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Balaji Telefilms: Research meet extracts

Jul 4, 2005

We recently met with Balaji Telefilms to get a better insight into what led to the below-than-expected performance by the company in FY05. Further, we also discussed as to what are the plans of the company going forward. Following are the extracts of the same. FY05 performance: Despite the programming revenues being higher by 10% YoY, net profit was down 26% YoY. While the topline was led by an approximate 16% YoY rise in both – commissioned and sponsored hours, the same was not entirely reflected in the topline as consolidated realisations per hour slipped by 5% in FY05 (3% for commissioned and 16% for sponsored). Operating margins were severely hit, tumbling to 34% in FY05 from 49% in FY04. All of this got reflected in the bottomline fall.

While the company seemed satisfied with the respectable topline growth, it did express some discontent over the realisations per hour taking a hit. While the company believes that they would be able to recoup the fall in realisations on the sponsored serials front, the realisations of its commissioned programming would depend (among other things) on the budget of the serials that it chooses to take up. It must be noted that the company has been attempting to venture into different genres and thus have been catering to the non-social drama segment also on channels like Hungama, Zoom and MTV. The operating margins in FY05 were largely affected by a sharp 65% rise in production costs (over 80% of total operating expenses), which was owing to the slew of programme launches that the company had in FY05 (14 vs. 6-7 in FY04). Further, increase in telecast fees and service tax added to the overall production costs.

FY06 plans
Programming: On the programming front, Balaji has already launched a serial in 1QFY06 on Surya TV. The company believes that in the current fiscal, another 4 to 5 programmes would be launched. Further, considering that any new serial has a gestation period of about 6 months before they start contributing to the bottomline, the launches in 2HFY05 would reflect in FY06.

Films: In the backdrop of the success of the company’s maiden home production ‘Kya Kool Hai Hum’, Balaji is slated to launch another film around September 2005. The company has earmarked about Rs 150 m for producing an average of 2 films every year at an estimated cost of Rs 60 to 70 m per film.

Software exports:Balaji Telefilms has a huge library, which has a high re-run value. However, while the company believes that revenues similar to FY05 would be maintained, not much should be expected on this front currently.

What to expect?
At Rs 109, the stock is trading at 12.8 times our estimated FY07 earnings. This we believe is expensive considering the financial risk that the company faces in terms of the volatility in earnings that could impede the stock price. Venturing into films increases the risk profile of the stock. We believe that the medium-term growth prospects of the company are already reflected in the stock price. Thus, Balaji would need to perform exceedingly well in order to justify the current valuations.

However, this does not take away the fact that Balaji’s programmes have continued to dominate the TRP ratings and are miles ahead of any other production house. Moreover, while it would be very difficult to replace Balaji’s programmes at the top end of the TRP rating in the medium-term, some competition cannot be ruled out in the latter half of the top 50 slots of the TRP charts. However, considering Balaji Telefilms’ legacy of delivering quality content that attracts audiences will help it to face competition head-on. Further, it must be noted that Balaji is currently sitting on a huge pile of cash and investments, which works out to about Rs 18 per share. While we remain cautious about the use of this, it would act as a support for the stock.

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Aug 4, 2020 (Close)


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