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Digikore Studios

• Digikore Studios is coming out with an initial public offering (IPO) of 17,82,400 shares of Rs 10 each in a price band Rs 168-171 per equity share. 
• The issue will open for subscription on September 25, 2023 and will close on September 27, 2023.
• The shares will be listed on NSE Emerge.
• The face value of the share is Rs 10 and is priced 16.80 times of its face value on the lower side and 17.10 times on the higher side.
• Book running lead manager to the issue is Sarthi Capital Advisor.
• Compliance Officer for the issue is Heny Pahuja.

Profile of the company

Digikore serves as a hub for top-tier industry talent. Having production facility in India, It specializes in delivering Visual Effects (VFX) for a diverse range of projects such as Films, Web Series, TV Series, Documentaries and Commercials, all while maintaining a strong emphasis on cost-effectiveness. Its reputation as a world-class VFX studio is a result of its harmonious blend of imaginative creativity and cutting-edge technology.

Digikore was established by Mr Abhishek Rameshkumar More in the year 2000. In its initial years, Digikore made its mark in the realm of Animation and Visual Effects (VFX). Worked with extensive portfolio of many Films and TV Series, notable works include projects like Thor: Love and Thunder, Black Panther: Wakanda Forever, Glass Onion: A Knives Out Mystery, Deadpool, Star Trek, Jumanji, Stranger Things, The Last Ship, Titanic, Gosht Rider: Spirit of Vengeance, Transformer: Age of Extinction, Crouching Tiger, Hidden Dragon: Sword of Destiny and many more prestigious productions.

As a TPN-audited VFX studio, it offers a comprehensive suite of visual effects services, overseen by its experienced production team. Its artists harness the power of the latest software, hardware, and proprietary tools to produce exceptional VFX for some of the most prominent Films, Web Series and TV Series. Notably, it stands among the select few studios in India that have undergone audits from esteemed entities such as TPN. Also approved for projects from production houses like Disney/Marvel, Netflix, Amazon, Apple, Paramount, Warner Bros., and Lions gate. Its commitment to excellence is further underscored by its dedication to fostering an internal culture rooted in diversity, equality, and inclusion - vital components that fuel its innovation and creativity.

Proceed is being used for:

• Funding working capital requirements
• General corporate purposes
• Offer expenses

Industry overview

India's animation and VFX industry was valued at around 107 billion Indian rupees in 2022, despite the lapse in market value in the previous year owed to the pandemic's adverse effects. Of the total market size VFX industry accounted for about 50 billion Indian rupees. The growth of animation and the evolution of VFX technologies has altered the storytelling pattern, resulting in a boom in the entertainment business. Despite the economic downturn in the recent past and stop in production in the early months of the pandemic, there has been a healthy competition between media and entertainment sector with animation & VFX offering the content an edge. Animation and visual effects studios have seen a considerable increase in content demand for domestic shows in the recent years.

There is a surge in dubbed and sub-titled theatrical releases as India becomes one market, with content appealing to audiences across state and language boundaries. Dubbed films increased from 15% of all releases pre-pandemic, to 30% in 2022. Over the last decade, the cost of dubbing for an average film has gone up from Rs 0.5 million to Rs 2 million to Rs 3 million. As content is monetized across more windows (SVOD, AVOD, theatrical, television, FTA, international, short video etc.), the demand for post-production services will continue to grow.

Foreign Direct Investment (FDI) up to 100% through the automatic route has been granted by Government. FDI limit for DTH satellite and digital cable network was raised from 74% to 100% by the Government. 100% FDI allowed in the sector Animation, Gaming & VFX through automatic route provided it is in compliance with the RBI guidelines. In February 2021, the digital entertainment committee of the Internet and Mobile Association of India (IAMAI) finalised a code of conduct to form the basis for self-regulation code for OTT content. The code has been endorsed by 17 OTT platforms including Netflix, Amazon Prime Video, Disney+ Hotstar, ZEE5 and Voot.

Pros and strengths

Expansion plan & marketing strategy: Its success lies in the strength of its relationship with its producers, production houses and directors. Due to strong network and branding with producers, production houses and directors. Its team, through their vast experience and good rapport with producers, production houses and directors are able to source new businesses for the company. To retain its customers, its team regularly interacts with producers, production houses and directors and focuses on gaining an insight on changing taste and preference of viewers of entertainment industry.

Production process: The Company’s production process is equipped with lasted technologies, equipment and software. The company brings the latest modern technology in the project execution so that best of the VFX effect is delivered in the ultimate scene.

Information security: It operates in an industry which is highly sensitive with regard to maintenance of secrecy of the projects and its contents. It manages sensitive and confidential data for its clients. Maintaining the confidentiality, integrity and security of such data is of paramount importance to it. It has put in place firewall, security systems and procedures including CCTV cameras, Biometric access and password sensitive central storage for protection of classified data, intellectual property and projects contents. 

Risks and concerns

Maximum revenue comes from top 10 customers: Its top 10 customers contributed 61.76%, 87.97% and 90.34% of its revenues for the financial year ended March 31, 2023, March 31, 2022 and March 31, 2021 respectively, whereas, its top five customers contribute 45.39%, 75.28% and 75.63% of its revenues during the financial year ended March 31, 2023, March 31, 2022 and March 31, 2021 respectively. Any decline in its services and any change in the demand for its services by these customers may adversely affect its ability to retain them. It cannot assures that it shall generate the same quantum of business, or any business at all, from these customers, and loss of business from one or more of them may adversely affect its revenues and profitability.

Working capital requirements: Its business requires significant amount of working capital and major portion of its working capital is utilized towards employee cost. Its business requires a significant amount of working capital for smooth functioning. For instance, for the Financial Year March 31, 2021 and March 31, 2023, its working capital requirements were Rs 213.44 lakh and Rs 389.61 lakh respectively. It is to note in the Financial Year March 31, 2022, the company had no Working Capital requirement. For the above mentioned years, it meets its requirement for working capital majorly through banking facilities, Loan or fresh infusion of funds by way of issue of shares or internal accruals. In future, its inability, if any to meet its working capital requirements through banking arrangements can adversely impact its business operations and financial position.

Highly sensitive industry: It operates in an industry which is highly sensitive with regard to maintenance of secrecy of the projects and its contents. It has put in place firewall, security systems and procedures to protect the projects and its contents. Piracy of project content, its information, digital effects including internet piracy and the sale of counterfeit consumer products, may decrease revenue from the exploitation of its products. Any failure on its part to maintain secrecy of its projects, will have an adverse effect on its results of operations and financial condition.

Outlook

Digikore Studios is engaged in the business of post-production activities such as VFX, Animation, Visual Effects, and Video Graphics including digital intermediate and other technical and creative services to the Media and Entertainment industry. On the concern side, it faces intense competition from the Indian and multinational companies. It has a very diverse portfolio of entertainment industry across globe. Some of its key competitors include Phantom Digital Effects, Prime Focus, Basilic Fly Studio, BOT VFX etc. 

The issue has been offered in a price band of Rs 168-171 per equity share. The aggregate size of the offer is Rs 29.94 crore to Rs 30.48 crore based on lower and upper price band respectively. On performance front, the company’s total revenue increased by 48.38% from Rs 2,488.39 lakh in the fiscal year ended March 31, 2022 to Rs. 3,692.38 Lakhs in the fiscal year ended March 31, 2023. Net Profit has increased by Rs 736.9% from profit of Rs 46.54 lakh in the fiscal year ended March 31, 2022 to Rs 389.17 lakh in the fiscal year ended March 31, 2023. Meanwhile, the company’s intends to cater to the increasing demand of its existing customers and also to increase its existing customer base by enhancing its geographical reach. Enhancing its presence in additional regions will enable it to reach out to a larger market and have direct access to the producers, production houses and directors which will allow it to have better understanding of their concept and ideas.