Basilic Fly NSE SME IPO review (Apply)

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Review By Dilip Davda on August 29, 2023

•    BFSL is in the business of VFX studios and has a global presence.
•    With the timely expansion, it reaped the benefits of the demand and posted spectacular performance for FY23.
•    Based on FY23, the issue is attractively priced.
•    On completion of ongoing expansion, it is set for fast-forward mode.
•    Investors may consider investment for short to long-term rewards.

PREFACE:
We witnessed the success and faring of Phantom Digital Effects Ltd. (PDEL) IPO that came in October 2022, at a price of Rs. 95 per share and got 164.22 times subscription. PDEL was in international and domestic services and posted good numbers. Now we have yet another company going public, i.e. Basilic Fly Studio Ltd. (BFSL), which has mastered international servicing. With additional branches, it posted spectacular numbers for FY23 and is on the verge of expanding its horizons to Europe and other neighbouring countries. Once these expansion plans are in place, BFSL is poised for better prospects in the coming years. 

ABOUT COMPANY:
Basilic Fly Studio Ltd. (BFSL) is a Chennai headquartered visual effects (VFX) studio in India with subsidiaries operating in Canada and the UK which specialise in creating visual experiences that captivate audiences around the world. BFSL has emerged as a top visual effects (VFX) studio in India transforming imaginations into visuals. 

Over ten years, BFSL has consistently pushed the boundaries of creativity and technology. The Company boasts a team of skilled artists and a commitment to the latest technological advancements, setting them apart in the industry.

The company holds proficiency in the VFX industry and has delivered high-quality VFX solutions for movies, TV, net series, and commercials. BFSL has established a strong presence in the industry by forging direct partnerships with diverse production houses, as well as collaborating with prominent VFX companies and studios through sub-contracting arrangements. Many VFX companies and studios choose to outsource certain aspects to specialized teams that are equipped with expertise, infrastructure, and technology to manage large-scale VFX projects. It has generated major revenue from VFX companies and Studios. Average over 88% of annual revenue comes from sub-contract services. 

The visual Effects (VFX) industry stands as a crucial pillar of modern filmmaking, breathing life into fantastical worlds, epic battles, and breathtaking sequences. This multi-billion-dollar industry operates through a complex interplay of creativity, technology, and collaboration. The VFX industry functions through a collaborative framework involving major production houses and specialized VFX studios. The industry's workflow, outsourcing practices, and specialization within production houses & studios shape its landscape.

BFSL has worked on renowned films such as Avengers Endgame, Avatar 2, Spiderman Far from Home, Extraction 2, etc. Additionally, their expertise extends to hit series like Stranger Things 4, The Crown, The Witcher, etc. Also, The Company has been audited by multiple studios like Netflix, Disney, FOX Studios, SONY, etc. From a small unit, the studio has grown to employ over 500+ skilled team members. To serve their clients better, they have set up offices in Pune, London, and Vancouver.

BFSL has worked on a wide variety of projects, including movies, TV & net series, and commercials. With an impressive track record of serving over 300 clients and delivering a staggering 10,000+ projects, BFSL's proficiency is evident. Their extensive credentials include contributions to 900+ films, involvement in 2,000+ series, and the production of 8,000+ commercials. Their portfolio showcases their vast expertise in the industry.

ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with a maiden combo book building route IPO of 6240000 fresh equity shares and 600000 shares by an Offer for Sale (OFS). It has announced a price band of Rs. 92 - Rs. 97 for equity shares of Rs. 10 each. Thus at the upper cap, BFSL mulls mobilizing Rs. 66.35 cr. for 6840000 shares IPO.  The issue opens for subscription on September 01, 2023, and will close on September 05, 2023. Post allotment, shares will be listed on NSE SME Emerge. The minimum application to be made is for 1200 shares and in multiples thereon, thereafter. The issue constitutes 29.43% of the post-IPO paid-up capital of the company. 

The company has reserved 1026000 shares (15%) for the market maker and from the rest, it has allocated not more than 2906400 shares for QIBs, not less than 872400 shares for HNIs and not less than 2035200 shares for Retail investors. 

From the net proceeds of the fresh equity shares issue, the company will utilize Rs. 21.36 cr. for setting up studios at Hyderabad and Salem, Rs. 19.61 cr. for adding infrastructures at its existing Chennai and Pune facilities, Rs. 4.65 cr. for investment in London and Vancouver subsidiaries, and the rest for general corporate purposes. 

GYR Capital Advisors Pvt. Ltd. is the sole lead manager and Purva Sharegistry (India) Pvt. Ltd. is the registrar of the issue. Share India Securities Ltd. is the market maker for the company. 

After having issued initial equity shares at par, the company issued bonus shares in the ratio of 16 for 1 in March 2023. The average cost of acquisition of shares by the promoters is Rs. 0.00, and Rs. 0.60 per share. 

Post-IPO, BFSL's current paid-up equity capital of Rs. 17.00 cr. will stand enhanced to Rs. 23.24 cr. Based on the upper cap of the IPO price, the company is looking for a market cap of Rs. 225.43 cr. 

FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, BFSL has (on a standalone basis), posted a total revenue/net profit of Rs. 17.31 cr. / Rs. 0.34 cr. (FY21), Rs. 24.01 cr. / Rs. 0.79 cr. (FY22), and Rs. 70.51 cr. / Rs. 26.44 cr. (FY23). While on a consolidated basis, it has posted a total revenue of Rs. 25.29 cr. / Rs. 0.91 cr. (FY22), and Rs. 78.95 cr. / Rs. 27.90 cr. (FY23).   Thus it has reported spectacular performance for FY23 on standalone as well as on a consolidated basis. According to management, this is attributed to its timely expansion plans that brought the desired results and BFSL in adding a few more facilities in the next one to two years to take it on a fast-forward mode. 

For the last three fiscals, BFSL has reported an average EPS of Rs. 11.72 and an average RoNW of 53.30%. The issue is priced at a P/BV of 5.21 based on its NAV of Rs. 18.63 as of March 31, 2023. Its post-IPO NAV could not be ascertained as this data is missing from its IPO ad. 

If we attribute FY23 earnings to the post-IPO fully diluted paid-up equity capital of the company, then the asking price is at a P/E of 8.08, making the IPO attractively priced. 

DIVIDEND POLICY:
The company has not declared any dividends since incorporation. It will adopt a prudent dividend policy based on its financial performance and future prospects. 

COMPARISON WITH LISTED PEERS:
As per the offer document, BFSL has shown Prime Focus and Phantom Digital as their listed peers. They are currently trading at a P/E of 00, and 34.20 (as of August 29, 2023). However, they are not truly comparable on an apple-to-apple basis. 

MERCHANT BANKER'S TRACK RECORD:
This is the 16th mandate from GYR Capital in the last three fiscals (including the ongoing one). Out of the last 10 listings, all were listed at premiums ranging from 0.38% to 151.10% on the listing date. 

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