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Balaji Tele: The decline continues - Views on News from Equitymaster

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Balaji Tele: The decline continues
Jul 21, 2010

Balaji Telefilms has announced its 1QFY11 results. The company has reported a 22% YoY and 67% YoY decline in sales and net profits respectively. Here is our analysis of the results.

Performance summary
  • Topline declines by 22% YoY during 1QFY11 on account of a fall in both hours of programming and average realisations per hour.
  • Programming hours in the commissioned category fell from 174 hours in 1QFY10 to 147 hours in 1QFY11. Realisations in commissioned programming fell from Rs 1.9 m per hour to Rs 1.8 per hour during the quarter.
  • EBITDA margins turn negative in 1QFY11.
  • Other income declines by 16% YoY in 1QFY11.
  • Profit after tax plummets by 67% YoY during 1QFY11 due to a decline in the topline and erosion in operating margins.


Standalone financial snapshot
(Rs m) 1QFY10 1QFY11 Change
Net sales 398 309 -22.4%
Expenditure 365 335 -8.1%
Operating profit (EBDITA) 33 (27)  
EBDITA margin (%) 8.3% -8.6%  
Other income 98 82 -16.1%
Depreciation 25 30 21.1%
Profit before tax 106 26 -76.0%
Tax 17 (4) -122.8%
Profit after tax/(loss) 90 29 -67.3%
Net profit margin (%) 22.5% 9.5%  
No. of shares (m)   65.2  
Diluted earnings per share (Rs)* 1.4    
Price to earnings ratio (x)* 39.2    
* On a trailing 12 months basis

What has driven performance in 1QFY11?
  • Balaji Telefilms' realization per hour from commissioned programming reduced from Rs 1.9 m in 1QFY10 to Rs 1.8 m in 1QFY11. On the sponsored programming front, realization per hour reduced from Rs 0.48 m in 1QFY10 to Rs 0.39 m in 1QFY11. In the commissioned category, programming hours stood at 147 hours, down from 174 hours in 1QFY10. In the sponsored category it stood at 118 hours, down from 132 hours in 1QFY10.

  • Pavitra Rishtaa, a Hindi TV show on Zee TV regularly achieved No. 1 TAM ratings across the Hindi speaking market and Tere Liye, a Hindi TV show launched on Star TV achieved a TAM rating of 4 in the second week of its launch. The company forayed into the fast growing regional language space with a commissioned programme in Marathi called ‘Mazhiya Priyala Preet Kalena' on Zee Marathi.

  • During 1QFY11, Balaji's direct cost structure deteriorated considerably. Staff cost increased by 2% as a percentage of sales. Production and telecast costs increased by 13% as a percentage of sales due to initial launch expenses incurred on new shows on Star Plus, Zee TV and NDTV Imagine.

    Cost break-up
    (Rs m) 1QFY10 1QFY11 Change
    Staff Cost 42 39 -8.1%
    % sales 10.6% 12.6%  
    Production Telecast 244 230 -5.9%
    % sales 61.4% 74.6%  
    Provision for doubtful debts 3 -  
    % sales 0.7% 0.0%  
    Other expenditure 76 66 -12.2%
    % sales 19.0% 21.5%  
    Total cost 362 335 -7.4%
    % sales 91.7% 108.6%  

  • Balaji Telefilms had invested an amount of Rs 480 m in 3 plots of land in Mira Bhayander, Mumbai for the purpose of building studios. It has been made a party in the dispute between the original owner of the land and a buyer. While the cases for 2 plots have been settled, the matter for the third plot is subjudice at the Thane Civil Court.

  • The company has received a service tax demand notice for an amount of Rs 635 m plus interest and penalty FY07 and FY08 on exports made to a client. The company has filed an appeal and is awaiting a revert.

  • Balaji Telefilms has formed a New Media division. It has started work on creating mobile and internet based entertainment. The company has also launched a online talent showcase website called hoonur.com.

  • The company's subsidiary - Balaji Motion Pictures plans to release ‘Once Upon A Time in Mumbai' shortly.

  • As on 30st June, 2010, the company had a gross block of Rs 866 m and investment of Rs 2.2 bn. Debtor days stood at 107 days.

What to expect?
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. 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. The spate of write-offs in debtors, fixed assets and investments and legal troubles tell the tale of the hard times the company has fallen into.

The stock of Balaji Telefilms is currently trading at Rs 55, at a multiple of 16 times its FY13 estimated earnings. We hold a negative view on the stock.

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