Prime Focus: The Studio That Wins Oscars but Loses Cash

By Harsh Bhojwani

Prime Focus is one of India’s most fascinating companies. Through its global arm DNEG, it has worked on some of Hollywood’s most iconic films — Inception, Interstellar, Dune, Blade Runner 2049, and more. In the world of visual effects, it stands shoulder to shoulder with the biggest names. Its teams win awards, build worlds, and push the boundaries of imagination.

But behind the glamour, the numbers tell a very different story.

Prime Focus is a company that creates visual magic on screen while fighting a harder battle off screen — a battle against high costs, heavy debt, unpredictable currency movements, and weak cash flows. It’s a company that wins Oscars but struggles to keep its financial world stable.

Table of Contents

A Business Built on Scale — But Not on Margins

On a consolidated level, Prime Focus appears massive.
In Q2 FY26, the company generated ₹1,042.89 crore in revenue. But the problem begins right below the top line. The VFX business is people-intensive, technology-heavy, and globally competitive, which means expenses rise almost as fast as revenue.

Employee costs alone consumed ₹605.7 crore, and technical service expenses added another ₹482.5 crore in the same quarter. By the time technician fees, software costs, and studio operating expenses are included, very little operating profit is left.

This is the core issue:
Prime Focus must run at full speed all year. Even one weak quarter can pull the entire year down.

Standalone India Business: A Small, Loss-Making Unit

While the global business looks large, the India standalone operations remain tiny.
In Q2 FY26, the India entity reported:

Revenue: ₹7.18 crore
Total expenses: ₹14.12 crore
Net loss: ₹2.44 crore

India is not the economic engine of the group. It cannot generate the scale or margins needed to support the global cost structure. It mostly manages administrative activities, leases, and internal functions. The heavy lifting — whether revenues or losses — happens abroad through DNEG.

Depreciation: The Silent Burden of a VFX Giant

To run a global VFX operation, you need expensive servers, rendering farms, high-end software, and large studio spaces. All this requires enormous investment. The result is a massive depreciation bill — ₹139.34 crore in Q2 FY26 alone.

Even if the business generates operating profits, depreciation erodes a large part of it. This is a structural cost: unavoidable, recurring, and tied to the kind of business Prime Focus is in.

Debt and Interest: The Real Profit Killer

Prime Focus and DNEG carry significant international borrowings. These loans — often denominated in USD or GBP — come with high interest rates.

In Q2 FY26, the interest cost alone was ₹119.7 crore.

This means that even if the company produces a decent operating profit, interest payments can wipe it out. Debt has been the biggest drag on Prime Focus for years, and refinancing cycles add another layer of risk.

Currency Volatility: A Quarter-to-Quarter Rollercoaster

Large dollar and pound loans expose the company to currency swings.
This creates unpredictable gains or losses each quarter.

In Q1 FY26, the company saw a big unrealised FX gain of ₹146 crore, which boosted the results.
In Q2 FY26, the situation flipped — a ₹50.9 crore FX loss hit the P&L.

Such swings make the company’s performance volatile. Investors often get confused when a “profitable” quarter is simply the result of currency movements, not business strength.

Goodwill: A Large Number Sitting Quietly on the Balance Sheet

After the acquisition of the AI company Metaphysic, Prime Focus now carries more than ₹2,128 crore of goodwill on its books. Goodwill represents the premium paid beyond the actual fair value of assets. It’s not a problem by itself — unless the acquired business underperforms.

If that happens, goodwill must be written off, leading to a large one-time loss.

Given the size of the goodwill and the cyclicality of the global VFX industry, this is a risk worth watching closely.

The Subsidiary Maze

Prime Focus operates through dozens of subsidiaries across India, the UK, the US, Canada, Singapore, Spain, Australia, and more. Some are operational studios, some are service entities, and some are legacy units. The structure is complex and makes it difficult to pinpoint where exactly profits are generated or where losses accumulate.

For investors, this complexity means less visibility into the true performance of individual business units.

The Legal Overhang That Refuses to Go Away

Prime Focus is also dealing with a major legal dispute with Reliance Alpha Services Private Limited (RASPL), involving a claim of ₹353.79 crore related to a past loan agreement. There is also an NCLT petition linked to the same matter. These cases are still sub judice.

If the outcome goes against the company, a settlement or payment could strain the balance sheet at a time when liquidity already matters.

Cash Flow: The Hardest Truth

Even when the P&L looks decent, the cash flow statement tells the real story.

In the first half of FY26, the company generated positive cash from operations, but heavy capital expenditure and investment activities turned overall free cash flow negative. This has been a recurring pattern.

The cycle looks like this:

EBITDA is thin
Depreciation is high
Interest is high
Capex is constant
Currency swings distort results
Free cash flow often turns negative

This is why the company depends on fundraises, preferential issues, or refinancing to manage liquidity.

A Company of Contrasts

Prime Focus is a company of deep contrasts.

On one side, it is home to some of the best artists and technicians in the world. It delivers award-winning work, partners with global studios, and sits at the intersection of cinema, technology, and imagination.

On the other side, its financials reveal a company struggling to convert creative excellence into stable, predictable profits. Revenues are large, but margins are thin. Talent is world-class, but costs are enormous. The brand is global, but the balance sheet is stretched.

This is what makes Prime Focus both remarkable and fragile.

Final Word

Prime Focus shows us a powerful truth about modern creative companies:
great art does not always translate into great cash flows.

The company creates some of the most stunning visuals on the planet, yet its financial journey is filled with volatility, debt pressures, and structural challenges. Whether it can turn its scale into sustainable profitability will depend on better margins, lower leverage, and more predictable cash generation.

Until then, Prime Focus remains what it has been for years —
a studio that wins Oscars but keeps losing cash.