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Balaji Tele: Back on track? - Views on News from Equitymaster
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Balaji Tele: Back on track?
Jul 28, 2006

Introduction to results
Balaji Telefilms, a leading television content provider in the country, reported encouraging results for 1QFY07. The company has reported a 16% YoY growth in topline for the quarter while the operating profits have increased by 26%. The bottomline growth has outpaced the topline growth and has increased by 39% YoY. A strong 81% jump in other income was also a positive.

Standalone Snapshot
(Rs m) 1QFY06 1QFY07 Change
Net Sales 633 735 16.1%
Expenditure 427 475 11.3%
Operating Profit (EBDITA) 207 260 25.9%
EBITDA margin (%) 32.6% 35.4%  
Other income 12 21 81.4%
Interest 0.02 0.04 100.0%
Depreciation 34 28 -18.2%
Profit before tax 185 254 37.6%
Tax 59 80 35.1%
Profit after Tax/(Loss) 125 174 38.8%
Net profit margin (%) 19.8% 23.6%  
No. of Shares (m) 65.2 65.2  
Diluted earnings per share*   9.9  
Price to earnings ratio (x)   10.9  
(* Twelve months trailing)

What is the company’s business?
Balaji Telefilms is one of the leading television software producers in India. Its software production spans four languages i.e. Hindi, Tamil, Telugu and Kannada. The company’s leadership is vindicated by the consistent dominance of its programmes on the Television Ratings Points (TRP) charts. This can be gauged from the fact that as on 1 July 2006, the company’s programmes dominated 29 of the top 50 programmes amongst Hindi Cable & Satellite (C&S) Channels. Further, Balaji’s programmes collectively account for nearly 55% of the total programming points of the entire C&S segment! The company already has a rich content library, which has a high re-run value.

In the last quarter Star Group picked up a stake in the company thus strengthening their relationship with the television software producer, which we believe is a win-win situation for both the parties concerned. Further, Balaji Telefilms has forayed into the film production arena, seemingly having derived experience from its sister concern, Balaji Films, which has been producing films for sometime now.

What has driven performance in 1QFY07?
Towards commissioned programming: The 16% YoY growth in topline during the June quarter could be attributed to a 41% jump in revenues from commissioned programs. Here, while the programming hours increased by 16%, realisation improved by an even more impressive 22% YoY. The sponsored programs on the other hand witnessed a decline of 19% and realisations per hour also dropped by 6% as compared to same quarter last year. The share of commissioned programming in the overall revenue mix of the company has also increased to 91% as opposed to 75% during 1QFY06. From 50% in FY01 to 91% currently, the company has really done well to tilt its revenue mix towards commissioned programming. This type of programming insulates the company from a general downturn in the economy and gives it a more stable look. It also speaks volumes about the clout of the company as higher numbers of commissioned programs indicate that channels are willing to make upfront payments and have faith in its ability to deliver better TRPs.

Good show at the operating level: Despite higher staff costs and other expenditure as a percentage of sales, operating margins of the company have improved by a good 280 basis points. The Improvement seems largely a result of the 22% jump in realisations in commissioned programmes. As a consequence, the operating profit of the company has risen by 26%.

Another impressive bottomline performance: Besides impressive performance at the operating level, higher other income to the tune of 81% has resulted in a strong bottomline growth of 39%.

Over the last few quarters
  1QFY06 2QFY06 3QFY06 4QFY06 1QFY07
Net sales (% YoY growth) 39.6% 55.0% 35.3% 41.3% 16%
Operating margins (%) 32.6% 40.3% 28.5% 32.2% 35%
Production costs (as % of sales) 51.7% 49.9% 55.5% 48.8% 51%
Net profit (% YoY growth) 13.6% 50.8% 56.3% 60.7% 38.8%
Net profit margins (%) 19.8% 24.3% 20.9% 20.2% 23.6%

What to expect?
At Rs108, the stock is trading at a price to earnings multiple of 11 times our estimated FY07 earnings. The company has suffered in the past on account of some very volatile performance. However, if the last few quarters are any indication, some amount of consistency has begun to emerge and if the improved performance continues over the next couple of quarters, then we might have to revisit our numbers. That said, the risk profile of the stock is on the higher side.

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