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Balaji Telefilms: Battling tough times
Jan 27, 2011

Balaji Telefilms has announced its 3QFY11 results. The company registered flat growth in revenues of 0.6% YoY and a 33.1% YoY decline in bottomline during the quarter. Here is our analysis of the results.

Performance summary
  • Top line registers flat growth of 0.6% YoY for the quarter. For the 9 month period, revenues declined by 9.4% YoY.
  • Operating losses as a percentage of total sales deteriorated further to 1.1% versus 0.6% during the same period last year. For the 9 month period, the company registered loss margins of 7.4% versus a profit margin of 1.0% during the same period last year.
  • Other income was up by 3.8% YoY during the quarter. For the 9 months period, it declined by 28.6% YoY.
  • Net profit plummeted by 33.1% YoY during the quarter. For the 9 months period, the company registered a net loss margin of 2.1% versus a net profit margin of 9.9% last year.


Standalone financial snapshot
(Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
Net sales 392.7 395.0 0.6% 1,197 1,085 -9.4%
Expenditure 395.2 399.3 1.0% 1,186 1,167 -1.5%
Operating profit (EBDITA)   (2.5) (4.3)    12  (82)  
EBDITA margin (%) -0.6% -1.1%   1.0% -7.6%  
Other income 30.4 31.5 3.8% 182 130 -28.6%
Depreciation 26.6 19.3 -27.2%  79 86 8.9%
Profit before tax 1.3 8.0 500.3% 114  (39)  
Profit before tax margin (%) 0.3% 2.0%   9.5% -3.6%  
Tax (16.8) (4.2)   (3.9) (16.1)  
Profit after tax/(loss) 18.2 12.1 -33.1% 118  (23)  
Net profit margin (%) 4.6% 3.1%   9.9% -2.1%  
No. of shares (m)         652  
Diluted earnings per share (Rs)*         0.2  
Price to earnings ratio (x)*         NA  
* Since the earnings for last 9 months are negative, PE multiple for trailing 12 months earnings is not applicable

What has driven performance in 3QFY11?
  • Net sales were up marginally by 0.6% YoY. This was led by the 7.5% YoY improvement in average realization per hour that offset the 11.4% YoY decline in number of hours. On a segment wise basis, the revenues from commissioned programming (which comprise 85% of sales) declined marginally by 0.4% YoY. The revenues from Sponsored programming (which comprise 15% of sales) rose 4% YoY.

  • The realization per hour from Commissioned programming (HSM) was up by 23% YoY from Rs. 15 Lac to Rs. 19 Lac. However, realizations from Sponsored programming declined by 6.6% YoY from Rs. 3.35 Lacs to Rs. 3.13 Lacs during the quarter.

  • Hours of commissioned programs reduced by 25% YoY from 217 hours to 162 hours .Hours of Sponsored programs category increased by 6% YoY (from 177 hours to 187 hours) .Overall, the hours declined by 11% YoY.

    Segmental summary
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11 Change
    Commissioned programs
    Revenue 333 332 -0.4% 1,004 917 -8.7%
    EBIT 72 92 27.2% 264 191 -27.5%
    EBIT margins (%) 21.7% 27.7%   26.3% 20.8%  
    Sponsored programs
    Revenue 56 59 3.8% 189 161 -14.7%
    EBIT 7 18 152.1% 31 39 24.1%
    EBIT margins (%) 13.0% 31.5%   16.6% 24.1%  

  • Operating loss margin deteriorated further to 1.1% versus a loss margin of 0.6% in 3QFY10. Sequentially, the decline was reduced by 92% QoQ on account of lower costs of production (down 8% QoQ) in the new shows as the production process stabilized and better management of general and administrative expenses (down 18% QoQ).

    Cost break-up
    (Rs m) 3QFY10 3QFY11 Change 9mFY10 9mFY11
    Staff Cost 35 46 31.4% 115 138
    % sales 8.9% 11.6%   9.6% 12.8%
    Production Telecast 303 279 -7.9% 854 803
    % sales 77.2% 70.6%   71.3% 74.0%
    Change in stock in trade -6 1   -12 -1
    % sales          
    Other expenditure 63 74 17.5% 229 227
    % sales 16.0% 18.7%   19.1% 20.9%
    Total cost 395 399 1.0% 1,186 1,167
    % sales 100.6% 101.0%   99.0% 107.6%

  • During 3QFY11, Balaji's direct cost structure changed significantly. While staff cost increased by 3% YoY as a percentage of sales, Production and telecast costs decreased by 7% YoY as a percentage of sales. On an absolute basis, the costs increased by 1% YoY during the quarter.

  • Net profit margins declined to 3.1% during the quarter from 4.6% in 3QFY 10. On a sequential basis, the quarter witnessed net margins turning positive from a loss margin of 16.8% in 2QFY11. This was on account of efficient cost management and 99% QoQ increase in other income.

What to expect?
The stock is currently trading at Rs. 36.7. This implies a PE multiple of 10.5 times its FY13 estimated earnings (Research pro subscribers please click here ). The company’s stronghold on the soap category has been eroded by the successful entry of several content providers. The niche that Balaji enjoyed on Star has also ended. Moreover with the cricket world cup coming in April, we feel that viewership of the company’s serials would decline.

The company intends to sell its mobile, Internet and education divisions. That reflects the hard times it has fallen into.

While the recently released ‘Once upon a time in Mumbai’ was a success, we doubt it will be able to repeat it in such future endeavors due to lack of star power. Due to above mentioned reasons we believe there is very little visibility on the earnings front for the company. We maintain our negative view on the company.

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