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Balaji Telefilms: Future outlook - Views on News from Equitymaster
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  • Sep 25, 2007

    Balaji Telefilms: Future outlook

    In the previous article, we had analysed the company by doing a SWOT analysis. In this article we shall look at the future prospects of Balaji Telefilms.

    Balaji's current core business is to develop programming content for Star Plus, Sony TV, Zee TV, Sun TV, Gemini TV, Udaya TV, Surya TV and DD Chandana. Balaji's annual revenues are a multiple of programming hours per year and its realizations per hour. While the company's programming hours are stagnating, its revenues continue to increase due to an increase in its realisations per hour. Its programming hours declined from 2,114 hours in FY06 to 1,820 (down 14% YoY) in FY07. An increase in realisations per hour helped the company to increase revenues and also shield the bottomline. Balaji has taken the following initiatives in order to increase its revenues.

    Broadcasting JV with Star: 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. A new Telegu channel launch is also planned in 2007. Channels in Kannada, Malayalam and other key regional languages will be launched within the next two to three years. Balaji is also envisaging to produce customised content for regional channels through its exclusive agreement with the Star TV network, wherein it would command prime time slots and also address emerging opportunities in markets like West Bengal. The share of regional channels in terms of viewership and TRPs is rising and hence this move is beneficial to the company. The strong economic growth in southern India led by the development of the IT and BPO industry in the cities of Bangalore, Hyderabad and Chennai has provided a fillip to the growth of the south Indian television industry. This move will give Balaji access to newer channels and further reduce its dependence on the Hindi general entertainment segment. The country's TV advertising market is expected to grow from Rs 66 bn in 2006 to Rs 123 bn by 2011. The subscription revenues of the broadcasters would also increase substantially with the rollout of CAS and DTH. However broadcasting is a complex and capital intensive business. Besides this the company will face increased competition from Sun TV, Raj TV, Udaya TV. Any slowdown in economic growth can adversely affect the advertisement and subscription revenues of the broadcasters.

    Foray into movies: The company has formed a wholly owned subsidiary M/s. Balaji Motion Pictures for undertaking film ventures. This subsidiary plans to produce films individually as well as in collaboration with leading producers. It also plans to distribute its own films as well as the films of other producers. The company plans to release at least 4 to 5 films a year initially. The Indian Filmed Entertainment industry is projected to grow from the present size of Rs. 84 bn to Rs. 175 bn by 2011, implying a 16% cumulative annual growth over the next five years. (source: FICCI Pwc Report on Indian Media and Entertainment industry). Film entertainment is one of the most popular and affordable means of entertainment. Further, the entry of corporate entities such as UTV, Yash Raj Films in the production space has corporatised the Indian film industry. Given these indicators, we believe that the production of quality movies is likely to improve significantly, going forward. Moreover increase in the disposable income and change in the lifestyle has led to a huge growth of the movie multiplex industry.

    Movies, however, continue to be a very risky business as moviegoers are very discerning and have fickle tastes. A few highly reputed Hindi film producers make a risk less profit before the release of the movie by selling its Indian and overseas distribution rights and music rights. Also, distribution of movies is a far more risky affair than production of movies. Large distributors such as Eros and corporates such as the Network 18 group have been paying heavy compensations for acquiring the distribution rights of some movies. It would be difficult to recover the high investment made in bagging the distribution rights of these movies. If this trend continues in the future, it bodes well for the producers who sell the distribution rights but it increases the financial risk for the distributors.

    The problem of piracy continues to plague the Hindi movie industry. Out of the Rs 55 bn turnover of the Hindi film industry, about Rs 15 bn is lost in piracy. Most of the Hindi movies are available in the market as soon as they are released. However, as more digital cinema halls are set up in the country, it will not only improve the quality of prints and thereby make film viewing a more pleasurable experience, but also reduce piracy of prints.

    Programming for foreign channels: Balaji has started a wholly owned subsidiary in Sharjah viz., 'Balaji Telefilms FZE' for providing programming content to leading channels in that region with limited telecast rights. This subsidiary will cater exclusively to the Gulf region and the Indian subcontinent. The top two fictional shows in Sri Lanka are dubbed versions of Balaji's leading serials 'Kasautii Zindagi Kay' and 'Kyunki Saas Bhi Kabhi Bahu Thi'. Besides this Balaji's serial 'Khwahish' targeted at a non Indian audience and featuring actors from India, UAE and neighboring countries is being telecast on the popular ARY channel in the Middle east and Pakistan. Thus this business has very high growth prospects going forward.

    What the future holds...
    Balaji's entry into different businesses should help in diversifying its revenue base and reduce its dependence on the Hindi General entertainment space. Besides this the revenues and the profits should also increase going forward as all these businesses have very high growth potential. However it will take time for these businesses to start contributing meaningfully to the topline and bottomline.



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