Basilic Fly Studio Ltd Management Discussions

GLOBAL ECONOMY OVERVIEW

After navigating a period of elevated trade barriers and persistent uncertainty, the global economy now faces renewed pressure from the ongoing conflict in the Middle East. Assuming the situation remains contained, global growth is projected to moderate to 3.1% in 2026, then improve marginally to 3.2% in 2027. Inflation is expected to rise modestly in the near term before easing again, with emerging and developing economies likely to experience sharper growth slowdowns and more persistent inflationary pressures.¹

The global outlook remains fragile due to risks posed by ongoing geopolitical conflicts, renewed trade disputes, financial market volatility, and declining confidence in institutions. Although faster productivity growth driven by AI and easing trade tensions might boost the economy, increased defence spending and geopolitical fragmentation could amplify inflation and fiscal challenges. In this context, flexible policies, trustworthy governance, and enhanced international collaboration will be essential to maintain

1 https://www.imf.org/en/publications/weo/issues/2026/04/14/world- economic-outlook-april-2026

stability and foster long-term economic resilience.

INDIAN ECONOMY OVERVIEW

India reaffirmed its status as the worlds fastest-growing major economy in FY26, with an estimated GDP growth of 7.4%, driven by robust domestic consumption and sustained investment. The Economic Survey 2025-26 projects FY27 GDP growth between 6.8% and 7.2%, with a long-term growth outlook of around 7%. Domestic demand continues to be the primary driver of economic growth, supported by low inflation, stable employment, and rising purchasing power. Rural consumption has benefited from strong agricultural performance, while urban demand has gradually strengthened following tax reforms. Investment remains resilient, with Gross Fixed Capital Formation estimated at 30% of GDP, and growth in the first half of FY26 surpassing both last years figures and pre-pandemic levels.

61.5%

The share of Final Private Consumption Expenditure (PFCE) in GDP is expected to increase to 61.5% in FY26.

30%

Gross Fixed Capital Formation (GFCF) is estimated to account for approximately 30.0% of GDP.

3.1%

The agriculture and allied sectors are estimated to grow by 3.1% in FY26.

In FY26, domestic demand continued to be the primary driver of Indias economic growth, buoyed by resilient private consumption, stable inflation, improved employment, and increased purchasing power. Rural demand was supported by robust agricultural performance, while urban consumption saw gains following tax rationalisation measures, leading to widespread growth driven by consumption across the economy. Investment also remained vigorous, with Gross Fixed Capital Formation estimated at about 30% of GDP. The investment cycle gained speed in the first half of FY26, fuelled by sustained infrastructure investments and rising business activity.

The agriculture and related sectors are expected to grow by 3.1% in FY26, supported by a good monsoon and steady growth in livestock and fisheries. Meanwhile, the industrial sector showed consistent progress, with manufacturing and construction benefiting from strong demand, increased public capital spending, and infrastructure projects. Overall, industrial growth is projected at 6.2% for the year. The services sector continued to drive economic growth, showing broad-based expansion across various segments and remaining the main contributor to total GVA growth in FY26.²

Indias domestic consumption remained robust in FY2025- 26, cementing its role as the main growth engine. PFCE is expected to grow by 7.7% in FY26, up from 5.8% in FY25, increasing its share of GDP to 56.7%, according to the Second Advance Estimates by the National Statistics Office. In Q3 FY26, PFCE rebounded to 8.7% after slowing to 8% in Q2, showing momentum. Gross Fixed Capital Formation also rose to 7.1% from 6.4%, indicating private investment is strengthening on robust consumer demand. Economists agree private consumption is the key growth driver, with a positive outlook for FY27. This domestic demand growth supports volume expansion, pricing power, and long-term consumption fundamentals for the Company.³

ENGINES OF INDIAS ECONOMIC GROWTH⁴

Digital public infrastructure: Indias expanding digital public infrastructure (DPI) speeds up digital economy adoption. With DPIs like UPI and DigiLocker enhancing transparency and convenience, more citizens and businesses use digital services. Additionally, DPIs such as GeM and ONDC empower MSMEs by giving them access to platforms to sell domestically and globally.

22.6 billion

Unified Payments Interface (UPI) transactions recorded in Mar26 (27% y-o-y growth)

Growing talent base: Indias workforce continues to strengthen as its talent base expands rapidly, supported by the addition of more than 2.5 million STEM graduates each year. This growing pool of skilled professionals is reinforcing the countrys position as a global hub for technology and innovation. Reflecting this momentum, India today accounts for nearly 16% of the worlds AI talent pool, marking a threefold increase since 2016.

6+ million

People are employed across the technology and AI ecosystem, as of Feb26

Growing focus on Indias MSME sector: The Indian MSME sector remains crucial to the countrys economy, contributing about 31.1% to GDP and driving employment, entrepreneurship, and industrial growth. To support this, the Government raised the FY27 budget for MSMEs to USD 2.6 billion, a nearly 6% increase year-over-year, demonstrating ongoing commitment to strengthening the MSME ecosystem.

1,73,350

MSMES ACTIVELY ENGAGED IN GLOBAL EXPORT MARKETS IN FY25 (3.3X INCREASE FROM FY21)

India is emerging as the new destination for Global Capability Centres (GCCs): Indias GCC ecosystem remains robust, with over 1,700 centres employing nearly 1.9 million skilled professionals in engineering, R&D, analytics, design, and digital operations. As global demand for technology and innovation-driven services increases, the sector is anticipated to grow substantially, reaching nearly 2,400 GCCs and providing employment to over 2.8 million professionals by 2030. Additionally, the market is expected to expand to around USD 105 billion, solidifying Indias status as a leading global hub for talent, technology, and enterprise transformation.

400+

Number of new GCCs established in the last five years (till 2025)

OUTLOOK

Indias economic outlook continues to be resilient, bolstered by strong macroeconomic fundamentals and widespread demand. In FY26, real GDP is expected to grow by 7.4%,

and GVA by 7.3%, driven by solid agricultural performance and rising urban consumption. The countrys medium-term growth remains steady, with forecasts for FY27 ranging between 6.8% and 7.2%. Inflation has decreased considerably, with average headline inflation at just 1.7% from April to December 2025, marking some of the lowest levels. The RBI has adjusted its FY26 inflation forecast to 2.0%, supported by favorable agricultural output, while IMF projections for FY26 and FY27 remain moderate.

Looking ahead, inflation is likely to stay low, creating a stable macroeconomic environment that supports ongoing growth and investment.

INDUSTRY OVERVIEW

Global VFX industry

Visual effects (VFX) combine creativity and technology to produce imagery beyond what cameras can capture. Originally limited to major blockbuster films, VFX now plays a vital role in feature films, streaming shows, advertising, gaming, and immersive media. This expansion has made VFX a fundamental part of the global media and entertainment sector, which is also the primary market for Basilic Fly Studio.

The global Visual Effects (VFX) industry continues to demonstrate strong long-term growth potential. Valued at approximately USD 40.18 billion in 2025, the market is projected to grow at a CAGR of around 12.9% over the next decade, reaching an estimated USD 135.19 billion by 2035. The industry is entering a renewed phase of expansion, driven by the increasing adoption of generative AI, the growing use of virtual production technologies, rising demand for streaming content, and the expanding role of VFX across advertising, gaming and digital media. Together, these trends are reshaping the creative landscape and creating significant opportunities for VFX studios worldwide. The market is mainly centered in established hubs, North America holds the largest share, exceeding 40%, while Asia-Pacific is expected to be the fastest-growing region. Demand is driven primarily by the worlds major studios and streaming services, whose post-production schedules and procurement criteria influence capacity planning across global vendors.5

GLOBAL VFX MARKET SIZE

The global VFX industry experienced a slowdown after a notable cyclical decline. Following the 2023 Hollywood writers and actors strikes, production volumes worldwide dropped by about 10% in 2024. This decline resulted in decreased VFX demand in all major regions: the Americas (-24%), APAC (-15%), and EMEA (-7%). Consequently, outsourcing volumes worldwide were also affected.

By 2025, industry conditions started stabilising, and they became more stable in 2026. Industry experts say the sector is now in a phase of structural normalisation. During this period, content output is expected to recover, and service providers are adjusting their pricing strategies to match more streamlined workflows, shorter delivery times, and a stronger focus on profitability, favouring efficient and scalable studio operations.

The global VFX industry experienced a slowdown after a notable cyclical decline.

Following the 2023 Hollywood writers and actors strikes, production volumes worldwide dropped by about 10% in 2024. This decline resulted in decreased VFX demand in all major regions: the Americas (-24%), APAC (-15%), and EMEA (-7%).

KEY MARKET TRENDS

• Asia Pacific is projected to grow at a compound annual rate of 14.6% over the coming years, boosted by Indias attractive 40% VFX incentive, a large pool of skilled artists, and increasing regional investment in content.

• The software sector is also set to expand at a CAGR of 13.7%, fueled by advancements in AI plug-ins, realtime rendering tools, and Foundrys Nuke 17 with its generative AI capabilities.

• Meanwhile, the movie industry is expected to see a 12.5% growth during this period, supported by major streaming productions and a rebound in theatrical releases.

KEY GROWTH DRIVERS FOR THE INDUSTRY

The global visual effects industry is driven by a combination of demand and technological factors, indicating ongoing growth. These drivers are rooted in structural changes rather than short-term cycles.

Streaming and content investment: OTT platforms drive most VFX demand, fuelling a pipeline of effects-heavy projects. As platforms compete with visually ambitious content, VFX has become a key budget line, not just an add-on.

Artificial intelligence and machine learning: AI is transforming the crafts economics by automating labour- heavy tasks like rotoscoping, tracking, and compositing. This reduces turnaround times and enhances profit margins. Instead of reducing demand, AI is increasing it by making complex shots more affordable and enabling more productions to access high-end effects.

Growing gaming sector: The demand for high-quality cinematic visuals in video games has created a sizable and expanding market for VFX artists, especially those proficient in real-time rendering. As the lines between games and films blur through shared tools and game-engine pipelines, the scope of the visual effects market has significantly grown beyond its traditional domain in cinema.

Premiumisation of content: Audience expectations for cinematic-quality visuals now span various formats, including feature films, episodic series, advertising, and short-form content. This growing standard of visual excellence is increasing the complexity of VFX in each production and expanding its application throughout the broader media and entertainment industry.

Real-time and virtual production: Game-engine workflows, LED volumes, and in-camera VFX are transforming production pipelines, expanding the scope of work, and changing how effects are conceived and delivered. Adoption of real-time tools is rising fast, especially among mid-sized studios.

Government incentives and production hubs: Production tax credits and subsidies in Canada, the UK, and India attract international work and establish competitive VFX hubs. These policies reduce studios costs and affect where global work is routed.

Globalisation of production: The growing demand for local-language content, along with more cross-border coproductions, is spreading work across various regions. This expansion creates more opportunities for cost-effective, high-quality delivery centers.

OUTLOOK

The global VFX industry is entering a new phase with strong fundamentals. After recent disruptions, demand has stabilized and is expected to grow at double-digit rates over the next decade. North America will continue to lead growth, while Asia-Pacific is the fastest-growing region due to its cost benefits, talent pool, and policies.

Key market drivers remain resilient. Investment in streaming stays strong, merging film and gaming broadens the market, and AI makes effects faster and more cost-efficient. The industry now favours disciplined operators focusing on efficiency, streamlined pipelines, and quality. Scale, tech strength, and cost-competitive delivery are key advantages. For studios balancing global demand and efficient output, the environment offers a compelling, multi-year opportunity. The Companys strategy to build scale, expand international partnerships, and invest in tech pipelines aligns with industry trends, positioning it for long-term value.

AI is transforming the crafts economics by automating labour-heavy tasks like rotoscoping, tracking, and compositing. This reduces turnaround times and enhances profit margins.

Instead of reducing demand,

AI is increasing it by making complex shots more affordable and enabling more productions to access high-end effects.

INDIAN VFX INDUSTRY

The global visual effects (VFX) and animation industry continues to be reshaped by the growth of premium streaming content, large-budget theatrical franchises, and the rapid adoption of artificial intelligence ("AI") across production pipelines. Within this landscape, India has evolved from a low-cost outsourcing destination into an integral creative and technical partner for global studios. Mumbai is now recognised as the single largest VFX hub in the world in terms of headcount, and six of the worlds ten fastest-growing VFX and animation hubs are located in India.

India ranks among the worlds leading VFX delivery hubs, valued for its extensive, cost-effective talent pool and increasing technical expertise. A significant portion of revenue for Indian studios comes from international collaborations, firmly establishing India within the global production chain.

As per the FICCI-EY Media & Entertainment Report 2026, Indias combined Animation, VFX and Post-Production segment generated revenue of ?105 billion in calendar year 2025, a modest 1.6% increase over ?103 billion in 2024. This marks an early stabilisation after the segment had contracted by 9% in 2024, when global production volumes fell sharply following the Hollywood writers strike and a broader pull-back by international studios. The segment is projected to grow at an approximate 10% CAGR to reach ?138 billion by 2028.

GROWTH OF THE INDIAN VFX INDUSTRY

Key growth drivers

I. Growing domestic demand: Indian filmmakers are increasingly incorporating visual effects and postproduction enhancements across both large-scale and mid-budget productions, making domestic content creation a more consistent source of demand for VFX studios.

II. OTT-led expansion: The continued growth of streaming platforms is driving demand for high-quality, VFX-intensive episodic content, creating longer-term, recurring engagement opportunities and strengthening the premium content ecosystem.

III. Indias competitive advantage: A large pool of skilled, English-proficient creative and technical professionals, combined with cost-efficient delivery capabilities, continues to position India as a preferred global destination for VFX and post-production services.

IV. AI-driven efficiency gains: The integration of artificial intelligence across production workflows is enhancing productivity, reducing turnaround times and enabling studios to allocate more resources towards higher- value creative work.

V. Emerging growth avenues: Demand from advertising films, short-form content, animation, anime and gaming is expanding the industrys addressable market and creating new revenue streams for content creation companies.

VI. Supportive policy environment: Government initiatives, AVGC-focused policies, production incentives and investments in talent development infrastructure are strengthening Indias position as a global hub for digital content creation and entertainment services.

OUTLOOK

The medium-term outlook suggests a cautious recovery, with experts forecasting steady growth in animation, VFX, and post-production sectors over the next few years. Growth depends on the global content cycle, especially in the US, which leads international content spending and has seen a decline in commissioning. The industrys future will rely on Western market resilience. Other estimates indicate the Indian animation and VFX industry could grow significantly, though definitions and scopes vary.

Two key trends will determine industry leaders: first, consolidation favours large, well-capitalized studios with strong creative credentials; second, as AI automates routine tasks, value shifts toward studios that focus on higher- level, creative mandates rather than sub-contracted work. The companys strategy—featuring a globally distributed delivery model that leverages Indias cost advantage and enhances creative expertise through operations in the UK and Europe, along with early AI adoption, direct relationships with global streaming platforms, and an emphasis on primary-vendor projects, is well-positioned to capitalise on these developments as the industry recovers.

COMPANY OVERVIEW

Founded in 2016, Basilic Fly Studio Limited (Basilic Fly or the Company) has grown into an internationally recognised visual effects (VFX) studio, delivering creative and technical support across feature films, episodic television, digital content, and advertising. The Company follows an integrated, asset-light operating model under which creative leadership and client engagement are based in Europe and the United Kingdom, complemented by a North American presence in Canada, while large-scale production execution is carried out cost-effectively from its facilities in Chennai (corporate headquarters), Pune, and Bengaluru in India.

This structure enables BFSL to manage the entire visual effects value chain in-house, spanning pre-visualisation, digital asset creation, animation, effects simulation, lighting, rendering, and final compositing. In FY25, as part of its global expansion strategy, the Company made a significant move by acquiring a 70% stake in One of Us (OoU), a highly regarded VFX studio located in London. In FY26, the focus shifted to streamlining collaboration processes.

As at March 31, 2026, Basilic Flys operations spanned six locations worldwide, supported by a workforce of over 775 professionals who had, between them, delivered over 11,700 projects for over 490 clients, including leading global studios, streaming platforms, and production houses. This scale of delivery, together with industry-recognised content-security credentials, including Trusted Partner Network (TPN) Gold certification, valid through 2028, for its Chennai and Pune facilities, continues to underpin the Companys long-standing and repeat client relationships.

The Company continues to strengthen its India-led global delivery model by integrating creative leadership and clientfacing teams in key international markets with scalable production capabilities in India. This operating model enables cost efficiencies, enhances delivery flexibility and supports margin expansion while maintaining global quality standards.

REVIEW OF OPERATIONS Business overview

BFS is a creative visual effects studio from Chennai, India, known worldwide for its storytelling, artistry, and technical skill. With offices in the UK, Canada, and Europe, its diverse team of artists and technologists craft stunning content for top entertainment platforms. Driven by innovation and creativity, BFS continually pushes the boundaries of visual storytelling.

Operational highlights

Financial year 2025-26 was a year of disciplined scale-up for BFSL, marked by continued growth in project delivery, deepening client relationships, strengthening of the Companys global delivery infrastructure, and meaningful progress on technology, talent, and security credentials.

The key operational developments during the year are summarised below.

Delivery Scale and client engagement: During FY26, Basilic Fly completed 410 projects for 108 global clients and produced 624 movies and TV series, showcasing its ability to deliver visual effects at scale. This solidified its role as a trusted Tier-1 VFX partner for diverse budgets, formats, and content.

Global delivery model and cost efficiency: The Company used its India-led delivery model to maintain a 30-40% cost advantage over UK and EU-based execution. During the year, some roles moved from the UK and EU to India, with Bengaluru expanding to support this. During FY26, the Company expanded its Bengaluru facility, strengthening offshore production capacity and supporting the continued scaling of its global delivery model. Management predicts this shift will boost margins long-term.

Strategic Integration of One of Us: During FY26, the Company successfully advanced the integration of One of Us, its UK-based subsidiary, strengthening collaboration across creative, production, and business development functions. The integration enhanced access to premium global studios, improved bidding capabilities for larger and more complex projects, expanded the Companys European market presence, and broadened its pool of creative and supervisory talent. The combined platform further strengthened Basilic Flys ability to deliver high- quality visual effects services through a globally integrated delivery model.

Technology and production innovation: Basilic Fly improved its production tech in FY26 by adopting AI workflows with ComfyUI to reduce costs and speed up processes. It migrated to its own NetApp storage, reducing reliance on third-party clouds. Additionally, it is testing a USD-based pipeline to improve cross-application compatibility, with deployment planned for early FY27. During FY26, Basilic Fly strengthened its technology infrastructure and production capabilities through the adoption of AI-enabled workflows, the migration to its own NetApp storage infrastructure, and the development of a Universal Scene Description (USD)- based pipeline architecture. The Company integrated AI- driven workflows using ComfyUI to automate selected production processes, improve efficiency, reduce costs, and accelerate project execution. In parallel, it migrated to a proprietary NetApp storage environment, reducing dependence on third-party cloud platforms while enhancing data management and operational control. The Company also progressed the development and testing of its USD- based pipeline, which is expected to be deployed in early FY27. Designed to improve cross-application interoperability and workflow standardization, the platform will enable multiple teams across Basilic Flys global studio network to collaborate simultaneously within a unified production environment. The initiative is expected to reduce rework, accelerate production timelines, enhance scalability, and strengthen the Companys ability to execute larger and more complex Tier-1 projects through a more integrated global delivery framework.

Quality, security and industry recognition: Basilic Flys commitment to content security is exemplified by its Trusted Partner Network (TPN) Gold certification for Chennai and Pune, valid through 2028, supported by regular security assessments and dark-web monitoring. The Company also received the Stella Award, becoming the sixth studio worldwide to do so, and completed a Disney security audit, confirming its Tier-1 security. Creatively, Basilic Flys work featured in three Academy Award shortlists (Top 20) during FY26, strengthening its reputation and future Tier-1 studio prospects.

Talent and organisational strength: Basilic Flys workforce strength crossed 780 employees by FY26-end, led by strong expansion in India. A 90% talent absorption rate through internal bootcamps and university partnerships significantly reduced external hiring costs. The company also strengthened its leadership bench with 14 senior hires during the year, including industry veterans such as Adrian De Wet (ex-Netflix) and Abhishek Nair (ex-ILM), enhancing its capability to execute larger, more complex, and higher- value projects.

Revenue diversification: BFSL onboarded Netflix and Amazon for long-form OTT in India, entering a high-growth market. This diversifies revenue and lessens reliance on volatile streaming cycles. The company grew its partner studio network to over 35 globally, adopting an asset-light strategy that enables flexible capacity scaling without fixed costs.

Subsequent developments and near-term pipeline: As the Company entered FY27, it had a ?35 million active bid pipeline, with 55% in advanced stages. Companys confirmed order book for FY27 currently stands at a robust ?232 crores, providing excellent revenue visibility for the upcoming year. Additionally, domestic sales in Q1 FY27 already doubled FY26, showing early success of the OTT diversification strategy. These figures are post-March 31, 2026, and are for context only, not part of FY26 audited results.

FINANCIAL REVIEW

P&L analysis

Particulars	FY26 (7 in million)	FY25 (7 in million)	Growth (change in %)
Revenue from operations	4,078	3,041	34.1%
Raw-material cost	-	-	0%
Employee Benefits Expense	2,596	1,902	36.5%
Interest cost	101	63	60.3%
EBITDA	852	715	19.2%
PBT	662	511	29.5%
PAT	506	447	13.2%
EPS (in 7)	20.78	19.20	8.2%

REVENUE BREAKDOWN BY GEOGRAPHY

The company posted an operational revenue of 74,078 million in FY26 as against 73,041 million in FY25, recording an impressive y-o-y growth of 34.1%. The growth can be primarily attributed to The growth can be primarily attributed to the full-year consolidation of the One of Us acquisition, a broader industry revival, and higher project winnings.

Profit before tax (PBT) was recorded at 7662 million in FY26 against 7511 million during the previous year. Profit after tax (PAT) for the year stood at 7506 million against 7447 million in the previous year. For FY26, EBITDA grew by 19.2% YoY to 7852 million in FY2026, compared to 7715 million in FY2025. EBITDA margin for FY26 stood at 20.89%, declined by (262) bps on a YoY basis.

On the expenditure front, employee cost rose from 71,902 million in FY25 to 72,596 million owing to the expansion of the global workforce to over 775 professionals, the strategic onboarding of 14 senior leadership hires across creative and business development & the scaling of the new Bengaluru delivery center. Other expenses also rose considerably from 7424 million in FY25 to 7630 million in FY26, up by 48.6% on a y-o-y basis, owing to transitional and integration costs related to the full-year consolidation of the One of Us acquisition, operational investments in technology infrastructure such as AI workflow tools, and one-off organizational restructuring costs.

ANALYSIS OF BALANCE SHEET

Particulars	FY26 (7 in million)	FY25 (7 in million)	Growth (change in %)
Total equity	3,339	2,004	66.6%
Long-term borrowings	263	357	(26.3) %
Short-term borrowings	384	155	147.7%
Total non-current assets	2,129	1,297	64.1%
Trade receivables	1,382	772	79.0%
Cash and cash equivalents	739	428	72.7%

As of 31st March 2026, the Companys Equity Capital stood at 7253 million compared to 7232 million as of 31st March 2025.

Total long-term borrowings as of 31st March 2026 stood at 7263 million vis-a-vis 7357 million as on 31st March 2025.

Our tangible assets as of 31st March 2026 stood at 71,203 million vis-a-vis 7456 million as on 31st March, 2025, an increase of 163.8%.

Cash and cash equivalents as of 31st March 2026 stood at 7739 million vis-a-vis 7428 million as on 31st March 2025, an increase of 72.7%.

KEY FINANCIAL RATIOS

Ratios	FY26	FY25	% Change	Reason for change
Trade Receivables Turnover	3.79	4.67	(18.9) %	Note 1
Inventory Turnover Ratio	0	0	0%	Note 2
Interest Coverage Ratio	6.82	9.41	(27.5) %	Note 3
Current Ratio	2.49	3.38	(26.4) %	Note 4
Debt-Equity Ratio	0.19	0.25	(23.3) %	Note 5
Operating Profit Margin (%)	18.7%	18.9%	(0.9) %	Note 6
Net Profit Ratio	0.12	0.15	(15.6) %	Note 7
Return on Equity Ratio	0.18	0.27	(8.7) %	Note 8

Note 1 - Impacted by backend-heavy revenue in later quarters, though offset by strong post-balance sheet collections.

Note 2 - Not applicable, as the company operates a services-based model with no physical inventory.

Note 3 - Reduced by higher finance costs and temporary margin compression from leadership investments.

Note 4 - Decreased due to a rise in short-term borrowings to support rapid global operational expansion.

Note 5 - Improved primarily due to a significantly expanded equity base following the net proceeds from the QIP.

Note 6 - Compressed by the initial costs of 14 senior strategic hires and temporary project rescheduling.

Note 7 - Impacted by front-loaded investments in leadership, organizational restructuring, and localized IndAS adjustments.

Note 8 - Diluted by the substantial expansion of the underlying equity base following the 7817 million QIP fundraise.

OPPORTUNITIES AND THREATS

BFSL operates in a global visual effects industry that is emerging from a period of pronounced volatility into one of measured, structurally underpinned growth. The Companys own performance in FY26 reflects both the strength of its operating model and its ability to gain a share in a market that is still recalibrating.

The opportunities and threats outlined below are assessed against this backdrop.

OPPORTUNITIES

Global visual effects industry returning to growth: The animation, VFX, and post-production industry is expected to grow at 10% CAGR, rebounding from 1.6% in 2025 after a 2024 downturn. Ongoing demand from streaming, theatres, and mid-budget films is expanding BFSLs market for delivery capacity.

Growing popularity of hybrid delivery model: The

Companys network, studios in the UK, France, and Canada, with large-scale execution capabilities in Chennai and Pune, offers a 30-40% cost advantage over Western- only delivery, while maintaining client proximity that pure India studios lack. This combo is hard for single-region competitors to reproduce, boosting win rates and margins.

Expanding creative reach and premium client access:

BFSLs acquisition of a majority stake in OOU (UK) has strengthened its creative leadership and expanded its access to high-end European and North American clients. The new Bengaluru creative division, supporting the subsidiary since October FY25, is already turning that access into cost-efficient delivery.

Capitalizing on Indias Expanding OTT Content Opportunity: The increasing investments by global streaming platforms in premium Indian content present a significant opportunity for the Company. During FY26, the Company strengthened its engagement with leading OTT platforms and participated in high-quality domestic productions requiring sophisticated visual effects capabilities.

Emerging domestic streaming opportunity: The onboarding of Netflix and Amazon for full-length domestic OTT marks the Companys entry into Indias high-growth streaming market, a segment where it had limited presence. In the year ahead, the Company plans to more than double its domestic OTT revenue, demonstrating early traction and reducing dependence on global streaming volumes.

Technology-led productivity gains: BFSL is deploying AI-driven workflows, including ComfyUI pipelines, to cut costs and reduce turnaround times, while switching to owned NetApp infrastructure to lessen cloud reliance. A USD architecture in testing aims for production by Q2 FY27, enabling cross-application interoperability across six studio locations. The company is strategically transitioning from a fully AWS-based workflow to a hybrid infrastructure model, which is expected to deliver a 50% reduction in infrastructure costs upon completion by July 2026.

Building an asset-light model: The Companys partner- studio ecosystem now includes over 35 global studios, enabling flexible delivery for large or unpredictable mandates without fixed headcount or infrastructure - minimizing downside and allowing rapid scaling during demand surges. The company is actively evaluating 7 to 8 M&A targets across geographies, with 2 to 3 players in advanced stages of discussion. The company is specifically targeting acquisitions with a top-line ticket size of ?200 to ?300 crores to accelerate its expansion into North America.

Healthy forward revenue visibility: BFSL delivered 410 projects for 108 clients in FY26, including 624 movies and series, and begins FY27 with a ?35 million bid pipeline, about 55% of which is advanced, offering good revenue visibility.

Strengthened credentials and creative leadership: BFSLs positioning with major studios is reinforced by its TPN Gold certification for Chennai and Pune facilities, supported by Red Team assessments, real-time dark-web monitoring, an on-site Disney audit validating its Tier-1 security, and a Stella Award, making it the sixth studio globally to earn this year. Additionally, achieving three Academy Award nominations within the Top 20 during FY26 and hiring senior creative and business development talent further bolsters its credentials in competitive, high-value bids.

THREATS

Client concentration risk: While customer concentration has moderated compared to the previous year, a significant share of revenue continues to be derived from a limited number of clients. Any reduction in business from key customers could adversely impact revenue growth and profitability.

Geographic and currency exposure: Europe remains the Companys largest market, exposing performance to content production cycles in the region as well as foreign exchange fluctuations between GBP/EUR and the predominantly India-based cost structure.

Pressure on consolidated margins: The integration of overseas operations and their relatively higher employee cost base has increased cost pressures at the consolidated level. Sustained wage inflation in international markets could continue to impact profitability.

Competitive industry dynamics: The global VFX industry continues to experience pricing pressure, shorter delivery timelines and increasing competition, despite an improving demand environment. Ongoing industry consolidation may further intensify competitive challenges.

Dependence on global content spending: A significant portion of industry demand is linked to production budgets of major studios and streaming platforms in North

America and Europe. Any prolonged slowdown in content commissioning or production activity could affect project pipelines and revenue visibility.

Technology disruption and AI-driven change: While generative AI offers significant productivity benefits, it is also lowering barriers to entry and accelerating industry transformation. Companies that fail to continuously invest in technology and innovation risk losing their competitive advantage.

Talent availability and cost inflation: The VFX industry remains highly talent-intensive. Competition for experienced artists, supervisors, and technology specialists remains strong globally, creating a risk of rising employee costs and talent retention challenges.

RISK MANAGEMENT

BFSLs risk management strategy integrates structural diversification across clients, regions, and delivery sites with operational protections centred on its accreditation system, technology upgrades, and financial discipline. The main risks recognised by management, along with the primary mitigation strategies, are summarised below.

Risk Category	Nature of Risk	Mitigation Measures
Client concentration risk	Top 5 and top 20 clients accounted for 55% and 82% of FY26 consolidated revenue respectively; loss of a key account could materially affect revenue.	Diversified client engagement model across direct and sub-contracted relationships (12,000+ projects executed across 500+ clients); active expansion into Indias domestic OTT market via Netflix and Amazon mandates; broadened international client base through One of Us.
Geographic and currency risk	Europe contributed 60% of FY26 consolidated revenue, concentrating exposure to UK/EU production cycles and GBP/EUR movements against an Indiacentric cost base.	Targeted geographic expansion toward North America and Australia/New Zealand; growing domestic India revenue base; multi-currency studio footprint across India, the UK, France, and Canada.
Industry demand and pricing cyclicality	Global VFX demand and pricing remain sensitive to studio and streamer production budgets; the industry is still recalibrating after the 2024 downturn, with leaner pipelines and shorter delivery timelines becoming the norm.	Hybrid delivery model offering a 30-40% structural cost advantage; asset-light network of 35+ partner studios for rapid capacity flexing; ?35 million FY27 bid pipeline, 55% at an advanced conversion stage.
Cost and margin risk	Consolidated employee costs rose to 68.22% of sales in FY26 from 62.55% in FY25, compressing consolidated EBITDA margin by 262 bps and PAT margin by 250 bps.	AI-led production workflows (ComfyUI) for per-shot cost compression; migration to owned infrastructure to reduce cloud costs; Bengaluru delivery centre supporting cost-efficient execution for the UK business.
Technology disruption risk	Rapid evolution of generative AI could alter industry-wide production economics and pricing benchmarks, including for the Companys own services.	Early and active adoption of AI tooling across production pipelines; planned Universal Scene Description (USD) architecture roll-out by Q2 FY27 for cross-site interoperability; continued reinvestment in proprietary workflow tooling.
Talent and key- personnel risk	Delivery quality depends on retaining experienced, creative, and pipeline talent in a globally competitive VFX labour market.	Headcount grew to over 775 employees, with a 90% internal absorption rate through bootcamps and university partnerships; reinforced the senior leadership bench across creative, HR, and operations.
Information and content security risk	Handling of pre-release studio content exposes the Company to significant reputational and contractual risks in the event of a breach.	TPN Gold certification for Chennai and Pune through 2028; Red Team assessments and real-time dark- web monitoring; Disney on-site audit validating Tier- 1 security posture; Stella Award recognition.
Acquisition and integration risk	Integration of One of Us (UK) and scale-up of the new Bengaluru creative division carry execution and cultural-integration risk.	Phased roadmap covering global delivery foundation, geographic expansion and operational leverage; Bengaluru division billing since October FY25, evidencing early integration traction.
Liquidity and financial risk	Working-capital intensity reflected in elevated days sales outstanding (96 days in FY26) and declining interest coverage (96x in FY24 to 9x in FY25 and 7x in H1 FY26).	Current ratio of 2.49x at FY26-end; broadly net- cash consolidated balance sheet (net debt/equity of (0.03)x); 817 million of net equity proceeds raised in FY26 to fund growth.
Regulatory and compliance risk	Operations across India, the UK, France and Canada subject the Company to multiple regulatory, tax, labour and data-protection regimes.	Group-wide compliance oversight through qualified company secretarial and finance functions; adherence to international content-security and data-protection standards across all delivery locations.

These measures are continuously evaluated as the Company grows in scale, expands its geographic presence, and diversifies its service offerings, especially as the One of Us integration advances and the domestic Indian OTT market moves beyond its early stages.

OUTLOOK

FY26 represented a significant milestone in the Companys evolution as a globally integrated visual effects platform. The successful integration of One of Us, expansion of offshore production capabilities, strengthening of global leadership teams, deployment of AI-enabled workflows, and continued investments in technology infrastructure have enhanced the Companys ability to execute larger and more complex projects. These initiatives position the Company to capitalize on growing demand for premium visual content across international and domestic markets while maintaining operational efficiency and scalability.

BFSL enters the new year from a position of structural strength, having sustained a multi-year run of growth in revenue, profitability and net worth, supported by the equity capital raised to fund expansion. The Companys priorities ahead are closely linked: deepening an already established international footprint across India, the UK and France, backed by business-development presence in key North American markets, to further diversify the client and geographic mix beyond the concentration of recent years; and converting a healthy, well-advanced bid pipeline into revenue, with early traction in the domestic Indian OTT business emerging as a meaningful new growth lever alongside the Companys established international base.

At the same time, the management is working to restore consolidated margins toward their historical strength. Cost actions already under way, migrating roles from higher- cost overseas locations to India, scaling the new Bengaluru creative division, deploying AI-led production workflows, and rolling out a new cross-site technical architecture, are expected to drive durable margin expansion over time, even as near-term margins remain shaped by the higher-cost base acquired through the One of Us integration. This is complemented by continued investment in the leadership bench and in security and quality credentials, expected to strengthen BFSLs positioning for premium, marquee studio mandates as the broader industry recovers.

INTERNAL CONTROL SYSTEMS & THEIR ADEQUACY

Your company has established strong controls, procedures, and policies to ensure smooth operations. These measures help in detecting errors and frauds, safeguarding assets, and maintaining accurate accounting records to produce reliable financial information on time. Internal auditors and statutory auditors periodically review and certify the effectiveness of these control systems. The Audit Committee is kept informed of significant findings and the follow-up actions taken, reviewing the overall effectiveness of internal controls. Additionally, the committee oversees the implementation of audit recommendations, including efforts to strengthen risk management policies and systems.

HUMAN RESOURCE DEVELOPMENT

With a team of 800 professionals, we bring together youthful energy and seasoned expertise to create a culture of innovation, collaboration, and mentorship. At BFS, we are committed to building a safe, inclusive, and high-performing workplace where every individual feels valued and motivated. Continuous learning is woven into our DNA, through skill-building programmes, training modules, and career development opportunities, we ensure our workforce remains future-ready and aligned with business goals. Embracing technology with agility and confidence, our people are equipped to tackle industry and environmental challenges head-on. We recognise and reward excellence through robust performance systems, nurturing talent at every level. By fostering a supportive and collaborative environment, we drive engagement, loyalty, and productivity, ultimately powering our organisations success.

CAUTIONARY STATEMENT

The statements made in this report describing the Companys objectives, estimations, expectations, projections, outlooks, constitute forward-looking statements within the meaning of applicable securities laws and regulations. Actual results may differ from such expectations, projections, among others, whether express or implied. The statements are based on certain assumptions and future events over which the Company has no direct control. The Company assumes no responsibility to publicly amend, modify and revise any of the statements based on any subsequent developments, information or events.