Shares of Prime Focus Ltd. rose as much as 20 percent, the biggest move since January 12, 2015, to Rs 106.30 after Motilal Oswal initiated coverage on the stock with a 'Buy'. The broking firm has pegged its target price at Rs 130, which implied a potential upside of 46 percent from Monday's closing price.
The company entered into four mergers and acquisition deals over financial years 2014 to 2016. While the debt has gone up due to this, it has helped the company gain some global presence, said the brokerage said.
We note that the demons of nearly 2.8 times jump in net debt to Rs1,390 and 50 percent equity dilution over the last five years are now behind.Motilal Oswal Report
Motilal Oswal said the incremental cash flows can be used towards the repayment of the debt. A healthy cash flow would result from improving EBITDA and lower capex requirement, the brokerage said.
Free cash flow should increase to Rs 460 crore in the financial year 2020 from Rs 70 crore in FY17.
Prime Focus has become a dominant player in ERP business as it does not face any direct competition. In the creative segment, the company has significantly enhanced its competitive position after merging with Double Negative (DNeg), one of the top-4 Hollywood VFX service providers.
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