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This isn't child's play

Nandini Lakshman | November 27, 2004

On Tuesday, when A K Madhavan received a call from Australia, he was visibly irritated.

It wasn't because the man at the other end was wasting his time, but because the Australian believed that he was talking to the head of one of those assorted business process outsourcing outfits littered across India. What's worse, over the last two years, the frequency of such calls has only been increasing.

This identity crisis saw the Mumbai-based 15-year-old digital animation and special effects major Crest Communications being rechristened Crest Animation Studios last month.

"This was done to reiterate our identity and focus," reveals Madhavan, chief executive officer of Crest.

Adds Seema Ramanna, Crest's chain-smoking managing director, "With 98 per cent of our revenues coming from animation, it fits in with our work."

The change comes at a time when Crest, which went public in 1995, finally appears to have jumped into the black after three years of losses.

In the year ending March 2004, it had a net loss of Rs 17.74 crore (Rs 177.4 million) compared to a Rs 88 lakh (Rs 8.8 million) loss the previous fiscal.

This on revenues of Rs 14.59 crore (Rs 145.9 billion) last fiscal and Rs 18.04 crore (Rs 180.4 billion) in 2002-03, respectively.

"We were in transition. We were into everything, from advertising to post-production work and television serials, where anybody and everybody was our client," says Ramanna.

As a result, while putting together a half hour of animation work cost Crest Rs 2 crore (Rs 20 million), television channels wanted to shell out only Rs 50,000 per episode. "It just wasn't economically viable," she adds.

Besides, the domestic space was getting overcrowded with nearly 250 production houses ready to offer everything under the sun.

"With severe undercutting, it has now become a commodity business," says Abhay A Bhalerao, vice president, corporate strategy and finance at Crest.

So Crest rejigged its business strategy. It acquired American production house Rich Animation in 2000 and flagged off a subsidiary in Singapore. This year, it exited the 30-second ad film world to concentrate on large format content. By 2006, it will wrap up its first full-length feature Automation for Columbia Tristar.

The focus now is the US market. The logic is simple: sell a product to a major studio or a distribution house in the US, and it will be seen the world over.

Already, Crest has become the first Indian animation studio to deliver a high-end 3D series -- Jakers! The Adventures of Piggley Winks -- for the US-based Mike Young Productions.

This 26-episode spunky animation series rides on vivid set designs to depict an entertaining tale of childhood high jinks infused with life's values. The series, which was nominated for the Emmy Awards, is now being screened all over the world.

These moves have come off well for Crest, which appears to have turned around in the first half of this fiscal. Already, revenues have touched Rs 13.63 crore (Rs 136.3 million) with a net profit of Rs 1 crore (Rs 10 million). In the corresponding period last year, the net loss was Rs 2.98 crore (Rs 29.8 million) on revenues of Rs 6.64.

Insiders say it wants to close this year at around Rs 30 crore (Rs 300 million). No wonder then that fund managers and foreign institutional investors, who together hold around 5 per cent stake in Crest, have had back-to-back appointments with the studio's top officials: they have been trying to find out the exactly nature of Crest's business.

So, despite a choc-a-bloc orderbook of $9.5 million till 2005, Crest continues to woo American studios for production work, has invested in ramping up operations and leveraging its 3-D digital animation expertise to make a breakthrough into the DVD, home theatre and feature film segments.

And, according to insiders, it is talking to a premier animation hotshop, founded by three legendary American whizkids, for the possible outsourcing of DVD and television animation jobs.

"There is immense scope in video-gaming, broadband entertainment and interactive television which needs to be exploited," says Ramanna, who has been reappointed MD for another three years.

Today, the US and Europe account for nearly 98 per cent of Crest's topline. In the cans is a 26-episode serial for one of the world's leading toymakers, whose flagship brand is today rarely patronised by little girls.

With awesome animation, Crest has put together a danceathon involving the toymaker's protagonist. Then there is a 26-episode serial based on a submarine called Olly, done on the lines of Pixar's classic feature Finding Nemo. Early next year, it will have Pet Aliens on air. This 26-episode series is being wrapped up for Turner's Cartoon Network.

The US and Europe now rake in 96 per cent of Crest's revenues. And if animation work accounted for only 60 per cent of turnover in 2000, it is well over 90 per cent now. The rest comes from dubbing and inflight entertainment.

With the increase in workload, Crest has increased capacity from 110 animators to 270 animators. Maintaining quality control is longtime creative director Nilesh Sardesai, and Crest's Bangkok-based chairman and jazz enthusiast, Shyam Ramanna, who drops in every month.

At the moment, Crest's only serious competitor is Chennai-based Pentamedia Graphics

But with the failure of its feature film Sinbad: Beyond the Veil of Mists in the US last year, Pentamedia is said to have lost much of its sheen. That's why Crest is toiling to get everything right for its maiden feature Automation.

These efforts, though, haven't enthused the investing community. Even as the Crest scrip has almost doubled in the last three months to touch Rs 80 levels, media analysts are skeptical.

"Does it have the financial muscle, management bandwidth and tenacity to deliver everything?" asks an analyst.

"Our order book is in delivery mode. We delivered 60 half-hours to world markets in the last two years," says Madhavan.

As for management capabilities, he points out that Crest has brought in outside blood in the last couple of years. The finance head Vinayak Purohit was wooed from BPL Mobile, the human resource head P Rajasekhar walked in from retail house Globus and Bhalerao is from the Chatterjee-Soros group and DSP Merrill Lynch.

There are many who feel that by concentrating  just on the US, Crest is putting all its eggs in one basket. Madhavan does not think so.

"A long format animation content in India does not exist. We are going to do just that. We are out of the woods and want to be among the top five animation studios in the world," he says. That may still take a while, but at least for Madhavan, the irritating calls will subside.



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