards the end. So already that is in the pipeline. So other than that, their production -- Zee production studios production films are being routed to Phantom and subsidiary Milk as well. So there are a lot of tax subsidies available, so they are trying to take advantage of it. And on top of it, they have started introducing to all their networks, especially the production houses who they are dealing with. So whatever the turnkey projects that they are awarding to their production houses, that is also started coming in into Phantom. So that talks also already in place. So that's a major agenda for -- they are spending a lot of money in visual and animation. So they felt that partnering up with Phantom is going to really save a lot of money for them. And in terms of we are also sharing our technology as well. We have shared a lot of our AI initiatives, tool sets. And recently, we have completed AI software like something similar to [indiscernible] and Kling, the kind of software. We have done something in-house and make it offline completely. So we have installed -- we have done testing in Zee and it has successfully was useful for them more than us actually. So all these benefits, there is mutual benefits between Phantom and Zee and that they are very much into that synergy.

Next question is from Mr. [ Ripal ]. Mr. Ripal, we can't hear you. Next question is from Mr. [ Rohit Randy ].

Yes. I just want to know whether the Milk and Tippett companies are profit-making or loss-making companies?

Most of them are profit-making companies. Tippett is almost like a breakeven type of thing. And Milk is [indiscernible] we are in a position [indiscernible] right now.

Okay. And previously, some guidance was given, like do we stick to that guidance or is there any changes?

We are sticking on to the guidelines, sir.

Next question is from Mr.[ Suraj ].

First of all, I want to congratulate for the work on [indiscernible] one of the best VFX works that I've seen in Indian cinema at least. That's what from a limited viewing experience that I could tell. I have 2 questions. So the first one is, are we on course for migration to the main board? That's the first one. And the second one is, so we had raised Zee, I mean, it's not raising exactly, but then the new addition of Zee, like the contribution of around INR 114 crores is what we raised via CCD. And then subsequently, we have also raised around INR 25 crores for subsequent investment in Milk. So how do you foresee this going forward, sir? So do we expect more investments that we'll have to make in Milk? Or will it be like self-sustainable going forward?

We are almost done. And thank you so much for your appreciation on Safed Sagar. Safed Sagar is a very close to heart project for Phantom because Netflix trusted us in a very big way in Safed Sagar. What started with a very small award because it was highly creative. And most of the studios worked on this -- I mean, the major part like all those VFX and stunts and everything mostly happened with international studios actually. So we were one among the 2 companies who have done highly creative work here. And Netflix is super happy. And when we did our projection finally for the director after the color grading, we got standing ovation from director and the whole group. So that is actually what's very heartwarming for us and Netflix has promised to bring in all the international shows also, whatever is highly creative. So when -- before the release, they asked me to -- when I was in L.A., they asked me to meet their team in L.A. and they gave a very heavy recommendation for us. And now we are actually working closely with the U.S. counterparts for some very highly creative works actually. So there was a myth that Indian studios cannot create highly creative content with the standards that the international market demands, but that we have broken down that misconception. So coming back to your question, these further investments at the moment is not needed. We have completely cleared -- the Milk [indiscernible] we have invested on some minimal working capital and everything. So that is going good. Milk has a very prospective client already and they have a very good demand in the U.S. also. So we are thinking of -- because there is a tax incentive which the U.S. government has announced in California state. So we are thinking of bringing Milk as well so that our clients who are already in the U.S. are more comfortable with the [indiscernible] so we are thinking of doing something there as well. So I think that should definitely open up a lot of new doors. We are not opening a function studio, but we are just opening up an office for tax incentives and everything.

We have already made the application before the [indiscernible] is still pending. So after this [indiscernible] pending before the [indiscernible] itself.

It's pending in NSE?

Yes, correct.

Next question is from Mr. [ Miram ].

Am I audible?

Yes.

So I just wanted to know that are there any impairments or any issues with the subsidiaries in terms of receivables, which we need to know, or anything like that?

No. No. Nothing. Nothing. [indiscernible] I explained earlier, it's purely different pipelines and the revenue recognition models, all those accounting and auditing stuff. So in order to match with our accounts, we have to work hard and we need to make them to understand and those things are the bottlenecks that we faced. Apart from that, there is no impairments in receivables or anything like that in subsidiaries.

I know this cannot be an excuse, but this is the first and last time this will happen. We have completely the right people to take care of this. We have appointed auditors who can handle this. So this is taken care now. Going forward, it will be complete our supervision on a weekly and monthly basis.

Okay. Right. And also in the previous con call, you had mentioned that the team is working towards reducing the receivable days to around 90 days from over 200 days also currently. So what are the measures that we have taken to meet that milestone and reduce the receivable pressure on the working capital?

We are actually working on that right now. I will come up with an update very soon on that in the results con call. Most of our -- we have the clearance that we can tell how much we have...

See, we have taken a lot of steps and we just brought on the milestone payments in our contract systems so that the payments we will make sure that our cash flow will be relatively even. And as and when we are realizing the money, the level of action will be taken. So those steps are taken. So it has been implemented very recently. The results will be definitely comes out of another 1 or 2 months.

Okay. And we believe in your vision and execution, Mr. Bejoy. And we are serious investors are putting in serious money. And if there was no visibility from your end or any communication, it was really concerning actually for us as minority shareholders -- [indiscernible] priority.

No, I really understand that. And again, we will make sure that this won't happen again. But there was a meeting that was conducted 3 months back, I think. But unfortunately, that the information was not in the public domain is what I was told later on. So we will make sure that we are continuously meeting with the investors and the stakeholders.

Next question is from Mr. [indiscernible].

Some of my questions have been answered, but just wanted some kind of business update for the -- since you're having this call and you've given some explanations about the delayed results for last year as well as the first quarter. Why don't you update us as to how the business has been for the last 6 months since there's been no communication in the company and what's going on really? And with the Zee money also, what is the role Zee's going to play? And how is -- how are we going to benefit from the Zee partnership? Are they playing an active role in the company? Or is it just a passive investment? It's quite surprising, honestly, that Zee would make that investment. There are a lot of corporate governance concerns about Zee itself. So there are a lot of doubts in the investors' minds now whether this money is genuinely coming in or it's siphoned out or what is happening?

No, no. I cannot answer for Zee, but that we received is real. And with that, we have taken care of Milk's liabilities and we have completed the acquisition process also, I mean, almost completely. And regarding Zee's intention, as I said, they really have -- they really are passionate about going global. So that is why if you see this recent thing with FIFA, they have invested a lot of money. So I can sense it when they talk. I'm regularly interacting with the top management and really, they are very much keen on taking Zee and the Zee brand across the world. So I have introduced them with a lot of production houses across the world as well. In the last 3 months, I have introduced them with a lot of production houses. I myself have brought them a lot of scripts, directors and script writers, executive producers. So they are having real serious conversations. So their intentions are very clear. And that is why I also feel that this synergy is very good with them because what I have in mind and what they want to do is more or less very similar. And apart from that, this animation project that we have already -- 2 projects has already started. And one project, I think you should have seen in our social media. We have released a glimpse of it. It's called [indiscernible]. So right now, we are starting with some mythology, but we have our own plans on how to capture the animation market because if you take a lot of Chinese and Japanese companies, forget about Disney and Marvel and other DC Comics and animations. But other than that, there is a huge market for Korean and Chinese and Japanese animation. So if they can do it, we can also do it. So we are working really hard on getting such market opening for animation from India and Indian content. So we are working on creating our own IPs and especially we are concentrating more on the merchandise and stuff. So we are trying to -- we are having a vision bigger than just creating IP content. We are going to make money through merchandise and all the other sources as well. So that's the vision towards this alignment actually we will see.

And could you -- like my question was a little bit on your business and business update since I've not -- only recently been tracking the company. So can just talk a little bit about the business, what's exciting on the business side of things?

Can you just give the future...

See, future projections is almost definitely on a year-to-year basis, we will definitely be -- our sales will be definitely up to 50 percentage, you can see the increase. And the order book is started now the market has started picking up and the order book is also coming in the good time line. As to the new projects are also coming, and we are also getting the good leads. And especially after this Netflix things, things are going on in a smooth manner. So as of now, I think the order book stands [indiscernible].

[indiscernible] because we cannot give you a number that is not yet public. I will just give you a percentage of what is.

Any key business developments in the last...

Yes. We have major films from India, like recently this web series we work with Milk that got released and we are part of Rajinikanth film and all the major Indian releases, especially from Telugu, we are part of it. So that is actually -- almost all the top films we are part of it. So even Ramayana [indiscernible]. But unfortunately, it came up in a very short time line turnaround. So we were not able to pick it up. But other than that, we are almost in all the major productions and films.

You mentioned Prime Focus. Are we -- how similar is our business to theirs? We're also in VFX and digital.

Yes. Yes. We are all in the similar.

Are you competing with them for certain films and projects?

Of course, we are bidding on a lot of projects. We have won several projects that they have bid on. But they are so big when compared to Phantom. So they have their own legacy and all. So that's something that we cannot compare with. But of course, we are competing with Prime Focus in several projects.

Similar or how are we -- how is our business model different from theirs?

We are concentrating more on animation IP content as well now. So we are more India based, and we are trying to bring a lot of work into India. So they have a very strong presence and establishment across the world. So in terms of business model, that's a difference. And -- but they are working in big volume with big clients. So that's a different legacy because they acquired a company called DNEG way back like 15 years, I think, 15, 20 years back. So that is like -- that was the very initial stages. So at that time, they got this company acquired, the Hollywood company. So they had a very huge head start before us.

Next question is from Mr. [ Maran ].

Sir, just a few questions around the current order book, right, so like in September, we were at INR 200 crores sort of number. And now if you are saying you are in line with your guidance. So can we assume there is a 50% increase what is our order book number right now?