What you must know about the Baslic Fly Studio IPO

Basilic Fly Studio Ltd is one of India’s foremost players in visual effects (VFX) and has been around since 2012. VFX is an amalgam of creativity and technology and the ability and audacity to put both to good use. Basilic Fly Studio Ltd delivers exceptional VFX solutions for a range of projects including movies, TV & OTT series, as well as commercials. Today the company employs over 500 skilled professionals and the company has a global reach stretching across India, London, and Vancouver. Be it some of the biggest movies like Hercules, Avengers or Top Gun, Basilic Fly Studio has played a key role in creating enchanting visual effects. Some of the big movies they worked globally include Avataar, Man vs Bee, Extraction, Spider Man, Mary Poppins Returns, Thor, Guardians of the Galaxy, Alice in Wonderland, House of Dragon, Gangs of London, Swan Song and Notre Dame on Fire. This is still just a partial list of movies that Basilic Fly Studio Ltd has contributed to.

When we talk of VFX, there are several product and service subsets. Here is a quick list of what it includes and the palate of offerings by Basilic Fly Studio Ltd. The offer FX, which elevates any environment through awe-inspiring effects that can change the atmosphere completely. Magnificent creatures come to life, powered by gripping AI technology, and designed by leading VFX artists using animation designs. Recreates rich biomes to transport the audience transport deep into dark forests or rolling tundra regions. Basilic Fly also does Composting, which is about putting life and emotions into abstract shots. It makes the move more engaging. Basilic Fly Studio also specializes in Rotomation, which is a cutting-edge VFX technology to captures the motion of actual actors or objects and apply that data to computer-generated characters. Finally, the company also substantially improves the final visual appearance through Paint and Prep and Rotoscopy to improve live videos and produce flawless composites.

Key terms of Basilic Fly Studio IPO SME

Here are some of the highlights of the Basilic Fly Studio IPO on the SME segment of the National Stock Exchange (NSE).

• The issue opens for subscription on 01st September 2023 and closes for subscription on 05th September 2023; both days inclusive.
   
• The company has a face value of ₹10 per share and it is a book building issue. The issue price band for the fresh issue IPO has been fixed in the band of ₹92 to ₹97 per share. For all analysis purposes, the upper end of the price band has been considered.
   
• The IPO of Basilic Fly Studio Ltd is a combination of an offer for sale (OFS) and a fresh issue component. It must be remembered that the fresh issue portion is EPS dilutive and equity dilutive, whereas the OFS is just a transfer of ownership and  hence it is not EPS or equity dilutive.
   
• As part of the fresh portion of the IPO, Basilic Fly Studio Ltd will issue a total of 62,40,000 shares (62.40 lakhs), which at the upper end of the band price of ₹97 per share aggregates to a total fund raising of ₹60.53 crore.
   
• As part of the offer for sale (OFS) portion of the IPO, Basilic Fly Studio Ltd will issue a total of 6,00,000 shares (6 lakhs), which at the upper end of the band price of ₹97 per share aggregates to a total OFS size of ₹5.82 crore. The 6 lakh shares offered in the OFS are by the two promoters, Balakrishnan and Yogalakshmi, offering 3 lakh shares each.
   
• Therefore, the total size of the issue will comprise the issue of 68,40,000 shares (68.40 lakh), which at the upper end of the band price of ₹97 per share aggregates to a total IPO size of ₹66.35 crore.
   
• Like every SME IPO, this issue also has a market making portion with a market maker portion allocation of 10,26,000 shares. The market maker for the issue is Share India Securities Ltd and they will provide two-way quotes to ensure liquidity on the counter post listing and low basis costs.
   
• The company has been promoted by Balakrishnan and Yogalakshmi. The promoter holding in the company currently stands at 85.42%. However, post the fresh issue of shares and the OFS, the promoter equity holding share will reduce to 59.90%.
   
• The fresh issue funds will be used by the company for setting up studio facilities in Hyderabad and Salem. It will also use funds to add to existing infrastructure in Chennai and Pune apart from capitalizing its subsidiaries, including the offices at Vancouver. Part of the funds will also go towards general corporate purposes.
   
• While GYR Capital Advisors Private Ltd will be the lead manager to the issue, Purva Share Registry India Private Ltd will be the registrar to the issue. The market maker for the issue is Share India Securities Ltd.

IPO allocation and minimum lot size for investment

The company has allocated 50% of the issue size for the QIBs, 35% for the retail investors and the balance 15% for the HNI / NII investors or the non-retail investors in the IPO of Basilic Fly Studio Ltd. The break up in terms of minimum and maximum allowed quota has been captured in the table below.

The minimum lot size for the IPO investment will be 1,200 shares. Thus, retail investors can invest a minimum of ₹116,400 (1,200 x ₹97 per share) in the IPO. That is also the maximum that the retail investors can invest in the IPO. HNI / NII investors can invest a minimum of 2 lots comprising of 2,400 shares and having a minimum lot value of ₹232,800. There is no upper limit on what the QIBs as well as what the HNI / NII investors can apply for. The table below captures the break-up of lot sizes for different categories.

Key dates to be aware of in the Basilic Fly Studio IPO (SME)

The SME IPO of Basilic Fly Studio Ltd IPO opens on Friday, September 01st, 2023 and closes on Tuesday September 05th, 2023. The Basilic Fly Studio Ltd IPO bid date is from September 01st, 2023 10.00 AM to September 05th, 2023 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is September 05th, 2023.

It must be noted that in ASBA applications, there is no refund concept. The total application amount is blocked under the ASBA (applications supported by blocked amounts) system. Once the allotment is finalized, only the amount is debited to the extent of the allotment made and the lien on the balance amount is automatically released in the bank account.

Financial highlights of Basilic Fly Studio Ltd

The table below captures the key financials of Basilic Fly Studio IPO for the last 3 completed financial years.

Data Source: Company DRHP filed with SEBI

The company has seen a surge in top line and bottom line in the latest year so past numbers may not be too indicative. The company has reported net margins of 37.5% only in the current year, which is very attractive, especially if you consider the fact that the IPO issue price discounts the EPS at juts about 6 times latest year earnings. Sales trend has been positive but most of the sales growth has only come in the latest fiscal year. However, it is the specific business model of the company that would of interest to the investors since visual effects is a very client specific task where the demand far exceeds the supply. With more of quality content coming out in India and also in Hollywood, there is going to be a surge in demand for VFX services.

Read Basilic Fly Studio IPO GMP

In this case, we have not considered the weighted average EPS of last 3 years since the numbers would be misleading due to the sharp growth in the latest year. Hence, we stick to the latest year data. It is a relationship based industry and their past track record speaks for itself and that is where Basilic Fly Studi Ltd stands out. The investment call would be based on the kind of risk that investors are willing to take; and in this case the risk appears to relatively low compared to the potential that the stock offers. Investors, needless to say, have to be cautious since the risks can be high in industries where obsolescence and new technologies pose a disruptive risk. The risks are surely high in absolute terms but the potential returns appear to outweigh the risk.