NS: What is at the core of Prime Focus’ strategy?

NM: Since the business we are in is a techno-creative process, film-makers, producers and entertainment companies seek a level of confidence and comfort. This is difficult to establish using marketing offices worldwide and offshoring work to India. Therefore, we are following a dual pronged strategy– while our focus is to build a certain pipeline to be able to get work across borders and to bring it to India using our cost and technology base, unlike any other typical outsourcing company we are also creating a very credible front-end operation that has its own local repute and presence through acquiring studios abroad. So, for the client it is as good as walking into his studio and saying what he would like to do. We then open our backdoor and get the work done somewhere and plug it into the end product. 

NS: Now that Prime Focus has gained that critical mass, what next?

NM: The first level in our strategy was to first create a position in the global marketplace for Prime Focus, which we have been able to achieve with these acquisitions, in terms of geographical spread, scale, quality, financial strength as well as diverse skill sets. The next level would be to utilise this position to the fullest, in order to bring in more work to India. So far, we have only built the infrastructure to be able to cater to various client needs. For a person who has never been to London, New York, or vice versa, in case of the companies that we have acquired, it is difficult to recognise what scale and opportunities could be exploited through this business model. So, it is nice to say that we have facilities all over the world. The next challenge lies in being able to put these blocks together and make them run as one global entity. It could be a challenge because an integration of skills and services at this scale has not been done before in this domain, and Prime Focus is entering an uncharted territory. 

NS: What time frame do you put to achieving all this?

NM: Our target for FY08 was to equip ourselves with a global infrastructure, which we have achieved. But before we finished acquiring the studio in the US, we had already started mulling over the issues of integrating VTR with Prime Focus. In December, when we finished our US acquisition, we had all our senior creative staff from the group assembled in the US for a week to discuss the internal strategy of how we are going to integrate everything. The process of integration is thus, concurrent to that of acquisitions. Now it is all about starting pitching for projects and working on them together, which we are already doing. In this ongoing process, we cannot afford to lose any time.

NS: Prime Focus’ UK and US acquisitions were of companies which were loss making and turned around later. Is turnaround situation a criterion when you look out for acquiring companies?

NM: Not necessarily. The strategic fit is more critical to us. We need to find a company which could add value to Prime Focus. We have retained the management of these companies, and given them the core direction in line with the group's focus. Therefore, it is the synergy in carrying out operations together which is beneficial, than the turnaround situation of the target company. Besides, specific skill sets and the target company’s positioning in the client markets is also important when we scout for acquisitions. For instance, Clear brought in a creative team, VTR specialises in digital visual effects while Frantic Films entitles Prime Focus with access to research and development of visual effects software solutions.

NS: How did you arrive at the valuation of these companies, since they did not have a profitable track record, and essentially, you had to value only the people?

NM: As part of our acquisitions, we have also acquired the real estate and facilities of the target companies. The value attributed to the infrastructure, technology, hardware and tangible assets would be around 70-75 per cent of our consideration. The rest could be attributed to the goodwill, and the people.

NS: In India, Prime Focus is among the largest post-production players. What kind of positioning does it look forward to, in the US?

NM: At this stage, we are just trying to set our foot into the international markets. Eyeing even a fraction of that market would be far-fetched right now. Prime Focus is just starting with the base of what it has and organically building upon it. Now, that organic increase itself is substantial enough for us to get to the next level of our strategy. While we have big ambitions and we have grown rapidly in the past, when it comes to doing business, we are still conservative. We are trying to build a business out of a logical, progressive growth path rather than cashing in on a particular boom or a trend. Therefore, the implementation of our strategy will always be in line with the organic evolution of our marketplace. So, there may not be sudden spikes in our business, but an incremental growth. This too, is a big advance in terms of profitability, because we are in a fixed cost business, where our cost increases are marginal.  

As a result, the jump in our profitability will be aggressive, even though the increase in revenue will be modest. Taking this into account, a 10-15 per cent y-o-y revenue growth in the international markets is not a big deal, which puts Prime Focus into a well-hedged growth trajectory, which could be achieved in the worst of the scenarios. But owing to our business model centred on outsourcing on a large scale, even this much growth can add a fair number to our bottom line, going forward.