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Balaji Tele: Spectacular performance - Views on News from Equitymaster

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Balaji Tele: Spectacular performance

May 27, 2002

Balaji Telefilms has ended FY02 with a spectacular 567% rise in net income. Topline of the company crossed the crucial Rs 1 bn revenues mark, representing a rise of 126%. Operating margins leapfrogged to 42% from 16% last year. This is inspite of a change in accounting policy of the company for full write off of its cost of production. Now, this is what you call the business of entertainment! Both the topline and bottomline are above our and market expectations.

(Rs m) FY01 FY02 % Change
Sales 489 1,103 126%
Other Income 8 28 256%
Expenditure 412 643 56%
Operating Profit (EBDIT) 76 460 502%
Operating Profit Margin (%) 15.6% 41.7%  
Interest 7 0 -94%
Depreciation 3 11 216%
Profit before Tax 74 477 542%
Extraordinary Income (17) (31) 85%
Tax 14 155 1010%
Profit after Tax/(Loss) 44 290 567%
Net profit margin (%) 8.9% 26.3%  
No. of Shares (eoy) (m) 10.3 10.3  
Diluted Earnings per share* 4.2 28.2  
P/E (at current price) 19.3  
(*- 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. In the commissioned programs, the company doesn't bear any risk and assumes responsibility to deliver content to the broadcaster. Here the company enjoys assured operating margins from the broadcaster. However, the IPR of the content gets transferred to the broadcaster.

Revenue Mix- A marked shift
(Rs m) FY02 % Share 4QFY02 % Share
Commissioned Programs 796 72.2% 278 84.6%
Sponsored Programs 307 27.8% 50 15.4%
Total 1,103 100.0% 328 100.0%

Secondly, there is a sharp spurt in margins for both the commissioned as well as sponspored programs as shown in the table below. This very well explains a tremendous bargaining power, which the company's programs enjoy with broadcasting companies. There has been a upward revision after the company re-negotiated rates for all its major programs.

OPM- Displaying strong bargaining power
Operating margins FY02 4QFY02
Commissioned Programs 55.6% 60.2%
Sponsored Programs 31.2% 28.0%

At the current market price of Rs 544, the stock is trading at 19x FY02 earnings. The company is expected to continue its growth momentum as programming hours are set to increase. The company believes that there is vaccum of good programmes on the weekends currently and plans to create programs to fill up these slots. The next thing on the block is small/medium budget telefilms production. However, markets seem to have been already build in a lot of expectations from the company. Going forward, the company needs to maintain its leadership position in creating cutting edge content. Forward numbers for the next two years look attractive. The company has an unparrelled track record. However, success cannot be assured going forward. After all, it is the world of entertainment.


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