Identical Brains Studios coming with IPO to raise Rs 19.95 crore

Identical Brains Studios

• Identical Brains Studios is coming out with an initial public offering (IPO) of 36,94,000 equity shares in a price band Rs 51-54 per equity share.
• The issue will open on December 18, 2024 and will close on December 20, 2024.
• The shares will be listed on SME Platform of NSE.
• The face value of the share is Rs 10 and is priced 5.10 times of its face value on the lower side and 5.40 times on the higher side.
• Book running lead manager to the issue is Socradamus Capital.
• Compliance Officer for the issue is Pallavi Ashok Chavan.

Profile of the company

Identical Brains Studios is a provider of computer-generated visual effects (VFX) services, offering comprehensive suite of VFX services in diverse range of projects such as films, web series, TV series, documentaries, and commercials. Its operations are currently from India and its customers include some of the leading film and content producers, including major Bollywood Studios. The company transforms the imagination, ideas, and words into captivating visual realities. The company’s team of qualified, creative and technical professionals collaborates to bring forth creations that elevate storytelling and captivate audiences worldwide. Whether it’s breathing life into fantastical creatures or seamlessly integrating Computer-generated imagery (CGI) elements into live-action footage, it is committed to pushing the boundaries of creativity and innovation in visual effects.

The company has provided VFX services for films that have achieved significant industry recognition. Its portfolio includes upcoming projects like Tanaav 2, Criminal Justice 4, and completed projects include Khel Khel Mein, Murder in Mahim, Bad Cop, The Crew, Article 370, Mission Raniganj, Dream Girl 2, Adipurush, Indian 2, Rocket Boys, Bob Biswas, Kutch Express, Ek Villian Returns, Night Manager, Criminal Justice 3, Phone Bhoot, Satyamev Jayate 2, Angrezi Medium, Scam 1992: The Harshad Mehta Story, Good Newwz, Panipat and many more. 

Since 2019, the company has provided VFX services for films that has received two Filmfare OTT Awards nominations, one Filmfare Awards nomination, one Dadasaheb Phalke Awards nomination and one FOI Online Awards nomination for Best Visual Effects and has won two Filmfare OTT Awards for Best Visual Effects for Scam 1992: The Harshad Mehta Story (2020) and Rocket Boys (2022) in association with Variate Studios LLP and one Dadasaheb Phalke Awards for Phone Bhoot (2022) for Best Visual Effects. 

Proceed is being used for:

• Funding capital expenditure towards renovation of existing Andheri office and studio
• Funding capital expenditure towards establishment of Colour Grading Digital Intermediate (DI) and Sound Studio Set up at new branch office in Andheri
• Funding capital expenditure towards establishment of new branch office in Lucknow
• Funding capital expenditure for purchase of computers, storage systems and software to further strengthen the existing facilities/offices of the company
• Funding its incremental working capital requirements
• General corporate purposes

Industry Overview

As of 2024, the animation industry is experiencing impressive growth, fuelled by technological advancements and increasing global demand. Innovations in 3D (Three Dimensional) modelling, virtual reality, augmented reality, and artificial intelligence are enhancing animation quality and expanding its applications across various sectors, including entertainment, advertising, education, life sciences, and healthcare. The global animation market is growing significantly, with North America recognized as the largest market. Computer-generated animation dominates the industry, making up a substantial portion of the global animation market composition. The market has seen remarkable expansion from 2018 to 2021, driven by increasing demand and technological progress. The global 3D animation and visual effects markets are expected to grow significantly, with the Asia Pacific region, led by Japan and India, standing out as the fastest-growing market for VFX.

VFX industry has undergone a phenomenal transformation in recent years. Driven by factors like the surge of streaming services, the ever-growing demand for high-quality content, and the constant technology innovation, VFX has become an indispensable part of filmmaking, television, video games, and even immersive media formats. Market research predicts a significant rise in the global VFX market, with estimates suggesting a growth rate exceeding 10-13% in the coming years. This translates to a booming industry valued in the tens of billions. This global VFX landscape is fuelled by several key trends. Firstly, the rise of streaming giants like Netflix and Disney+10 has created a constant demand for fresh, visually captivating content. Secondly, advancements in CGI (Computer-Generated Imagery) and other VFX tools allow for the creation of increasingly realistic and awe-inspiring visuals. Finally, the rise of virtual production techniques is blurring the lines between filmmaking and post-production, allowing for even more efficient and innovative workflows.

The Indian VFX industry is poised for a remarkable trajectory, with market revenue expected to surge in the coming years. The market is projected to nearly triple in size, jumping from $647 million in CY 2023 to a staggering $1,823 million by CY 2030. This translates to a CAGR exceeding 15.9%, signifying a booming industry fuelled by several key factors. India's burgeoning middle class boasts a growing disposable income, leading to increased spending on entertainment experiences. This translates to a higher demand for visually captivating content, propelling the demand for VFX-heavy films, television shows, and video games within the domestic market. The Indian OTT market is experiencing explosive growth, with platforms like Netflix and Disney+ Hotstar vying for viewers. These platforms require a steady stream of high-quality, visually engaging content to compete effectively. Indian VFX studios can cater to this demand by creating visually stunning experiences for domestic audiences, further fuelling market growth. 

Pros and strengths

Integrated and highly scalable service delivery capabilities: The company’s integrated service delivery capabilities, allows it to leverage its workforce to complete projects on time, and to budget, while maintaining consistently high standards of quality. As a result, it is well positioned to take advantage of the anticipated growth in the VFX services industry. The company’s presence in cost-advantaged location - India, specifically in Palghar and Lucknow, enhances its ability to scale its workforce efficiently. Moreover, its integrated technology and infrastructure allow its workforce to collaborate across the facilities to efficiently implement its customers’ creative vision, utilising an integrated set of standardised creative tools and commercial and proprietary technologies that are continually enhanced and refined by a dedicated team of professionals.

Reputation as a trusted provider of VFX Services: Establishing strong customer relationships and understanding their unique needs are fundamental components of its methodology. Building trusting relationships with its customers is a top priority for it. The company encourages open lines of communication to gain a thorough understanding of their individual needs, preferences, and goals. It guarantees a customized and individualized approach to each project by closely connecting with customer vision, ensuring that its deliverables not only meet but beyond their expectations. Its dedication to producing outstanding results and building enduring relationships is based on this customer-centric approach.

Attractive business model, with significant revenue visibility: It is part of its culture to constantly adopt new methods and technology and to be at the forefront of industry trends. The company’s ability to stay ahead of the curve and push the frontiers of creative innovation is made possible by its proactive monitoring and assimilation of the most recent developments in the VFX landscape. Its dedication to lifelong learning and adaptability guarantees that it utilizes state-of-the-art resources and techniques, enabling its staff to produce ground-breaking and aesthetically striking results while preserving its competitive advantage in the VFX sector. Further, it carefully plans and carry out projects and put efficiency first to meet deadlines producing outstanding results. The company’s methodical approach and strong processes optimize processes, guaranteeing that every facet of the project is painstakingly planned and carried out.

Risks and concerns  

Maximum revenue comes from limited customers: The substantial portion of its revenue is currently significantly dependent on its top ten customers. For instance, the company’s top ten customers for the period ended September 30, 2024 and for the financial years ended March 31, 2024, March 31, 2023 and March 31, 2022 accounted for 96.41%, 76.55%, 80.01% and 82.29%, respectively of its revenue from operations. Its reliance on a limited number of customers for its business exposes it to risks, that may include, but are not limited to, reductions, delays or cancellation of work orders from its key customers, a failure to negotiate favourable terms with its key customers or the loss of these customers, all of which would have a material adverse effect on the business, financial condition, results of operations, cash flows and future prospects of the company.

Dependent on relationships with the major Bollywood studios: The company has established strong relationships with the major Bollywood studios as well as other film and content producers, including OTT providers, key creative talent, including directors, and other content producers and distributors. These major Bollywood studios together accounted for 3.89% of its revenue for the period ended September 30, 2024, 66.49% of its revenue for the fiscal year ended March 31, 2024, 67.51% of its revenue for the fiscal year ended March 31, 2023 and 64.99% of its revenue for the fiscal year ended March 31, 2022. Although, the company maintains relationships with multiple points of contact at each of these studios, and typically no one person at a studio is solely responsible for VFX services hiring, to the extent that its relationship with any of these companies, or their and/or its key executives or key creative talent, deteriorates, or any of these customers stops making VFX content or ceases using its services, its business could be adversely affected, which could have a material adverse effect on its business, financial condition, cash flow and results of operations.

Film and content producers may delay, suspend or terminate its contracts: Under the vast majority of its contracts with film and content producers for VFX services, they reserve the right to delay, suspend or terminate all or part of its engagement and payment of production fees for any reason, including if it is unable to deliver its services for reasons within its control or beyond its control, including due to commercial or other decisions by the film and content producers. In past years, studios may have cancelled any project at their own election for reasons unrelated to its company after it had performed a significant amount of work. Although the company was compensated for its work through the time of cancellation, its anticipated work load and overall revenue from these projects may have unexpectedly changed and it might have been unable to showcase its work product. Further, if in future it experiences similar cancellations of projects, it may not be compensated to the same extent or at all.

Outlook

Identical Brains Studios offers computer-generated visual effects (VFX) services. The company provides VFX services for projects such as films, web series, TV series, documentaries, and commercials. It has reputation as a trusted provider of VFX Services with established relationships throughout the Entertainment Industry. It has attractive business model, with significant revenue visibility and compelling opportunities for long-term margin expansion and cash flow generation. On the concern side, the company is currently dependent on its top ten customers for its revenues. Further, it does not have any long-term commitments from customers and any failure to continue its existing arrangements could adversely affect its business and results of operations. Moreover, the company is dependent on its relationships with the major Bollywood studios, including key executive and creative talent, and any deterioration in these relationships could materially and adversely affect its business.

The company is coming out with a maiden IPO of 36,94,000 equity shares of Rs 10 each. The issue has been offered in a price band of Rs 51-54 per equity share. The aggregate size of the offer is around Rs 18.84 crore to Rs 19.95 crore based on lower and upper price band respectively. On performance front, the company’s revenue from operations increased by 149.76% to Rs 2,008.80 lakh for Fiscal 2024 from Rs 804.29 lakh for Fiscal 2023, primarily due to significant increase in its revenue from operations which was primarily driven by revenue from providing VFX services. Moreover, the company reported a profit of Rs 534.65 lakh during the Fiscal 2024, as compared to a profit of Rs 161.28 lakh during the Fiscal 2023.

The company aims to set up a Colour Grading DI facility equipped with the latest technology and skilled professionals to meet the growing demand for high-quality post-production services. Setting up a Colour Grading DI facility is a strategic expansion that can significantly enhance the post-production process and overall service offerings. In the world of visual effects, colour grading is crucial as it ensures that the visual tone, mood, and style of the project are cohesive and aligned with the director’s vision. Integrating a DI setup into the company will allow it to have a seamless workflow between visual effects creation and final colour grading, ensuring that its project maintains consistent quality from start to finish. This not only attracts high-profile clients looking for an all-encompassing post-production solution but also elevates the company’s standing in a highly competitive industry.