Phantom Digital Effects Ltd Management Discussions

Economy Overview

Global Economic Overview

FY25 was shaped by an uneven global economic climate. Advanced economies, particularly the United States and Europe, experienced the effects of persistent inflation, tighter monetary policy, and geopolitical disruptions that slowed overall growth momentum. Consumer sentiment in these markets remained cautious, and discretionary spending in several industries, including entertainment, reflected this moderation.

In contrast, emerging economies such as India and China displayed resilience. Strong domestic demand, rapid digital adoption, and structural reforms provided support to these markets, positioning them as growth drivers in the global economy. The shift in global production networks toward more cost-efficient destinations also strengthened the role of emerging markets in value creation.

For the media and entertainment sector, FY25 was a period of sustained stability. While studios in advanced markets streamlined content budgets, demand for compelling and high-quality content remained undiminished. This created opportunities for visual effects service providers that could combine quality with cost competitiveness. India, with its creative talent and scale advantages, emerged as a natural beneficiary of these global dynamics.

Source: IBEF

Indian Economic Overview

India continued to stand out as one of the most resilient major economies during FY25. Strong domestic consumption, steady investment activity, and continued policy support allowed the economy to navigate global headwinds more effectively. Growth was underpinned by a vibrant services sector, a broadening industrial base, and expanding digital infrastructure.

The governments continued emphasis on building an ecosystem for the Animation, Visual Effects, Gaming and Comics (AVGC) sector reinforced the importance of the creative economy. Policy support, coupled with state-level incentives for film and VFX projects, created a favorable backdrop for the industry. The availability of a young talent pool and increasing adoption of advanced technologies positioned India as both a global outsourcing hub and a rapidly expanding domestic market for VFX.

The Indian media and entertainment sector reflected this momentum. The rise of streaming platforms, higher investments in domestic cinema, and greater integration of digital technologies into storytelling accelerated demand for visual effects. Even in the face of global uncertainties, India maintained a position of strength, offering stability, cost advantage, and creative expertise to global production houses.

Source: IBEF

Industry Overview

Global VFX Industry

The global Visual Effects (VFX) industry is witnessing an unprecedented transformation. The market, valued at around US$ 15 billion in 2023, is expected to double to nearly US$ 30 billion by 2030, reflecting a strong compound annual growth trajectory of over 10.7%. This rapid expansion underscores the central role VFX now plays in global content creation and delivery.

A key driver of this growth is the proliferation of OTT platforms and the surge in episodic content. Streaming services are investing heavily in original programming to retain audiences, and high-quality visual effects have become essential in differentiating their content. As audiences increasingly demand cinematic experiences on digital platforms, VFX has become a core enabler of storytelling.

The industry is also benefitting from rising budgets for blockbuster films and franchise driven content. Global studios are allocating greater resources to large-scale productions that rely extensively on VFX, particularly in genres like science fiction, fantasy, and action. This trend is no longer confined to Hollywood; regional industries in Asia and Europe are also enhancing production quality with advanced visual effects, contributing to worldwide growth. The gaming industry has emerged as another significant growth vertical. From photorealistic character design to immersive virtual environments, gaming experiences are increasingly dependent on advanced VFX. The rise of interactive gaming and e-sports has further broadened opportunities for VFX applications beyond traditional cinema and television.

Another catalyst is the increasing adoption of AR, VR, and mixed reality technologies, which are extending the scope of VFX beyond entertainment into advertising, education, retail, and enterprise solutions. As consumers engage with more immersive and interactive formats, VFX has become a key enabler of these experiences.

Technological innovation is also transforming the industry. The integration of AI-driven production pipelines and virtual production technologies is reshaping how content is created. AI is automating repetitive processes, reducing turnaround times, and expanding creative possibilities, while virtual production allows real-time creation of digital environments, offering both cost efficiencies and greater creative control.

Collectively, these drivers illustrate how the VFX industry has evolved from a support function into a critical pillar of the global creative economy. With demand expanding across film, streaming, gaming, and immersive platforms, the sector is well-positioned for sustained double-digit growth over the coming years.

Source: IBEFW

Indian VFX Industry

India has emerged as a critical hub in the global content value chain, steadily building its reputation as both a cost-efficient and creatively advanced destination for visual effects. The domestic VFX industry, valued at around 11,400 crore (approximately US$ 1.38 billion) in FY23, has become an essential contributor to the countrys media and entertainment ecosystem. Within this, VFX services alone contributed nearly 5,400 crore (around US$ 647 million), underscoring its rising importance as a growth engine for the sector.

Several factors underpin this growth trajectory. The first is outsourcing demand from global studios and streaming platforms, which are increasingly turning to India for high-quality, cost-effective delivery. With a large base of trained professionals, India offers a unique combination of scale, talent, and efficiency, allowing international players to execute large, complex projects at globally competitive standards.

The second factor is the expansion of Indias skilled talent pool. Educational institutions and industry training programs are producing thousands of VFX-ready professionals each year. This, coupled with Indias demographic advantage, ensures a steady pipeline of young, technically adept artists who can support both domestic and international productions.

Competitive cost structures also make India a natural choice for global collaborations. Studios are able to achieve significant savings without compromising on creative quality, making Indian VFX service providers preferred long-term partners for international franchises and OTT productions.

Government support has further strengthened the industry. Through the AVGC Task Force and state-level incentives, policymakers have prioritised the development of Indias animation, gaming, and VFX ecosystem. Investments in infrastructure, training, and subsidies for production have created an enabling environment for growth. This has also encouraged multinational players to establish deeper partnerships with Indian studios.

On the domestic front, the rise of OTT platforms, high-budget Indian cinema, and the rapid expansion of gaming are all accelerating demand for VFX. Indian audiences today expect global-quality visuals in films and digital series, prompting producers to allocate larger portions of budgets to effects-driven storytelling. Simultaneously, the gaming industry both console and mobile is becoming an important demand driver, creating additional opportunities for VFX applications.

Together, these factors position India not just as an outsourcing hub, but as a creative powerhouse in its own right. With strong policy support, a deepening talent base, and rising domestic demand, the Indian VFX industry is set to play a defining role in shaping the global entertainment landscape in the years ahead.

Source: IBEF

Business Performance And Strategic Developments In FY25

FY25 was a defining year for Phantom Digital Effects Limited, marked by strong financial performance, creative accomplishments, global expansion, and investments in technology and talent. The company continued to strengthen its position as a leading player in the global VFX ecosystem, combining operational discipline with an ambitious growth strategy.

Financial Performance

The company delivered a year of robust growth, supported by strong execution and efficient cost management. Revenue stood at 102.16 crore, EBITDA at 39.69 crore, and PAT at 20.20 crore, reflecting healthy project deliveries across both Indian and international markets. Profitability remained stable, demonstrating the companys ability to balance cost efficiency with strategic investments in technology and talent.

Key financial indicators further highlighted the strength of the business model. Return on Equity (ROE) was 12.25% and Return on Capital Employed (ROCE) was 15.54%, underscoring the companys effective use of resources and commitment to long-term shareholder value creation.

Creative Achievements

FY25 was a landmark year on the creative front, with PhantomFX delivering on some of the most celebrated projects across domestic and international markets.

Delivered large-scale VFX for Pushpa 2 and the sci- fi epic Kalki 2898 AD, reinforcing PhantomFXs role in Indias biggest blockbuster franchises.

Executed over 99 VFX shots for Thandel, including a technically complex storm sequence, and more than 130 CGI shots for IC814: The Kandahar Hijack, demonstrating large-scale delivery capabilities.

On the international stage, partnered with Tippett Studio for Creation of Gods II: The Demon Force, showcasing PhantomFXs ability to deliver world-class visuals in global collaborations.

Earned industry recognition with two prestigious awards: Best Animation & Visual Effects at the Vikatan Awards 2025 for Ayalaan (which included over 4,500 VFX shots) and Best Collaborative Excellence at the Autodesk Imagine Awards 2025 for Thandel.

These achievements reinforced PhantomFXs position as a creative powerhouse capable of delivering at scale, strengthening its brand equity, and creating sustainable long-term value for stakeholders.

Strategic Expansions and Acquisitions

The company pursued strategic initiatives to expand its global footprint and service offerings: Tippett Studio (USA): The acquisition of this iconic Hollywood VFX house provided PhantomFX with access to a rich legacy of creativity, marquee intellectual properties, and seasoned talent.

Spectre Post (India): A new entity incorporated in Bengaluru, this expansion marked PhantomFXs entry into post-production and editing services, widening its scope within the content lifecycle.

Huantong Digital Technology (China): Entry into China enabled the company to tap into one of the worlds fastest-growing content markets, strengthening its position in Asia. Together, these moves reinforced PhantomFXs evolution from a domestic studio into a diversified global player with a strong presence in multiple regions.

Technology & R&D

PhantomFX continued to invest in cutting-edge technology to enhance efficiency and creative capabilities: The introduction of automation tools improved productivity across projects by streamlining repetitive tasks.

The launch of a Virtual Production unit enabled filmmakers to interact with digital environments in real time, offering creative flexibility and cost efficiency.

Investments in AI-driven research and development allowed the company to deliver photorealistic virtual sets, elevate storytelling quality, and reduce turnaround times.

These advancements not only improved operational efficiency but also positioned PhantomFX at the forefront of next-generation content creation.

Opportunities And Strengths

PhantomFX enters the next phase of its journey with several structural opportunities that reinforce its position as a global creative powerhouse. The companys strengths lie not only in its financial performance but also in the strategic choices it made during FY25 to expand capabilities, markets, and talent.

1. Expanding demand from OTT and gaming platforms

• The rapid growth of streaming services has created a sustained requirement for high-quality VFX to support original programming and large-scale productions.

• Simultaneously, the gaming industry is becoming a strong driver of demand, as immersive storytelling and photorealistic design increasingly rely on advanced visual effects.

2. Entry into Chinas fast-growing content market

• Through its strategic expansion into China via Huantong Digital Technology, PhantomFX has positioned itself to participate in one of the fastest-growing entertainment ecosystems globally.

• This entry provides access to large domestic content production, as well as international collaborations routed through China.

3. Deepened presence in Europe and North America

• PhantomFX strengthened its reach in mature Western markets by working with marquee clients such as BBC, Netflix, Prime Video, and Warner Bros.

• These partnerships enhance the companys global credibility and diversify its revenue pipeline across films, series, and streaming content.

4. Technology investments driving efficiency

• The adoption of AI-driven tools and automation technologies has begun to streamline project delivery, reducing repetitive work and enhancing productivity.

• Virtual production initiatives introduced during FY25 provide real-time creative flexibility, enabling cost savings and superior storytelling outcomes.

5. Strong leadership bench and integrated global pipeline

• Key leadership appointments across production, technology, and business development strengthened the companys ability to scale operations globally.

• With over 650 artists spread across India, the US, Canada, China, and Europe, PhantomFX has built an integrated global delivery model that ensures consistency, collaboration, and creative excellence.

Risks And Concerns

1. Dependence on global content spending cycles

• A significant portion of PhantomFXs revenues is linked to global studios, streaming platforms, and OTT content budgets.

• Any slowdown in international content investments or shifts in entertainment spending priorities could affect project flow and overall revenue visibility.

2. Intense competition and pricing pressures

• The global VFX industry is highly competitive, with large international studios and mid-sized regional players vying for the same projects.

• Pricing pressure, especially from cost-sensitive clients, poses a risk to maintaining healthy margins, requiring the company to balance competitiveness with profitability.

3. Foreign exchange volatility

• As a company earning a considerable share of its revenue from overseas clients, PhantomFX is exposed to currency fluctuations.

• Adverse foreign exchange movements can impact reported financial performance, even when underlying project delivery remains strong.

4. Rising talent costs and retention challenges

• VFX is a people-driven industry, and the availability of skilled professionals is critical to scaling operations.

• Rising demand for experienced talent across India and abroad has led to increasing cost pressures. Retaining top artists and managers while sustaining margins is a key challenge for the company.

Ratio Analysis

In accordance with Regulation 34(2) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and Schedule V the listed entities are required to include certain key financial ratios and explanations for significant changes therein as part of their Management Discussion and Analysis (MD&A).

While the Company acknowledges this requirement, it has chosen not to present a standalone ratio analysis in this section. Instead, stakeholders are encouraged to refer to the audited financial statements and accompanying notes, which comprehensively reflect the Companys financial performance, liquidity, and capital structure. These disclosures provide sufficient data for investors and analysts to derive relevant ratios and conduct their own assessments.

This approach is intended to maintain clarity and avoid redundancy, while ensuring full compliance with applicable accounting and disclosure standards.

Outlook

PhantomFX concludes FY25 on a strong footing, having combined financial resilience with strategic expansion and creative excellence. The company enters FY26 with a sharper growth trajectory, supported by its strengthened global presence, investments in technology, and an expanding client portfolio.

The successful integration of Tippett Studio in the United States has enhanced the companys creative capabilities, giving it access to world-class talent, marquee intellectual property, and decades of Hollywood expertise. This acquisition, coupled with the establishment of Spectre Post in Bengaluru and the strategic entry into China through Huantong Digital Technology, positions PhantomFX to serve both mature and emerging markets with equal effectiveness.

Technology will continue to be a cornerstone of growth. The companys investments in AI-driven tools, automation, and virtual production are expected to unlock significant efficiency gains and creative flexibility. Real-time production technologies, in particular, will allow PhantomFX to deliver projects with greater speed and cost-effectiveness while expanding its service offerings to clients across films, episodic content, advertising, and gaming.

With a unified global delivery pipeline spanning India, the USA, Canada, Europe, and China, PhantomFX is well placed to meet rising demand for high-quality, cost-efficient VFX solutions. Strong client relationships with leading studios and platforms, combined with a scalable talent pool of over 500+ professionals, provide a robust foundation for sustainable growth.

Looking ahead, PhantomFX remains focused on deepening its global footprint, strengthening its technological edge, and nurturing creative excellence. These priorities position the company not only to capture growth opportunities but also to establish itself among the most agile and profitable VFX networks in the global industry.