About CREST ANIMATION STUDIOS views - S.P.Tulsian

Earlier known as Crest Communciations, Crest Animation Studios Limited (Crest), is one of India’s leading animation studios. When it had gone public, there was immense investor following for the stock as it was promoted by Mr.Shyam Ramanna, the son of eminent nuclear scientist Dr.Raja Ramanna, who was also the Chairman of the company, later passed away in 2004.

It is now a fully integrated film production company but its financial performance shows that this integration is yet to get translated into profits.

For the year ended 31^st March 2008, the company posted a net revenue of Rs.36.48 crore on a standalone basis. And on this, the net loss for the year was at Rs.10.66 crore as against a net profit of Rs.99 lakhs in FY07. Its consolidated net revenue stood at Rs.61.32 crore and on this its net loss at the end of the year was higher at Rs.13.01 crore. The major increase in the revenue is on account of production services delivered out of the work-for-hire contract for the first animation film.

A look at the break-up of the four quarters of FY08 indicates that except for Q3, in all the other three quarters, the company was down in the dumps. The company, except for Q3, had posted a net loss in all the other three quarters. So naturally, this got reflected in the financial performance for the FY08.

The company has blamed the standalone net loss on - decreased margin on existing T.V. Contracts due to increased operating costs, higher infrastructure costs and volatility in Rupee dollar parity. It also has written off in the books, Rs.44.12 crore as Work in Progress in earlier periods for TV Contracts. Realising albeit a little too late that this was exerting pressure on the bottomlines, the company has now declined to accept an extension or a production contract for a second season for these TV Contracts. These write off’s are in the nature of one time write offs.

Coming to the consolidated net loss, the company has blamed this on two issues. First was the write off in the books of Rs.5.13 crore of US based subsidiary Crest Animation Holdings (CAH). This was the expense incurred and capitalized towards development expenses on the first film. The company has stated very confidently that there will be no such expenses against future revenues from the film exploitation.

Another reason for the loss was the write off of Rs.1.70 crore as properties in development in the books of CAH in order to comply with US GAAP accounting which requires that in the event a film is not set for production within three years from the time of the first capitalized transaction, all such costs are to be written off unless the company has committed to a plan to produce and sell such films.

Alpha and Omega, first feature films in partnership with Hollywood's Lions Gate Entertainment, the first of a three-movie deal for worldwide theatrical distribution is targeted to release in 2010. And by 2011, the company is looking at delivering at least one feature film every year. DE Shaw has a 14.99% stake in the company, acquired in 2006 for $40 million. The core promoters holding is just 17.05%. Does not enthuse much confidence at this juncture, especially in the current market scenario.
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