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Balaji Tele: Building on strengths

Oct 23, 2002

Balaji Telefilms has reported an impressive performance for the second quarter ended September 2002. The company has doubled its revenues for 2QFY03. Operating margins have also shown a marked improvement during the quarter.

(Rs m) 2QFY02 2QFY03 % Change 1HFY02 1HFY03 % Change
Sales 236 490 107.3% 473 887 87.7%
Other Income 5 0 - 6 0 -
Expenditure 142 240 69.3% 306 425 39.1%
Operating Profit (EBDIT) 94 249 164.5% 167 462 176.4%
Operating Profit Margin (%) 39.9% 50.9%   35.4% 52.1%  
Interest - 0 - 0 0 41.4%
Depreciation 2 10 400.1% 4 19 414.7%
Profit before Tax 98 240 145.6% 169 443 162.4%
Extraordinary Income (8) (2) - (16) (5) -
Tax 24 84 259.1% 38 159 322.8%
Profit after Tax/(Loss) 66 153 130.8% 116 280 141.9%
Net profit margin (%) 28.0% 31.2%   24.5% 31.5%  
No. of Shares (m) 10.3 51.5   10.3 51.5  
Diluted Earnings per share* 5.1 11.9   4.5 10.9  
P/E (x)           8.5   

One of the key reasons for the sharp spurt in revenues is the success of its programmes in various channels. Currently, the company's serials occupy 25 of the top 50 serials on air, based on TRP ratings, which is a commendable performance by any yardstick. It also has 3 serials re-running on the Star network. On the back of high TRPs, Balaji Telefilms has better bargaining power that enables the company to maximise revenues for a given slot in a channel. Revenues are up 88% for 1HFY03.

The sharp increase is margins has to be viewed in the context of favorable revenue mix that is inclined more towards commissioned programs. Generally, in commissioned programs, there is an assured margin for content producers. Since TRPs are higher for Balaji Telefilms, whenever there is an upward revision in rates, it directly adds to the profits for the company. However, in the long run, we do not expect the company to sustain such high margins due to competition from other content producers. The broadcasters also cannot keep increasing rates for content producers in the case of commissioned programmes, as their margins would come under pressure (there has been a number of upward revision in rates for Balaji Telefilms on the back of success of new programmes).

Despite a sharp spurt in tax outgo, net profits have risen impressively during the quarter. The company has declared an interim dividend of Rs 1.5 per share and the record date is November 12, 2002. The stock currenlty trades at Rs 92 implying a P/E multiple of 8.5x annualised 1HFY03 earnings.

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