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Balaji: Slipping on soaps - Views on News from Equitymaster

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Balaji: Slipping on soaps

Oct 25, 2008

Performance summary
  • Topline grows by 32% YoY during 2QFY09.

  • EBITDA margins decline by 20.3% to 22.3% during the quarter.

  • Other income grows by 4% YoY in 2QFY09.

  • Bottomline declines by 31% YoY during 2QFY09 erosion in operating margins.



Standalone financial snapshot

(Rs m) 2QFY08 2QFY09 Change 1HFY08 1HFY09 Change
Net sales 782 1,034 32.3% 1,529 1,952 27.6%
Expenditure 449 803 78.9% 899 1,402 55.9%
Operating profit (EBDITA) 333 231 -30.6% 630 550 -12.7%
EBDITA margin (%) 42.6% 22.3%   41.2% 28.2%  
Other income 62 64 3.6% 84 105 25.3%
Interest - -   - -  
Depreciation 31 35 12.9% 63 69 8.7%
Profit before tax 364 260 -28.5% 651 587 -9.9%
Tax 101 79 -21.8% 204 183 -10.2%
Profit after tax/(loss) 263 181 -31.0% 447 404 -9.7%
Net profit margin (%) 33.6% 17.5%   29.2% 20.7%  
No. of shares (m)         65.2  
Diluted earnings per share (Rs)*         12.7  
Price to earnings ratio (x)*         5.8  
*On trailing twelve months basis

What has driven performance in 2QFY09?
  • The share of commissioned programming in the revenue during 2QFY09 was 94%, while that of sponsored programming was 6%.

  • Balaji faced cost pressures during 2QFY09 as compared to the corresponding quarter last year as is evident from 17% increase (as percentage of sales) in the cost of production & telecast fees.

    Cost break- up

    (Rs m) 2QFY08 2QFY09 Change
    Staff Cost 34 39 14.2%
    % sales 4.4% 3.8%  
    Production & Telecast 345 633 83.7%
    % sales 44.1% 61.2%  
    Other expenditure 70 131 86.9%
    % sales 8.9% 12.6%  
    Total cost 449 803 78.9%
    % sales 57.4% 77.7%  

  • Balaji has agreed to the terminated the various agreements entered with the Star Group in August 2004, when the Star Group acquired a 26% stake in the Company and the agreements entered in April 2007, for a joint venture for regional languages.

  • Balaji recently received a notice from SGL Entertainment (part of Star Group) for termination of ‘Kyunki Saas Bhi Kabhi Bahu Thi’ with effect from November 10, 2008. The company has initiated legal proceedings.


What to expect?
The recent developments do not augur well for the company. Its stronghold on the soap category has been eroded by the successful entry of several content providers. The niche that Balaji enjoyed on Star has also ended. The company has forayed into new genres and broadcasters, but so far it has not been able to generate the traction it had in its early years, when it came out with several soaps one after the other. As such there is very little visibility on the earnings front for the company.

At the current price of Rs 74, the stock is trading at a multiple of 5.8 times its trailing 12 months earnings. We hold a negative view on the stock.

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