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Balaji Telefilms: Strong performance - Views on News from Equitymaster
 
 
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  • Jan 22, 2002

    Balaji Telefilms: Strong performance

    Balaji Telefilms has reported revenues of Rs 178 m for 3QFY02, a rise of 70% over corresponding last quarter. The highlights of the results is a spectacular rise in operating margins to 45.5%. This is inspite of a change in accounting policy of the company for full write off of its cost of production.

    (Rs m) 3QFY01 3QFY02 % Change
    Sales 178 302 70%
    Other Income 3 2 -22%
    Expenditure 134 165 23%
    Operating Profit (EBDIT) 44 137 212%
    Operating Profit Margin (%) 24.7% 45.5%  
    Interest 3 0 -95%
    Depreciation 1 4 326%
    Profit before Tax 43 135 218%
    Extraordinary Income 4 8 96%
    Tax 4 43 963%
    Profit after Tax/(Loss) 35 85 146%
    Net profit margin (%) 19.5% 28.2%  
    No. of Shares (eoy) (m) 10.3 10.3  
    Diluted Earnings per share* 13.5 33.1  
    P/E (at current price) 13.6  
    (*- annualised)      

    The rise in operating margins is due to two prominent reasons. One, there is marked shift in the revenue mix of the company towards commissioned programs. This means that armed with sufficient cashflows and strong brand name the company is taking higher risks to seek a quantum jump in margins.

    A shift towards Commissioned programs
    Revenue Mix 3QFY02 % Share 9m FY02 % Share
    Commissioned Programs 2308 76.5% 5186 66.9%
    Sponsored Programs 711 23.5% 2561 33.1%
    Total 3019 100.0% 7747 100.0%

    Secondly, a huge rise in profitability from sponspored programs clearly explains that the company commands a very strong bargaining power. The company has been revising rates for its top programs with various broadcasters. Balaji usually gets a assured margin of around 35% on sponspored programs which has improved sharply as shown in the table below. As per one estimate, the company's programs now occupy 18-20% of the total prime time on all satellite content.

    OPM- Displaying strong bargaining power
    Operating margins 3QFY02 9m FY02
    Commissioned Programs 56.0% 53.1%
    Sponsored Programs 39.8% 31.9%

    At the current market price of Rs 450, the stock is trading at 16x FY02 expected earnigns. The stock price has more than doubled in last couple of months. Markets have been building a lot of expectations from the company. Going forward, the company needs to maintain its leadership position in creating cutting edge content. Though the company currently has an unparrelled track record, success cannot be assured going forward. Any disappointment on this front could lead to a sharp reaction on the stock price. Again the company's intention to diversify into areas like film production and event management remain a cause for concern. In the short run however, operating margins of the company are expected to inch up further due to change in revenue composition and cost savings on account of inhouse production capabilities.

     

     

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