Digikore Studios Limited — Investor Meet, 22-11-2024: Analysts/Institutional Investor Meet/Con. Call Updates

**Financial Performance:** Digikore Studios has reported a weak performance for H1 FY25, attributed mainly to disruptions in the visual effects (VFX) industry caused by external factors such as Hollywood strikes. Revenue from branded content stood at INR 5 crore, with expectations to reach INR 20-25 crore in H2. For VFX, projected invoicing by March is estimated at INR 25-26 crore, part of a broader pipeline worth approximately INR 56 crore. Margins have taken a hit due to increased operational costs in North America, currently hovering at about 21%, but management anticipates a rebound to regular PAT margins of 18-20% as revenue normalizes.

**Future Outlook and Growth Drivers:** Management remains optimistic about the future, emphasizing growth driven by new AI platforms and an increasing focus on direct projects rather than outsourced work. The launch of an innovative music platform is expected to attract a significant user base and generate topline revenue soon. There is a concerted effort to expand into B2C offerings to enhance revenue stability.

**Order Book and Operational Updates:** The company has about INR 56 crore in projects slated for the next 6-8 months, with expectations that approximately INR 25-28 crore will be invoiced by end of FY25. Projects are already many in production stages, with filming wrapping up soon.

**Analyst Q&A Insights:** Analysts expressed concerns over rising receivable days, which have increased in line with industry delays. Management clarified that the high receivable days stem from strategic choices during periods of low cash flow among clients, though a return to normality is anticipated within 4-6 months. Analysts also queried about future capital expenditures and workforce expansions, which are planned based on project commencements in the coming months. Long-term revenue targets of INR 125 crore for FY26 and INR 200 crore for FY27 remain intact, with confidence that AI initiatives will contribute significantly to profitability.

**Market or Regulatory Updates:** There are ongoing market pressures as major platforms like Netflix and Amazon are scaling back content spending, impacting industry outlooks and revenue expectations for all VFX studios.

**Strategic Focus Areas:** The management sees innovation in AI and branded content as core to future growth, with expectations of achieving strong profit margins on these new offerings. Their tone reflects a cautious yet strategic approach to navigating current and future market conditions.

**Investor Insight:** Financial health appears to be under pressure in the short term, but the pivot towards direct projects and AI-driven solutions demonstrates potential for significant long-term value creation. The combination of cost pressures and strategic growth initiatives signals a 'hold' position for investors, as the company maneuvers through transitional phases. Enhanced transparency regarding financial updates is also a positive development for stakeholder confidence.