Basilic Fly Studio Ltd Management Discussions

Economy Overview

Global Economic Outlook - 2025

The global economy is expected to grow at a modest pace in 2025. According to the IMFs July 2025 World Economic Outlook, global GDP is projected to expand by 3.0% in 2025 and 3.1% in 2026. While advanced economies are witnessing slower momentum due to tight financial conditions and softening demand, emerging markets continue to demonstrate relatively stronger expansion. Inflationary pressures have started to ease, supported by lower energy and commodity prices, although the pace of disinflation differs across regions. Financial markets are showing signs of stability, aided by expectations of monetary policy easing in key economies.

International trade remains subdued, weighed down by tariff adjustments, reconfiguration of supply chains, and weaker demand for goods. Commodity markets are expected to remain broadly stable, with energy prices softening on the back of ample supply and muted consumption. This has provided some relief for import- dependent economies, even as geopolitical uncertainties in critical trade corridors continue to pose risks.

Looking ahead, global growth is expected to remain below pre-pandemic averages, with risks tilted to the downside. Rising protectionism, heightened geopolitical tensions, and fiscal vulnerabilities in several economies could add to volatility. At the same time, opportunities are emerging from supply chain diversification, advances in technology, and increasing investments in clean energy and digital infrastructure. Economies with strong domestic demand and sound policy frameworks are likely to remain more resilient in navigating this uncertain global environment.

Indian Economy

According to the Press Information Bureau (PIB), India continues to stand out as the fastest growing major economy in the world, with GDP growth of 6.5% in FY 2024-25, with similar momentum expected in FY 202526. This strong performance comes against a backdrop of global uncertainty, underscoring the resilience of Indias domestic growth drivers. Robust consumption across both urban and rural markets, rising private investment, and sustained public spending on infrastructure have anchored steady expansion. Supported by sound macroeconomic fundamentals and prudent policy measures, India remains a key contributor to global growth.

Inflation has eased to its lowest level in several years, providing comfort to households and businesses alike. Stable food prices, supported by strong agricultural output, and moderating global commodity costs have helped contain inflation within the Reserve Bank of Indias medium-term target. This price stability, along with strong foreign exchange reserves and a contained current account deficit, reflects a stable and balanced macroeconomic environment.

Indias external sector and capital markets have also reinforced confidence in the countrys growth story.

Record levels of exports, healthy services trade, and steady foreign direct investment inflows highlight Indias growing integration into global value chains. At the same time, domestic equity markets have witnessed rising retail participation and a buoyant primary market, signalling growing investor trust in the long-term potential of the economy.

Industry Overview

Global VFX Industry

The global Visual Effects (VFX) industry is experiencing robust expansion, underpinned by the proliferation of high-budget productions, the explosion of streaming platforms, and increased adoption of immersive technologies. According to IMARC Group, the market size stood at USD 26.3 billion in 2021 and is forecasted to grow at a compound annual growth rate (CAGR) of 10.9%, reaching USD 48.9 billion by 2028. This momentum is driven by a convergence of factors—greater visual sophistication in content, integration of realtime rendering engines, and the evolution of cinematic storytelling into digital-first formats.

A key pillar of growth is the surge in content budgets from global OTT giants like Netflix, Amazon, Disney+, and Apple TV+, which continue to push boundaries on visual storytelling. VFX is no longer confined to action and sci-fi genres; it is increasingly embedded in drama, period, and animation-based productions. The democratization of content creation, fueled by digital streaming, has led to a broader base of VFX adoption across long-form and short-form content. Additionally, rapid technological advancements are enabling studios to render more complex environments, digital doubles, and photorealistic CGI at scale.

The UK stands out as one of the most lucrative markets in the VFX value chain due to its well-established film production infrastructure, skilled workforce, and highly attractive tax incentives. In 2025, the UK government enhanced its Audio-Visual Expenditure Credit (AVEC), increasing the tax credit for visual effects in films and TV productions to 39%. Moreover, it eliminated the 80% cap on visual effects expenditures, thus providing a comprehensive incentive for global production houses to locate their VFX-intensive work in the UK.

France also remains a pivotal market, offering one of the most generous tax rebate structures globally for VFX-heavy productions. The French TRIP (Tax Rebate for International Productions) program allows up to a 40% rebate on qualifying expenses when VFX spending exceeds €2 million. These incentives are not only applicable to hybrid shoots but also to VFX-only productions, making France a destination of choice for complex post-production work. Combined with its deep creative heritage and highly qualified talent base, France provides a strong base for global post-production outsourcing.

Indian VFX Industry

The Indian VFX industry, while facing a temporary contraction of around 13% in FY24 due to global headwinds such as the Hollywood writers strike and a slowdown in international content orders, is now entering a phase of resurgence. As per EYs 2025 report on the Media & Entertainment sector, the Indian VFX and postproduction market is projected to reach Rs147 billion by 2027, growing at a CAGR of 13%. The rebound is expected to be driven by higher content volumes across OTT platforms, renewed international productions, and the rising demand for stylized and high-quality animation and visual effects across formats.

India is fast emerging as a strategic outsourcing hub for global VFX, mirroring the transformation it underwent in IT services. The country offers a compelling value proposition with a large pool of technically skilled artists, cost efficiency, and increasing adoption of cloud-based and AI-integrated workflows. With more international studios looking to optimize costs without compromising on quality, Indian studios are playing a larger role in high- volume, deadline-sensitive projects. Additionally, domestic streaming content and feature films have significantly upped their reliance on post-production technologies.

Recent Trends and Performance

- Rise in Streaming and Original Content

OTT platforms like Netflix, Amazon Prime, and Disney+ continue to drive a surge in high-quality original content. The growing demand for visually rich storytelling has increased the use of VFX even in nonfantasy genres like drama and biopics.

- Hybrid and Virtual Production

The pandemic accelerated the adoption of virtual production techniques—using LED walls, realtime rendering engines (like Unreal Engine), and previsualization tools. This reduces post-production timelines and brings VFX integration earlier into the production cycle.

- Al-Powered VFX Workflows

Studios are integrating artificial intelligence and machine learning to automate tasks like face replacement, upscaling, de-aging, and optimization of production workflows for greater efficiency. AI is also being used for quality control and accelerated rendering.

- Global Tax Incentives Reshaping Project Locations

Countries like the UK and France have introduced aggressive tax credits for VFX work—39% in the UK and up to 40% in France. These policy changes are influencing producers to shift post-production work to these jurisdictions.

- Expansion of Regional Production Hubs

Countries such as India, Canada, and Australia are becoming major VFX outsourcing hubs due to lower labor costs, robust infrastructure, and technical talent. Studios now prefer a distributed global delivery model to manage scale, cost, and risk.

Key Growth Drivers

- Increasing Content Budgets

Global content spending crossed $240 billion in 2023, with a growing share allocated to VFX-heavy formats. Studios are increasingly investing in large-scale, immersive universes that rely heavily on digital effects.

- Adoption of VFX Across New Sectors

VFX is expanding beyond film and television into advertising, gaming, Theme park installations, education, and virtual events. Short-form content and web-based storytelling formats are also utilizing VFX for engagement.

- Technology Democratization

The availability of cloud-based collaboration tools and subscription-based rendering engines has lowered the entry barrier for smaller studios to compete, resulting in a broader supply base for outsourced work.

- Rising Demand for Localization and Versioning

Studios now create content in multiple languages and regions, requiring visual localization through VFX— such as modifying on-screen text, signage, and cultural elements—creating recurring demand from OTT clients.

- Government Policy Support

India is launching its National Centre of Excellence for Animation, Gaming, and VFX, while state governments are announcing subsidy programs to attract investments in media parks and post-production facilities.

Sources

IMARC Group, EY India , Film France, Audio-Visual Expenditure Credit (AVEC) Reliefs (2025 Budget)

BFS Positioned for Scalable Growth

Basilic Fly Studio Limited (BFS) is strategically aligned to grow in tandem with the global VFX industry, which is poised for sustained expansion driven by rising content demand, technological innovation, and supportive policy environments. With a strong presence in high- growth markets like the UK and France—benefiting from attractive tax incentives—and cost-efficient delivery hubs in India, BFS has built a scalable, hybrid operating model that balances creative depth with operational efficiency. Its investments in AI-driven workflows, cloud- based collaboration, and Universal Scene Description (USD) pipelines enhance its ability to handle complex, high-volume projects with speed and precision. The successful integration of its UK-based acquisition, growing global client base, and active participation in premium international productions position BFS to capitalize on the industrys rapid evolution and increasing demand for immersive, high-quality visual storytelling.

Review of operations

Business Overview

BFS is a creative technology company specializing in high-quality VFX for films, television, commercials, and digital content. Originating from Chennai, India, the company has grown into a globally recognized VFX studio known for its storytelling finesse, artistic excellence, and technical precision. Over the years, BFS has established a strong international footprint through its subsidiaries and studios in key creative markets including the UK, Canada, and Europe. The company brings together a diverse team of artists, technologists, and production specialists who collaborate across time zones to deliver visually compelling content for some of the worlds leading entertainment platforms. With a strong foundation in creativity and a future-facing outlook, BFS continues to redefine the possibilities of visual storytelling.

Strategic Acquisition

As part of its global expansion strategy, BFS completed a significant acquisition in 2024 by acquiring a 70% stake in OOU, a highly respected VFX studio based in London. This move was aimed at integrating world-class creative talent and deepening BFSs engagement with premium international content. The acquired studio has a longstanding reputation for its work on high-concept and story-driven projects and brings with it established relationships with top filmmakers and production houses. The acquisition not only accelerated BFSs access to high-end projects but also enriched its creative pipeline, bolstered its global team strength, and elevated its positioning in the competitive VFX landscape. This strategic alignment strengthens BFSs ambition to become a fully integrated, globally competitive VFX company delivering excellence at scale.

Operational Performance

- BFS delivers comprehensive, end-to-end services across the entire VFX pipeline, ensuring seamless integration from concept to final delivery. In preproduction, the studios capabilities include concept art, digital storyboarding, previs, and animatics, enabling filmmakers to visualise and refine creative ideas early in the process. During production, BFS provides on-set VFX supervision. In post-production, the studio covers the full spectrum — from preparatory services to digital asset creation, animation, and advanced technical services Final. shot finishing is achieved through lighting and high-end compositing. Complementing these core services, BFS also invests heavily in software development and custom pipeline engineering, creating proprietary tools and scalable workflows that enhance efficiency, interoperability, and creative control across global teams.

- Headquartered in Chennai, the company operates through strategically located facilities in Pune, London, Paris, and Vancouver, supported by a team of over 850 professionals.

- BFS has successfully delivered more than 11,000 projects, comprising over 1,100 films, 2,100 television series, and 8,100 commercials.

- The company serves over 90 clients globally, including leading entertainment platforms such as Netflix, Amazon, and Sony, reinforcing its reputation as a trusted partner in high-quality visual storytelling.

Financial Highlights

The company posted an operational revenue of Rs.304.10 cr as against Rs. 102.67 cr, registered for the financial year ended March 31, 2024, thus recording an impressive y-o-y growth of 197.1%. The growth is primarily contributed by 8 months consolidation of UK subsidiary OOU which accounted for Rs.241 cr for the Top line. The India revenue was impacted by hollywood strike, risk well mitigated by timely acquisition of OOU resulted in robust growth at Consol level

[Rs. in Cr]

Particulars	FY 25	FY 24
Net Sales	304.1	102.7
Other Income	2.0	3.1
Total Income	306.1	105.8
Total Expenditure	243.4	54.12
EBIDTA	62.7	52.19
PAT	45.6	36.5

The revenue growth again reiterates the companys ability to scale its operations and making in-roads in the market share in the existing geographies .

Expenditure, Operational Efficiency and Profitability

On the expenditure front, employee cost rose from Rs.29.5 cr in FY24 to Rs. 189.4 Cr evidencing the companys investment in talent pool. Other expenses also rose considerably from Rs. 24.20 cr in FY24 to Rs.50 cr in FY 25, up by 106.9% Y-O-Y.

EBITDA during FY 25 was at Rs.62.7 cr as against Rs.51.67 registered during FY 24, resulting in reduction in EBITDA margin of 20.5% from 49.3% in FY24.

Profit after Tax (PAT) of Rs.45.6 cr an increase of 24.8% y-o-y, over the previous fiscal 2024 PAT at Rs.36.5 cr. However, the PAT margin showed a negative growth from 34.5% to 14.9% in FY25.

Geographical Revenue Distribution of India business

Location	Revenue
North America	12%
Europe	85%
Australia & New Zealand	1%
Others	2%

Geographical Revenue Distribution and Market Presence

In FY25, Europe emerged as the dominant geography, contributing 85% of total consolidated revenues, reflecting strong client traction and consistent project delivery in this market. North America accounted for 12%, while Australia & New Zealand contributed 1%, and other geographies made up the balance 2%.

The Company continues to witness deeper penetration in its core markets of Europe and North America, which remain central to its growth momentum. The high concentration in Europe underscores its strong positioning and long-term relationships with leading clients, while opportunities in North America are expanding steadily. Australia & New Zealand and other geographies, though currently smaller contributors, provide strategic diversification potential, and the Company remains focused on expanding its footprint in these regions to achieve a more balanced revenue mix going forward.

Ratio Analysis

Ratio	FY25	FY24	Reason
EBITDA Margin (%)	20.5	49.3	Change due to variation in revenue mix, cost structure, and profitability levels.
PAT Margin (%)	14.9	34.5	Change due to variation in revenue mix, cost structure, and profitability levels.
ROE (%)	28.0	47.2	Variation driven by changes in profitability and capital employed base.
ROCE(%)	23.0	40.4	Variation driven by changes in profitability and capital employed base.
Book Value (in Rs)	87.0	53.0	Increase due to higher retained earnings and net worth.
Fixed Assets Turnover Ratio (Times)	17.01	53.5	Decline due to lower revenue generation against fixed assets base.
Debt to Equity (Times)	0.2	0.0	Increase on account of availing additional borrowings during FY25.
Interest Coverage Ratio (Times)	13.9	98.3	Reduction due to higher finance costs and lower operating profits.
Current Ratio (Times)	3.8	8.6	Decrease due to changes in current assets and liabilities mix.
Debtors Turnover Ratio (Times)	4.7	1.9	Improvement due to better collections and receivables management.

Note: # Revised on average equity basis

Opportunities & Threats

Opportunities

Booming Global VFX Industry and Premium Content Surge

The global VFX industry is projected to grow from $26.3 billion in 2021 to $48.9 billion by 2028, driven by increasing demand for immersive, high-budget productions. BFS is strategically positioned to benefit, with direct exposure to 47+ high-value film productions currently underway in the UK and France—markets where it has a strong operational presence via its OOU acquisition.

Cost-Effective Global Delivery Model

BFSs ability to distribute work across its cost-efficient Indian hubs (Chennai and Pune) and its high-value delivery centers in London and Paris creates a scalable and margin-accretive model. With Al-driven workflows, centralized cloud infrastructure, and modular pipelines, BFS enhances efficiency while maintaining creative excellence. This structure strengthens its ability to take on complex, high-volume projects globally.

Government Incentives and Policy Tailwinds

VFX production in BFSs key geographies—India, UK, and France—is receiving strong policy support. The UK has introduced a 40% tax relief for independent films and 39% for VFX work, while France offers up to 40% tax rebates on VFX-heavy projects. In India, incentives and the National Centre of Excellence for Animation, Gaming & VFX boost the outsourcing potential. These policy measures directly enhance BFSs competitiveness and profitability.

Tech-Led Differentiation and AI Innovation

The establishment of an AI/ML Lab in partnership with the UK team and plans to implement Universal Scene Description (USD) pipelines signal BFSs intent to lead with technology. These innovations will improve asset reuse, shorten rendering cycles, and enable real-time cross-border collaboration, helping the company deliver higher volumes at lower costs while opening new creative possibilities.

Threats

High Client Concentration and Project Volatility

BFS relies on major OTT clients like Netflix, Amazon, and Sony. Although these are marquee clients, the VFX industry is highly project-based with fluctuating timelines. Any delays or cancellations in large productions can cause revenue volatility and uneven quarterly performance, unlike subscription-based or recurring revenue models.

Integration & Operational Risks Post-Acquisition

The OOU acquisition expanded BFSs global footprint and talent base, but also introduced significant integration challenges. Managing 800+ artists across continents while ensuring cultural alignment, delivery standards, and cost optimization poses execution risk. Any delay in seamless offshoring, tech integration, or collaboration could impact margins and project timelines.

Margin Pressure from Fixed Costs and Talent Inflation

Despite BFSs scalable India operations, the fixed cost structure in high-cost markets like the UK can compress margins, especially during low-utilization periods. Additionally, the global shortage of skilled VFX artists and rising wages, particularly in London and Paris, could limit margin expansion unless aggressively counterbalanced by offshoring and automation.

Risk Management

The company consistently evaluates project risks from the initial pre-production planning stage through to final delivery. Risk assessments are conducted at every phase, addressing technological challenges, potential delays in asset creation, and ensuring that budget allocations do not hinder project progress. Business Intelligence tools are leveraged extensively to monitor and manage project timelines, revenue allocation, expenditures, cost control, and quality feedback across the project life cycle. Regular project reviews involving all team members, timely project status reports, and consistent team meetings foster transparency and support successful project execution.

The companys risk mitigation framework supports sustainable growth and is implemented through the following strategies:

1. Continuous monitoring and optimal allocation of resources—including finances, personnel, and technology—throughout the project life cycle.

2. Promoting unified communication via dedicated platforms to ensure critical information is promptly shared, enabling timely feedback and solutions to key issues.

3. Ongoing tracking of project milestones to ensure adherence to timelines.

4. Collaborating with industry partners to expand market reach.

5. Prioritizing client preferences to secure repeat business and long-term relationships.

6. Maintaining a geographically diversified presence to minimize reliance on any single market or client.

7. Investing in continuous technological upgrades and providing regular training to employees to meet evolving market demands and stay ahead of disruptions.

8. Emphasizing quality and market differentiation as core pillars of the companys visionary growth strategy.

Outlook

BFS is well-positioned to capitalize on the evolving dynamics of the global VFX industry, which is expected to nearly double in size by 2028. The companys strong global footprint, Al-driven workflows, and scalable delivery model enable it to execute complex, high-volume projects with efficiency and quality. Long-standing client relationships with leading platforms such as Netflix, Amazon, and Sony continue to strengthen its market position.

Looking ahead, BFSs growth will be driven by expansion of its Canada subsidiary, the establishment of an AI/ML Lab in London, and domestic market opportunities. The company also plans to enhance regional differentiation in Europe and North America, supported by favorable tax incentives, and to selectively pursue M&A opportunities that add scale or niche expertise.

Recent investments in Al pipelines, cloud-based collaboration, and USD workflows are enabling faster, more modular production and greater capacity to handle multiple large-scale projects simultaneously. With over 390 global clients and a diversified delivery model across India, the UK, Canada, and France, BFS is strategically placed to maintain its growth momentum, improve efficiency, and strengthen its role as an end-to-end VFX partner in the years ahead.

Internal Control Systems & Their Adequacy

Internal control systems of BFS are designed to align with the business and its scale. Your company has implemented robust controls, procedures, and policies to ensure smooth business operations while strictly adhering to the defined policies, detection of errors and frauds, safeguarding the assets and helps in completing the accounting records to ensure preparation of reliable financial information flow and within the timelines. The internal control systems are periodically tested and certified by the internal auditors and statutory and statutory auditors for their adequacy and effectiveness. Audit Committee is apprised of the significant observations and the follow up actions taken in this regard as part of the review process undertaken by the Audit Committee as to the effectiveness and adequacy of the internal control processes. The committee also monitors the implementation of the recommendations of the audit which includes strengthening of the risk management policies and systems.

Human Resource Development

At the heart of our success lies our people. We believe that Human Resources are the driving force for our success and innovation in the industry. We have a workforce of around 800 professionals - a powerful blend of young and energetic talent and seasoned expertise - creating a culture that thrives on innovation, guidance, and collaboration.

BFS is committed to fostering a safe, inclusive, and high- performing workplace where every employee feels valued and motivated. Continuous learning is integral to our culture. Through regular skill enhancement programmes, training modules and career development opportunities the company ensures that the team is future-ready and aligned with business goals. The workforce is encouraged to embrace the technological advancements which may tackle environmental and industry specific challenges with agility and confidence to achieve success in the organisations endeavours. With robust systems for performance appraisals, talent nurturing and talent management,

BFS recognises and rewards excellence at every level.

The company believes that a supportive, collaborative environment leads to higher engagement and satisfaction among human resources - driving loyalty, productivity, and overall success

Cautionary Statement

The Companys objectives, projections, outlook, expectations, estimates, and other information expressed in the Management Discussion and Analysis may be considered forward-looking statements under applicable securities laws and regulations. These statements are based on certain assumptions that the Company cannot guarantee. Several circumstances, some of which the Company may not have direct control over, could have a substantial impact on the Companys operations. As a result, actual results may differ materially from such projections, whether expressed or implied, because it would be beyond the Companys ability to successfully implement its growth strategy. The Company assumes no obligation or responsibility to update forward-looking statements or to publicly amend, modify, or revise them to reflect events or circumstances that occur after the date of the statement on the basis of subsequent development, information, or events. The Management of BFS presents below an analysis of its performance during the year under review, i.e., accounting year ended 31st March, 2025 (for the period 1st April, 2024 up to 31st March, 2025).