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Balaji: In troubled waters - Views on News from Equitymaster

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Balaji: In troubled waters

Jan 30, 2009

Performance summary
  • Topline declines by 37% YoY during 3QFY09.
  • EBITDA margins decline to 4.8% this quarter, down from 33.2% in 3QFY08.
  • Other income grows by 17% YoY in 3QFY09.
  • Bottomline declines by 97% YoY during 3QFY09 due to erosion in operating margins.

Standalone financial snapshot
(Rs m) 3QFY08 3QFY09 Change 9mFY08 9mFY09 Change
Net sales 800 506 -36.7% 2,329 2,458 5.5%
Expenditure 534 482 -9.7% 1,433 1,884 31.4%
Operating profit (EBDITA) 266 24 -90.9% 896 574 -35.9%
EBDITA margin (%) 33.2% 4.8%   38.5% 23.4%  
Other income 37 43 17.1% 121 149 22.8%
Interest - -   - -  
Depreciation 30 41 39.2% 93 110 18.5%
Profit before tax 273 26 -90.5% 924 613 -33.7%
Tax 85 20 -76.1% 288 203 -29.6%
Profit after tax/(loss) 188 5.7 -97.0% 635 409 -35.5%
Net profit margin (%) 23.5% 1.1%   27.3% 16.7%  
No. of shares (m)         65.2  
Diluted earnings per share (Rs)*         9.9  
Price to earnings ratio (x)*         4.5  
*On trailing twelve months basis

What has driven performance in 3QFY09?
  • Balaji produced 158 hours of commissioned programming during the quarter despite a 3 week strike in November 2008. Balaji Motion Pictures, a wholly owned subsidiary of the company, released one film ‘EMI’ during the quarter.

  • Balaji reported a realisation of Rs 2.78 m per hour from commissioned programming in 3QFY09 as against Rs 3.23 m in the previous quarter. Realisation per hour from sponsored programming stood at Rs 0.45 m in 3QFY09 as against Rs. 0.6 m in the previous quarter.

  • As of December 31, 2008 Balaji had 12 serials on air. The company launched 3 serials during 3QFY09. However, it had to take 4 serials off air including Kyunki Saas Bhi Kabhi Bahu Thi, Kahaani Ghar Ghar Kii and Kahaani Hamaaray Mahabharat Ki.

  • The share of commissioned programming in the revenues during the quarter was 87% while that of sponsored programming was 13%.

  • On the cost front, production and telecast cost increased by 6.8% (as a % of sales) during the quarter, while other expenditure increased by 84% in absolute terms.

    Cost break-up
    (Rs m) 3QFY08 3QFY09 Change
    Staff Cost 33 32 -1.3%
    % sales 4.1% 6.4%  
    Production & Telecast 420 300 -28.5%
    % sales 52.5% 59.3%  
    Other expenditure 81 150 84.0%
    % sales 10.2% 29.5%  
    Total cost 534 482 -9.7%
    % sales 66.8% 95.2%  

  • Balaji invested Rs 30.7 m in post production and studios during 3QFY09.

What to expect?
The recent developments do not augur well for the company. Its 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. The company’s foray into new genres and broadcasters has also not been able to generate the traction it had in its early years, when it came out with several soaps one after the other. As such there is very little visibility on the earnings front for the company.

At the current price of Rs 45, the stock is trading at a multiple of 4.5 times its trailing 12 months earnings. We hold a negative view on the stock.

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