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Buoyed by a lucrative market for animation and special effects, Pentamedia Graphics is poised to hit a high growth curve. By Nitya Vardarajan
The future of any company producing animation products seems to be bright as of now. Although being film-based, it is open to the vagaries of the market. The 1998 report of multimedia guru, Robi Roncarelli, the editor and publisher of Pixel---the Computer Animation Directory, pegs the industry at $20.27 billion. It will touch $40 billion by 2004. North and South America constitute 48.5 per cent of the market, UK and Europe 21.9 per cent, and Asia Pacific another 29.6 per cent. Pentamedia ranks third in Pixel's valuation, after heavyweight Lucas Digital/ILM and Disney Studios. Its strength lies in its infrastructure and technical capabilities. Says V. Chandrasekaran, Chairman and CEO, Pentamedia Graphics: ''Unlike the other large players who outsource their animation requirements, we supply everything under one roof.'' Besides, the company has developed an expertise in 3D animation, has successfully converted 2-D into 3-D, analog into digital. Its infrastructure can deliver 8.5 terrabytes and has a storage capacity of 12 terrabytes, with 55 servers. Pentamedia's strategy is in line with the Pixel report findings. Animation contributes 58 per cent of the turnover and special effects 19 per cent. As S. Ramasamy, General Manager (Corporate Finance), says: ''The products in animation and special effects provides operating margins of 40 per cent and 42 per cent respectively.'' The multimedia services has an operating profit margin of 45 per cent and net profit margin of 38 per cent. The company has also launched New Millennium TV (numtv.com), a new webcast venture. Currently targeted at NRIs, its scope will be broadened in the coming months. Another potential money-spinner is entertainment in the form of interactive games, with potential revenues of $8 billion. Multimedia services, which include CD-Rom sales, contribute 23 per cent of the turnover. Pentamedia also hopes to build a theme park in Kannathur village off Chennai by leveraging on existing database. The park will contain nine domes, each spanning 2 acres with themes like nature, sports, and the like. It will cost the company around Rs 48 crore. The company wants to be in every aspect of the entertainment business. This includes technology (developing efficient platforms, effective transmission through broadband wireless), content acquisition, efficient distribution networks, and even pre-production facilities. Where Pentamedia does not have its own know-how, it is willing either to acquire or form strategic relationships. (See box on its JVs and tie-ups in the last eight months).
According to Roncarelli, Pentamedia has excellent systems in place but lacks creative animators who form the crucial link between pre-production and execution. It is here that the US has an advantage. Chandrasekaran too admits this, ''Pentamedia has good production facilities, we will buy out pre-production and distribution companies by the next quarter end.'' Talks are on with six companies (most of them in the US). Pentamedia is willing to earmark as much as $50-100 million for such acquisitions. Besides, the company is planning to invest $10 million annually in the next couple of years. Fifty per cent of this will go to NumTV. Acquisitions have helped Pentamedia. The Film Roman, in particular, has given Pentamedia an entry into Nasdaq, top production houses for animation, and a team of creative animators. Film Roman is expected to generate a business of $48 million in the current year, $60 million in the coming year. Pentamedia is expected to bring in its expertise of 3D, and 2D-to-3D conversion, and recover its investment within two years. Film Roman will also help the company emulate the Disney model of generating revenues, from multimedia, theme park, small-screen animation, films and money from related merchandise. The earlier acquisition of Animasia companies in Singapore and Philippines has given Pentamedia a large database in 2D animation. After the US, Pentamedia is planning to tap the Japanese, Hong Kong, and French market. The Japanese market alone is worth $40 million. Pentamedia has entered Japan through an alliance with Creek & River, a Nasdaq, Japan, listed company. Num TV, its webcast project, is also on course with 2 lakh registered NRI users. The content for the Num TV has been tied up, with rights for 2,000 films already acquired from GV Films in Chennai. All these measures have reflected on the company's bottomline. In September, 2000, Pentamedia announced good half-yearly results. Turnover at Rs 263.54 crore was up 45 per cent from Rs 181.71 crore, the previous year. While operating profit stood at Rs 53.58 crore compared to Rs 46.35 crore, the previous year. So has Pentamedia hit the jackpot in the virtual world of entertainment? Yes, feel some, with its foray into webcasting and its recent acquisition of Film Roman. While the skeptics wonder whether the company understands the industry it operates in and the risks involved. They are wary of its strategy and projected revenue-streams. Looking at fiscal years 1999 and 2000, they question the company's sales figure of Rs 284.5 crore in 1998-99 from multimedia services and Rs 392.9 under the same head for 1999-2000. 'Sinbad' the money-spinner was released only in July, 1999. Analysts also question which projects contributed to Rs 284 crore in fiscal 1999 and which projects contributed to Rs 304 crore (after allowing for Sinbad's $22 million) in 2000. The low salary bill of Rs 26 crore in the last annual report was also a matter of concern. A feeling that is reflected in the bourses. The scrip is hovering at Rs 352, rising only marginally after the company acquired Film Roman. It was to allay such misgivings, Pentamedia displayed its SEI-CMM Level 4 certification from KPMG India during the half year ended September, 2000. The company also named some of the projects in the animation and the multimedia services (See Box 2), revealing an order book of $110 million. Srinivasan says, ''PricewaterhouseCoopers are our auditors and international norms are being followed on disclosures.'' The auditors are also preparing a valuation report which could provide a better understanding of the company, its operations and prospects. Employees were also given a 40 per cent hike in April and the wage bill is set to double. Besides manpower has gone up by 500 in the last six months.
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Open
sesame, and enter the world of Ali Baba and the treasure trove of gold.
Pentamedia Graphics Ltd, the Chennai-based company has chosen a unique
business model with its attention firmly focused on animation products and
special effects together with multimedia services and webcasting. A
co-mingling of the real, the reel and the virtual world, which seems to
have worked for this erstwhile software company. 'Sinbad: beyond the veil
of mists', was its first full-length 3D animation movie.