Synopsis: Media stock shares hit the 5% upper circuit after SEBI closed proceedings against the company and its directors, finding no evidence of misleading financial statements or accounting irregularities related to intra-group business transfers, boosting investor confidence.
The shares of this company are engaged in the business of post-production activities including digital intermediate, visual effects, 2D to 3D conversion, and other technical and creative services to the media and entertainment industry are in the spotlight after it hit 5 per cent upper circuit in today’s session following the SEBI clearing misleading financials case.
With a market capitalisation of Rs. 19,097 cr, the shares of Prime Focus Ltd were trading at Rs. 246.10 per share, locked at 5% upper circuit in today’s market session, up from its previous close of Rs. 234.40 per share.
SEBI Halts Proceedings and Clears Prime Focus
The market regulator, the Securities and Exchange Board of India (SEBI), has officially closed its adjudication proceedings against Prime Focus and its directors. Following an investigation, SEBI concluded that the company utilized the correct accounting treatments for transferring its business divisions to indirect subsidiaries.
The allegations concerning misleading financial statements, accounting irregularities, and the violation of listing or anti-fraud regulations were found to be unsubstantiated, resulting in the dismissal of all related charges.
The Core of the Investigation
The regulator’s initial inquiry stemmed from an examination of corporate transactions executed by Prime Focus between FY20 and FY22. During this timeframe, the company transferred its visual effects (VFX) division to DNEG Creative Services and subsequently sold its post-production services unit to DNEG India Media Services, both of which operate under common control as indirect subsidiaries.
SEBI’s probe originally questioned whether these intra-group sales improperly inflated the company’s financials, noting that the transactions generated gains of Rs. 200.27 crore in FY20 and Rs. 250.20 crore in FY22, which materially boosted reported net profits.
Regulatory Findings on Accounting Compliance
In the final order, SEBI Adjudicating Officer Amit Kapoor determined that Prime Focus had adhered to the proper accounting standards within its standalone financial statements. Furthermore, the regulator dismissed complaints regarding the consolidated statements, noting that the gains from these internal transactions were correctly eliminated during the consolidation process in compliance with Ind AS 110. SEBI also highlighted that the company’s statutory auditors had raised no issues or qualifications regarding the accounting treatments or consolidation methods used.
The dismissal of the primary allegations provides total relief to nine separate individuals who had received show-cause notices in December 2023. This group includes promoter-directors Naresh Malhotra and Namit Malhotra, Chief Financial Officer Nishant Fadia, and several independent directors serving on the company’s audit committee. Because the fundamental charges of financial misstatement against the corporation itself could not be established, the secondary charges against its management and oversight board were cleared as well.
Prime Focus Ltd is an Indian multinational media and entertainment company. The company specialises in visual effects (VFX), animation, post-production, content production, and media technology services for films, television, advertising, and digital media.
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