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Balaji Telefilms: Margins explode - Views on News from Equitymaster
 
 
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  • Aug 22, 2002

    Balaji Telefilms: Margins explode

    Balaji Telefilms continues to create history of sorts. There is consistent rise in realisations per episode and new serial introductions, all this backed by sustained quality content from the company's production house. The company's operating margins have scaled new heights, making even the peak margins of IT companies pale in comparision.

    (Rs m) 1QFY02 1QFY03 % Change
    Sales 237 398 68.1%
    Other Income 0 0 -
    Expenditure 164 185 13.0%
    Operating Profit (EBDIT) 73 213 191.9%
    Operating Profit Margin (%) 30.8% 53.5%  
    Interest 0 0 -
    Depreciation 2 9 430.8%
    Profit before Tax 71 203 185.5%
    Extraordinary Income 8 2 -69.5%
    Tax 14 74 429.7%
    Profit after Tax/(Loss) 49 127 156.8%
    Net profit margin (%) 20.9% 31.9%  
    No. of Shares (eoy) (m) 10.3 10.3  
    Diluted Earnings per share* 19.2 49.3  
    P/E (at current price) 10.6  
    (*- annualised)      

    The revenue mix of the company is now completely skewed towards commissioned programs. Here, the company gets an assured margin from the broadcasters against the transfer of its IPR for the content. With programming cost already taken care of, any upward revision in rates for commissioned programs directly translates into bottomline increase for the company. Considering the performance of the company on the TRP charts, Balaji has a strong bargaining power with all the broadcasters and the rates offered to the company by them are around 60-70% higher compared to other content providers. Sponspored programs on the other hand are the ones where the company takes the risk. Interestingly, the sponspored program list consists mainly of Non-hindi based programs which ideally are dubbed from the existing Hindi programs and hence the costs here are already covered.

    Revenue Mix 1QFY03 % Share FY02 % Share
    Commissioned Programs 343 86.1% 796 72.2%
    Sponsored Programs 55 13.9% 307 27.8%
    Total 398 100.0% 1,103 100.0%

    Presently the company has 15 serials on air on various channels besides re-running 3 serials on Star, which were earlier on Channel Nine (Nine Gold - DD Metro). The re-run is expected to get over by the end of 2QFY03 and fresh episodes would start thereafter. The company is expected to foray into weekend programming in the current fiscal. The company believes that there is vaccum of good programmes on the weekends currently and plans to create programs to fill up these slots. The next thing on the block is small / medium budget telefilm production.

    OPM- Displaying strong bargaining power
    Operating margins 1QFY03 FY02
    Commissioned Programs 62.3% 55.6%
    Sponsored Programs 39.3% 31.2%

    At the current market price of Rs 524, the stock is trading at 11x its annualised earnings for 1QFY03. The company is considering sub-division of its shares of face value of Rs 10 each into shares of Rs 2 each credited as fully paid up.

    The company is expected to continue its growth momentum as programming hours are set to increase.However, markets seem to have been already build in a lot of expectations from the company. Going forward, the company needs to maintain its leadership position in creating cutting edge content. Forward numbers for the next two years look attractive. The company has an unparelleled track record. However, success cannot be assured going forward. Further, considering the current margins of the company there is little room for improvement and with competition getting smarter the company will be hard pressed to maintain its current margins.

     

     

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