Reliance Capital on Wednesday had announced the merger of its global film and media services business with Prime Focus . The multi-layered deal included the infusion of Rs 120 crore by Reliance MediaWorks in Prime Focus for a 30.2 percent stake, while existing promoters of Prime Focus would also pump in a similar amount.
In an interview to CNBC-TV18 Namit Malhotra Founder & CEO Prime Focus says proceeds from the equity infusion would be used to fund the recently acquired US-based Doubl Negative, which is an Academy Award-winning visual effects studio.
Moreover, for the consolidated company he is looking at sales worth Rs 1800 crore and EBITDA worth Rs 200 crore.
He is also hopeful of seeing expansion in margins going forward.
Prime Focus promoters as well as Reliance MediaWorks will launch an open offer for a further 26 percent jointly.
Below is the transcript of Namit Malhotra's interview with Anuj Singhal and Reema Tendulkar on CNBC-TV18.
Anuj: Take us through how the overall equity structure is going to look like and in future what would be the plan, would you and Reliance Capital be the co-promoters and how are things going to progress?
A: That is correct. So this would be a part of the entire disclosure that we have made. Rs 240 crore would be raised between the Malhotra family and RMW as part of the preferential augment of capital. In addition, there will be a share exchange for the merger between the RMW business of media services with Prime Focus and this consolidated entity would create a holding structure of 33.5 percent equity for the Malhotra family and about 30 percent for Reliance.
Reema: You have indicated that the deal proceeds will be used to fund the recent merger of US-based Double Negative, how much do you exactly need for this merger with Double Negative?
A: The overall deal size is about USD 85 million. As part of our overall deal construct, about USD 35 million would be paid upfront in cash consideration and the balance is to be structured through a deferred consideration equity and assumption of some working capital debt.
Anuj: Last year you did income of Rs 830 crore and profit of Rs 33 crore. What would be the outlook for this year, for the consolidated entity?
A: On a look back basis, just putting all the businesses of RMW and the Double Negative and Prime Focus together, I think we are looking at approximately Rs 1,800 crore in annual revenue and about Rs 300 crore in EBITDA on a global basis.
Reema: What will the profits look like, the net profit margins?
A: That would be hard to determine just yet because of all the various entities and the way it has all been structured. So I think we don't have that specific information.
Anuj: Is all the equity infusion done now or would we see any other kind of deal over next one year or so?
A: For the most part, this is a pretty big step for us as a group and having a three-way combination between new growth capital and two businesses coming together is a pretty transformational event for us. To ensuring that we integrate and stabilise this entire global operation is our key focus right now and there is where the management if focusing on right now.
Reema: You have indicated Rs 1,800 crore of revenues and Rs 300 crore in EBITDA. That means your margins will be about 16-17 percent. That is lower than 22 percent EBITDA margins that you have clocked in in the previous year. Will the consolidation result in dilution in your margins?
A: As I mentioned, these are numbers on a look-back basis. This is not on a go-forward basis. I think on a going-forward basis, we should see an expansion in our margins as we try and gain from all the consolidation benefits and the efficiencies in managing overhead across all our global entities, that should fundamentally see a very clear positive uptrend in our overall margin play and we are very confident about that.
Reema: How much could the margins expand by – they were at 16.67 percent on a look-back basis, so going ahead, how much would they be?
A: I think in a range of between 20 percent and 23 percent would be fair. It can go further from there as we build on the synergies of all these businesses that we are bringing together.
Stay tuned for more
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