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Balaji Telefilms: 1QFY08 review - Views on News from Equitymaster

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Balaji Telefilms: 1QFY08 review
Jul 26, 2007

Performance summary
  • Revenue grows marginally by 1.4 % YoY

  • Operating expenses decline by 5% YoY

  • Operating margins improve by 380 basis points.

  • Profit after tax grows by 6% YoY due to higher tax outgo.

(Rs m) 1QFY07 1QFY08 Change
Sales 735 745 1.4%
Expenditure 475 450 -5.3%
Operating Profit 282 319 13.1%
EBIDTA margin(%) 38.4% 42.8%  
Other Income 21 24 14.3%
Depreciation 28 33 17.9%
Interest - - 0.0%
Profit Before Tax 254 287 13.0%
Tax 80 102 27.5%
Minority Interest - - 0.0%
Profit After Tax 174 184 5.7%
Net Profit Margin(%) 23.7% 24.7%  
No of shares (m) 65 65  
Diluted Earnings per share*

What is the company’s business?
Balaji Telefilms is the leading entertainment software provider in India’s fast growing television market. It is promoted by veteran Indian actor Jeetendra Kapoor, his wife Sobha Kapoor, daughter Ekta Kapoor. Star Group is its prime customer and major shareholder (holding a 26% stake in the company). Balaji develops content for Star Plus, Sony TV, Zee TV, Sun TV, Gemini TV, Udaya TV, Surya TV, and DD Chandana. Its popular serials include Kyunki Saas Bhi Kabhi Bahu Thi, Kahaani Ghar Ghar Kii. It has started producing films and entered into a JV with Star TV for broadcasting.

What has driven performance in 1QFY08?
Programming hours and realisations: Balaji’s programmes continued to do well in terms of their TRP ratings. For the week ended June 30, 2007, out of the top 50 shows, 24 shows were from Balaji (TAM ratings). The total programming hours have, however, declined by 33% YoY. The increase in realizations per hour from 1.74 m in FY 07 to 2.15 m in 1QFY08 has helped the company to increase its sales marginally. Realization per hour from commissioned programming increased from Rs. 2.8 m in FY 07 to Rs. 3.4 m in first quarter of FY08. Average realization per hour in sponsored programming increased from Rs. 0.3 m in FY07 to Rs. 0.4 m in 1QFY08. The share of commissioned programming in the revenues during the quarter was 92%, while that of sponsored programming was 8%, same as in FY07.

Programming Mix
Programming hours Q1FY07 % of total Q1FY08 % of total Change
Commissioned 298 57.5% 204 59.0% -32%
Sponsored 220 42.5% 142 41.0% -35%
Total 518   346   -33%

The company’s operating expenses have declined by 5% YoY leading to an improvement of 380 basis points in operating margins. A new studio became operational. ’Khwaish’ produced by Balaji Telefilms FZE went on air from June 25, 2007 on the foreign Channel ARY and debuted in India from July 16, 2007 on Sony Entertainment Channel. The first co-production ‘Shootout at Lokhandwala’ of Balaji Motion Pictures Ltd. was a commercial success.

New ventures: Balaji has entered into a joint venture with Star for launch of channels in regional languages other than Hindi. Balaji will acquire 49% equity in the joint venture, which includes the existing star group channel ‘Vijay’, for an initial investment of approximately Rs. 600 m. The launch of General Entertainment channels by the TV 18 GROUP, INX group, and TV 18 group should help Balaji to increase its programming hours. Infact, Balaji has announced that it will be producing a couple of serials for INX’s Hindi general entertainment channel, which would include reality shows. The satellite rights for a fixed number of feature films produced by Balaji in the future will also be sold to INX.

What to expect?
At the current price of Rs 249 the stock is trading at 20 times trailing 12 month earnings. While we are enthused by the new initiatives taken by the company to diversify its revenue base and its improved pricing power, inability to increase its programming hours despite high TRPs is a concern. We shall soon update our research report on the stock.

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