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Balaji Telefilms: The content leader!
Jul 17, 2006

Media is amongst the fastest growing sectors in India. The phenomenal growth in the media sector can be attributed to economic growth, rising income levels, technological advancement and policy initiatives undertaken by the Indian government. It is expected that upto FY10 the media industry will grow at a CAGR of 19%. This in turn, will also propel the growth of the major players of this industry. Balaji Telefilms is India’s largest entertainment content provider. Here is an analysis of the company’s past, its current stature and future growth prospectus.

Company background
Balaji Telefilms commenced operations in 1994 with the production of a popular fiction thriller called 'Mano Ya Na Mano', which was followed by another hit programme, ‘Hum Paanch’, both of which were aired on Zee TV. Since then, Balaji has come a long way and has emerged as one of the leading television software producers in India. It’s software production spans across four languages i.e. Hindu, Tamil, Telugu and Kannada. It has a rich content library, which has a high re-run value. The company’s revenues are largely sourced from the sponsored and commissioned segments. The revenue mix is tilted favourably towards commissioned programmes. In the past few years, the commissioned revenues have been growing very fast. Commissioned revenues of the company have increased at a CAGR of 31% over the past 6 years. This has helped Balaji increasingly focus on commissioned programmes.

Growth drivers
Programming Mix: The company creates programmes for its customer channels under two broad segments sponsored and commissioned. The programming mix of the company consits of Hindi, Telugu, Kannada, Malayalam and Tamil. Until FY04, the company had focus on only 2 regional languages (Telugu and Kannada) besides Hindi. The number of non-Hindi languages increased to 5 in FY05 and the company retained its position as one of the few multi- lingual production houses.

Soap-share of channels: The Company continued to diversify its channel profile to mitigate an over-dependence on any single channel .Its soap-share of channels have also increased in FY05. Star plus is having the highest share in the soap-channel followed by Gemini and Udaya.

Genre mix: As a future focused content creator, the company extended into children’s programming, talk shows, nature programming, youth programmes and films, diversifying its genre mix even as a mass entertainment continued to be the company’s prime revenue generator.

Cable Potential: The penetration of cable in India is increasing very rapidly. The penetration of cable and satellite in households is expected to increase from 53% in FY05 to 63.4% in the coming years. This increase in penetration will contribute to cable revenues, enriching broadcasters and enhancing income opportunities for companies like Balaji.

Analysis of the past…
During the period between FY01 and FY05, Balaji registered a CAGR of 59% in sales. However, the company’s operating margins took the toll of higher operating costs. Net sales increased with the launch of 14 new programmes across various channels in FY05. However, the same did not effectively filter into the bottomline.

Financial Snapshot
  FY01 FY02 FY03 FY04 FY05
Net sales(Rs m) 489 1,103 1,860 1,783 1,967
% growth   126% 69% -4% 10%
PAT 45 291 574 554 413
%growth   547% 97% -3% -25%
Profitability ratios
EBITDA margins (%) 16% 42% 51% 49% 34%
EBIT margins (%) 17% 43% 49% 48% 32%
Net profit margin(%) 9% 26% 31% 31% 21%

What to expect?
At the current price of Rs 116 the stock is trading at a price to earnings multiple of 13 times its standalone FY06 earnings. In being a participant to media creation in the country in the past, we believe that Balaji has attained a critical mass in terms of increasing realisations, slot filling, prime time performance and prime time extension. The outlook remains positive as the company expects to widen its genre presence, enter newer programmes; new delivery formats and dominate newer slots on satellite channels.

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