With a market capitalisation of ₹670.00 crores and a current stock price of ₹249.35, Basilic Fly Studio finds itself at a critical juncture. The company has demonstrated exceptional top-line momentum, with net sales surging from ₹93.44 crores in Q3 FY25 to ₹105.02 crores in Q3 FY26, yet the profitability trajectory has raised concerns. The quarter witnessed a significant deterioration in operating margins, falling from 23.72% in Q2 FY26 to 16.76% in Q3 FY26, primarily driven by escalating employee costs which jumped to ₹71.65 crores from ₹58.36 crores sequentially.
Financial Performance: Revenue Strength Overshadowed by Margin Erosion
The Q3 FY26 results present a tale of two narratives. On the revenue front, Basilic Fly Studio achieved its highest-ever quarterly sales of ₹105.02 crores, representing a 10.33% sequential increase and an 86.50% year-on-year surge. This growth trajectory underscores the company's expanding client base and increasing project pipeline in the animation and visual effects space. However, the profitability picture tells a different story. Standalone net profit for Q3 FY26 stood at ₹8.83 crores, down from ₹14.43 crores in the previous quarter, while consolidated net profit declined to ₹10.40 crores from ₹14.63 crores.
| Metric | Q3 FY26 | Q2 FY26 | Q1 FY26 | Q3 FY25 | Q2 FY25 |
|---|---|---|---|---|---|
| Net Sales (₹ Cr) | 105.02 | 95.19 | 94.91 | 93.44 | 56.31 |
| QoQ Change | +10.33% | +0.30% | +1.57% | +65.94% | — |
| Consolidated PAT (₹ Cr) | 10.40 | 14.63 | 9.74 | 8.68 | 5.89 |
| QoQ Change | -28.91% | +50.21% | +12.21% | +47.37% | — |
| Operating Margin (Excl OI) | 16.76% | 23.72% | 18.11% | 19.83% | 15.52% |
| PAT Margin | 8.41% | 15.16% | 12.73% | 13.25% | 9.80% |
The margin compression is particularly concerning. Operating profit margin (excluding other income) contracted sharply to 16.76% in Q3 FY26 from 23.72% in Q2 FY26, marking a decline of nearly 700 basis points. PAT margin similarly deteriorated from 15.16% to 8.41% sequentially. This erosion in profitability can be attributed primarily to employee costs, which surged 22.78% QoQ to ₹71.65 crores, representing 68.23% of net sales compared to 61.32% in the previous quarter. Additionally, the effective tax rate spiked to 35.88% in Q3 FY26 from 20.67% in Q2 FY26, further pressuring bottom-line performance.
Operational Challenges: Cost Pressures and Margin Management
The most pressing operational concern for Basilic Fly Studio is the escalating employee cost structure. In Q3 FY26, employee expenses reached ₹71.65 crores, up from ₹58.36 crores in Q2 FY26 and ₹65.26 crores in Q3 FY25. This 22.78% sequential increase significantly outpaced revenue growth of 10.33%, indicating challenges in operational leverage and workforce productivity. The employee cost-to-sales ratio expanded to 68.23% from 61.32% in the previous quarter, suggesting either aggressive hiring to meet project demands or wage inflation pressures typical in the creative services industry.
⚠️ Margin Pressure Alert
Key Concern: Employee costs surged 22.78% QoQ to ₹71.65 crores, significantly outpacing revenue growth of 10.33%. This resulted in a sharp 696 bps contraction in operating margins to 16.76%. The company must demonstrate better cost management and operational efficiency in upcoming quarters to restore investor confidence.
Additional Pressure: Tax rate jumped to 35.88% from 20.67% QoQ, further compressing net profitability.
From a balance sheet perspective, Basilic Fly Studio maintains a relatively strong position with shareholder funds of ₹202.24 crores as of March 2025, supported by reserves of ₹179.00 crores. The company's long-term debt stood at ₹35.70 crores, resulting in a net debt-to-equity ratio of -0.16, indicating it is effectively a net cash company. This financial cushion provides flexibility for growth investments and working capital management. However, fixed assets surged dramatically to ₹94.91 crores in FY25 from just ₹1.92 crores in FY24, reflecting significant capital expenditure, likely in production infrastructure and technology.
The company's return on equity (ROE) averaged 19.77% over recent years, with the latest ROE at 12.93%, whilst return on capital employed (ROCE) stood at 25.41% on average and 22.69% most recently. These profitability metrics, whilst respectable, have shown a declining trend, reinforcing concerns about margin sustainability. The interest coverage ratio remains robust at 31.78 times on average, indicating no immediate debt servicing concerns, but the focus must shift to improving operational efficiency and margin recovery.
Industry Context: Navigating a Competitive Landscape
Basilic Fly Studio operates in the highly competitive media and entertainment sector, specifically within the animation, visual effects, and post-production services niche. The industry has witnessed significant growth driven by increasing demand from streaming platforms, film production houses, and advertising agencies. However, the sector is characterised by intense competition, project-based revenue volatility, and significant human capital requirements, which can lead to margin pressures during periods of rapid expansion or talent acquisition.
The company's revenue growth trajectory of 86.50% YoY in Q3 FY26 significantly outpaces the broader industry trends, suggesting strong market share gains or successful penetration into new client segments. However, this growth has come at the cost of profitability, as evidenced by the margin compression. The challenge for Basilic Fly Studio will be to demonstrate that this is a temporary phase of investment in capabilities and talent, rather than a structural deterioration in unit economics.
Growth vs. Profitability Trade-off
Basilic Fly Studio's 86.50% YoY revenue growth in Q3 FY26 positions it as one of the fastest-growing players in the animation and VFX space. However, the 696 bps QoQ contraction in operating margins raises questions about the sustainability of this growth trajectory. Investors will be keenly watching whether the company can leverage its expanding revenue base to achieve operating leverage and margin expansion in subsequent quarters, or if the current cost structure represents a permanent reset to lower profitability levels.
Peer Comparison: Valuation and Performance Metrics
When compared to peers in the media and entertainment sector, Basilic Fly Studio presents a mixed picture. The company's ROE of 19.77% (average) stands significantly higher than most listed peers, including GTPL Hathway (11.89%), Sandesh (9.98%), and T.V. Today Network (10.31%). This superior capital efficiency has historically been a key strength, though the latest ROE of 12.93% suggests some moderation.
| Company | P/E (TTM) | Price to Book | ROE (%) | Debt to Equity | Div Yield (%) |
|---|---|---|---|---|---|
| Basilic Fly Studio | 16.00 | 2.04 | 19.77 | -0.16 | — |
| NDTV | NA (Loss Making) | -10.59 | 22.56 | -5.09 | — |
| GTPL Hathway | 18.45 | 0.67 | 11.89 | 0.23 | 2.93 |
| Sandesh | 7.01 | 0.55 | 9.98 | -0.63 | 0.49 |
| T.V. Today Network | 27.24 | 0.85 | 10.31 | -0.09 | 2.40 |
| Zee Media | 224.79 | 3.11 | 6.50 | 0.51 | — |
From a valuation perspective, Basilic Fly Studio trades at a P/E ratio of 16.00 times trailing twelve-month earnings, which appears reasonable compared to T.V. Today Network (27.24x) and significantly more attractive than Zee Media (224.79x). However, the price-to-book ratio of 2.04 times is notably higher than most peers except Zee Media, reflecting the market's historical premium for the company's superior ROE profile. The company's net cash position (debt-to-equity of -0.16) provides a competitive advantage over leveraged peers.
The peer comparison reveals that Basilic Fly Studio has historically commanded a valuation premium due to its superior profitability metrics. However, with the recent margin compression, the sustainability of this premium is now under scrutiny. The company ranks fifth by market capitalisation at ₹670.00 crores within its peer group, positioning it as a micro-cap player with significant growth potential but also heightened execution risks.
Valuation Analysis: Premium Under Pressure
At the current market price of ₹249.35, Basilic Fly Studio trades at a P/E ratio of 16.00 times, a price-to-book value of 2.04 times, and an EV/EBITDA multiple of 8.14 times. The company's PEG ratio of 15.76 suggests that the stock is trading at a significant premium relative to its growth rate, which raises valuation concerns. The stock has declined 51.09% from its 52-week high of ₹509.80, reflecting the market's reassessment of growth sustainability and margin trajectory.
The proprietary valuation assessment classifies the stock as "Expensive," having transitioned from "Fair" to "Expensive" multiple times in recent months, indicating valuation volatility. The stock currently trades 11.74% above its 52-week low of ₹223.15, suggesting limited downside protection at current levels. With the recent margin pressures and profitability concerns, the valuation premium appears difficult to justify unless the company can demonstrate a clear path to margin recovery and sustained profitability improvement.
Based on a normalised earnings trajectory and peer comparison, a fair value estimate for Basilic Fly Studio would be in the range of ₹220-240, implying limited upside from current levels of ₹249.35. The elevated PEG ratio of 15.76 and the "Expensive" valuation grade suggest that the risk-reward equation is currently unfavourable for new investors. Existing shareholders may consider trimming positions on any technical bounce, whilst fresh investors should wait for clearer signs of margin stabilisation and improved operational efficiency.
Shareholding Pattern: Institutional Caution and Promoter Stability
The shareholding pattern of Basilic Fly Studio reveals a relatively stable promoter base alongside fluctuating institutional interest. As of December 2025, promoter holding stood at 55.32%, unchanged from the previous quarter but down from 59.90% in June 2025. This 4.58 percentage point decline in promoter holding between June and September 2025 warrants attention, though the subsequent stability suggests no immediate concerns about promoter commitment.
| Shareholder Category | Dec'25 | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|---|
| Promoters | 55.32% | 55.32% | 59.90% | 59.90% | 0.00% |
| FII | 3.40% | 4.77% | 0.24% | 0.28% | -1.37% |
| Mutual Funds | 0.00% | 0.00% | 0.00% | 0.00% | 0.00% |
| Other DII | 2.17% | 3.50% | 0.02% | 0.01% | -1.33% |
| Non-Institutional | 39.11% | 36.42% | 39.85% | 39.81% | +2.69% |
Foreign institutional investor (FII) holding declined from 4.77% in September 2025 to 3.40% in December 2025, representing a 1.37 percentage point reduction. Similarly, other domestic institutional investor (DII) holdings contracted from 3.50% to 2.17% during the same period. This institutional exit, totalling approximately 2.70 percentage points, coincides with the margin compression witnessed in Q3 FY26 and the subsequent stock price decline. The absence of mutual fund participation (0.00% holding) is notable and suggests limited institutional confidence in the stock at current valuations.
The non-institutional shareholding category, which includes retail investors and non-institutional entities, increased from 36.42% to 39.11% QoQ, absorbing some of the institutional selling. However, the overall institutional holding of just 5.57% (FII + DII) remains extremely low for a listed company, indicating limited institutional sponsorship and potentially higher volatility. The promoter pledging situation shows 21.47% of promoter shares pledged, which, whilst not alarming, does warrant monitoring in the context of recent stock price weakness.
Stock Performance: Severe Underperformance Across Timeframes
The stock performance of Basilic Fly Studio has been dismal across most timeframes, significantly underperforming both the Sensex and its sector peers. Following the Q3 FY26 results announcement, the stock plunged 11.41% in a single day, compared to a Sensex gain of 0.79%, resulting in a negative alpha of 12.20%. Over the past week, the stock has declined 7.20% against a Sensex decline of 0.94%, whilst the one-month performance shows a loss of 9.88% compared to a marginal Sensex decline of 0.35%.
| Period | Stock Return | Sensex Return | Alpha |
|---|---|---|---|
| 1 Day | -11.41% | +0.79% | -12.20% |
| 1 Week | -7.20% | -0.94% | -6.26% |
| 1 Month | -9.88% | -0.35% | -9.53% |
| 3 Months | -29.92% | -1.52% | -28.40% |
| 6 Months | -44.20% | +3.32% | -47.52% |
| YTD | -25.57% | -2.28% | -23.29% |
| 1 Year | +6.06% | +9.66% | -3.60% |
| 2 Years | -42.11% | +14.98% | -57.09% |
The medium-term picture is particularly concerning, with the stock down 29.92% over three months and 44.20% over six months, whilst the Sensex declined just 1.52% and gained 3.32% respectively over the same periods. This translates to a negative alpha of 28.40% and 47.52% respectively, indicating severe underperformance. Year-to-date, the stock has lost 25.57% compared to a Sensex decline of 2.28%, resulting in a negative alpha of 23.29%.
From a technical perspective, the stock is currently in a "Bearish" trend, having transitioned from "Mildly Bearish" on February 16, 2026. The stock trades below all key moving averages—5-day (₹280.54), 20-day (₹267.54), 50-day (₹300.69), 100-day (₹332.95), and 200-day (₹382.45)—indicating sustained selling pressure. The immediate support lies at the 52-week low of ₹223.15, whilst immediate resistance is at the 20-day moving average of ₹267.54. The stock's beta of 1.50 classifies it as a high-beta stock, meaning it is significantly more volatile than the broader market, amplifying both gains and losses.
Compared to the media and entertainment sector, which delivered a 317.21% return over one year, Basilic Fly Studio's 6.06% return represents a massive underperformance of 311.15 percentage points. This stark divergence suggests company-specific challenges rather than sector-wide headwinds, reinforcing concerns about operational execution and margin sustainability.
Investment Thesis: Mixed Signals Across Parameters
The investment thesis for Basilic Fly Studio presents a complex picture with mixed signals across key parameters. The proprietary Mojo Score stands at 46 out of 100, placing the stock in the "SELL" category with a recommendation to consider selling and look for exit opportunities. This score reflects the confluence of several negative factors, including bearish technical trends, elevated valuation multiples, and recent margin compression, partially offset by positive financial trends and average quality metrics.
The "Mojo 4 Dots Analysis" framework reveals a mixed assessment. Near-term drivers show conflicting signals, with positive quarterly financial trends driven by robust revenue growth, but bearish technical indicators suggesting continued selling pressure. The quality assessment is "Average," reflecting the company's reasonable ROCE of 25.41% and ROE of 19.77%, balanced against low institutional holdings of 5.57% and promoter pledging of 21.47%. The valuation is assessed as "Very Attractive" at current levels following the recent 51% decline from peak, though the elevated PEG ratio of 15.76 tempers this optimism.
Key Strengths & Risk Factors
✓ KEY STRENGTHS
- Exceptional Revenue Growth: 86.50% YoY revenue growth in Q3 FY26, reaching highest-ever quarterly sales of ₹105.02 crores, demonstrating strong market demand and client acquisition.
- Superior ROE Profile: Average ROE of 19.77% significantly outperforms sector peers (GTPL: 11.89%, Sandesh: 9.98%), indicating efficient capital deployment historically.
- Net Cash Balance Sheet: Debt-to-equity ratio of -0.16 indicates net cash position, providing financial flexibility and eliminating solvency concerns.
- Strong Interest Coverage: EBIT-to-interest ratio of 31.78 times demonstrates robust debt servicing capability and financial stability.
- Consistent Long-term Growth: 5-year sales CAGR of 96.60% reflects sustained business expansion and market penetration over the medium term.
- Stable Promoter Holding: Promoter stake of 55.32% provides management stability and alignment with minority shareholders.
- Reasonable Valuation Post-Correction: Following 51% decline from peak, current P/E of 16x appears more reasonable than historical levels, offering potential value for patient investors.
⚠ KEY CONCERNS
- Severe Margin Compression: Operating margin contracted 696 bps QoQ to 16.76%, and PAT margin fell 675 bps to 8.41%, raising questions about profitability sustainability.
- Escalating Employee Costs: Employee expenses surged 22.78% QoQ to ₹71.65 crores, far outpacing revenue growth and consuming 68.23% of sales.
- Declining Profitability: Consolidated net profit fell 28.91% QoQ to ₹10.40 crores despite strong revenue growth, indicating operational inefficiencies.
- Elevated PEG Ratio: PEG ratio of 15.76 suggests stock trades at significant premium to growth rate, limiting upside potential at current valuations.
- Institutional Exodus: FII and DII holdings declined 2.70 percentage points QoQ, reflecting institutional concerns about margin trajectory and growth sustainability.
- Severe Stock Underperformance: Stock down 44.20% over six months and 311.15% behind sector returns over one year, indicating loss of investor confidence.
- Bearish Technical Setup: Stock trades below all key moving averages with bearish technical indicators, suggesting continued selling pressure ahead.
- Low Institutional Holding: Total institutional holding of just 5.57% indicates limited institutional sponsorship and potential for higher volatility.
- Promoter Pledging: 21.47% of promoter shares pledged warrants monitoring, especially in context of stock price weakness.
Outlook: What Lies Ahead
The outlook for Basilic Fly Studio hinges critically on the company's ability to restore margin stability and demonstrate that the Q3 FY26 profitability decline was an aberration rather than a new normal. The management's commentary in upcoming quarters regarding cost optimisation initiatives, project pipeline visibility, and workforce productivity improvements will be crucial in rebuilding investor confidence. The company operates in a structurally growing industry with increasing demand for animation and VFX services, but execution remains paramount.
📈 POSITIVE CATALYSTS
- ✓ Margin Recovery: Any QoQ improvement in operating margins above 20% would signal cost control success
- ✓ Operating Leverage: Revenue growth translating to disproportionate profit growth would validate business model
- ✓ Major Client Wins: Announcements of significant new projects or long-term contracts
- ✓ Institutional Buying: Return of FII/DII interest or mutual fund participation would improve sentiment
- ✓ Technical Reversal: Stock reclaiming 200-day moving average of ₹382.45 would indicate trend change
⚠️ RED FLAGS TO MONITOR
- ✗ Further Margin Erosion: Operating margins falling below 15% would be highly concerning
- ✗ Revenue Growth Deceleration: QoQ revenue growth turning negative or falling below 5%
- ✗ Continued Institutional Selling: FII/DII holdings falling below 3% combined
- ✗ Promoter Stake Reduction: Any further decline in promoter holding below 55%
- ✗ Breach of 52-Week Low: Stock falling below ₹223.15 would signal capitulation
For existing shareholders, the critical decision point will come with the Q4 FY26 results, which should provide clarity on whether Q3's margin compression was a one-time event or the beginning of a sustained profitability decline. Fresh investors should adopt a wait-and-watch approach, looking for at least two consecutive quarters of margin improvement and stabilisation before considering entry. The stock's high beta of 1.50 and bearish technical setup suggest that any recovery will likely be volatile, requiring patience and risk tolerance.
The Verdict: Growth Without Profitability Raises Concerns
Score: 46/100
For Fresh Investors: Avoid initiating positions at current levels. The combination of severe margin compression, elevated valuation multiples (PEG ratio of 15.76), and bearish technical trends creates an unfavourable risk-reward equation. Wait for at least two consecutive quarters of margin stabilisation above 20% and evidence of operating leverage before considering entry. Target entry levels closer to ₹220-230 if margin recovery becomes evident.
For Existing Holders: Consider reducing positions on any technical bounce towards ₹267-280 (20-day and 5-day moving averages). The 28.91% QoQ profit decline despite strong revenue growth raises fundamental concerns about business model sustainability. Retain only if you have high risk tolerance and a 2-3 year investment horizon, betting on eventual margin recovery. Use the Q4 FY26 results as a critical reassessment point.
Fair Value Estimate: ₹220-240 (approximately 12% downside risk from current levels), based on normalised earnings of ₹40-45 crores annually and a P/E multiple of 12-14x, reflecting margin uncertainty and execution risks.
Rationale: Whilst Basilic Fly Studio demonstrates impressive revenue growth momentum and maintains a strong balance sheet, the severe margin compression in Q3 FY26, coupled with institutional selling and bearish technical trends, outweighs the positives. The elevated PEG ratio of 15.76 and "Expensive" valuation grade suggest limited upside potential until profitability stabilises. The company must demonstrate that current cost pressures are temporary investments in capabilities rather than a structural deterioration in unit economics. Until such evidence emerges, the risk-reward equation remains unfavourable.
Note- ROCE= (EBIT - Other income)/(Capital Employed - Cash - Current Investments)
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
