You are here: Home » Companies » News
Business Standard

Operating margins declining in Design & Animation Industry

Indian design and animation companies have been growing steadily over the last five years

Gaurav Laghate  |  Mumbai 

The pure-play design and animation firms in India grew at a CAGR of 27% from 2007 to 2011. The operating margins of these are attractive so far, however, they are now declining, according to Pune-based market intelligence and research firm ValueNotes Database.

The company, in its report titled “Design & Animation: Financial Performance Review” has analysed the key financial ratios of pure-play service providers with operations in India, which specifically cater to the animation and special effects segment. The report notes that a lack of prudent financial management has dented the benefits of steady growth. “Till 2009, revenue growth in the industry was high, but costs were increasing at a faster pace. As a result, the bottom line was poor and showed no sign of improving,” it states.

It further adds that Indian design and animation have been growing steadily over the last five years. The revenue of these grew at a CAGR of 27%, while aggregated revenue increased by 18% year-on-year in 2011.

Arjun Bhuwalka, project manager at ValueNotes says, “EBITDA margins are attractive but declining, while net margin continues to be a concern. EBITDA margins declined in 2009 and have been flat with a minor improvement to 31% in 2011. On the other hand, net profit margins do not paint a happy picture, as they have hovered around 10%.”

Unattractive returns and low interest coverage have been raising questions on investments. The aggregated return on capital employed (ROCE) for the companies, has been in single digits during the last four years and was a meagre 6% in 2011. Moreover, in this period, interest coverage fell to 2.49 in 2011, it further adds.

From a financial perspective, low returns, weak net margins, poor working capital management, and declining interest coverage ratio make the design and animation industry unattractive, the report notes. It adds that performance on these key financial indicators has improved marginally in the last couple of years but the companies have not done enough to indicate any potential for a turnaround. "Although revenue growth has decelerated, it is still high - this provides an opportunity for companies to improve their performance. However, this will require quick and significant measures in reducing cost," the report suggests.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, October 18 2012. 13:54 IST