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Balaji Telefilms: Realisations up, hours down
Nov 1, 2007

Performance summary
  • Topline declines by 4% YoY in 2QFY08 due to decline in programming hours.
  • Realisations from commissioned programming surge by 47% YoY though the total programming hours decline by 34% YoY.

  • Operating profit margins expand from 36% to 42% on account of lower operating expenses.

  • PAT increases by 36% YoY for 2QFY08.

(Rs m) 2QFY07 2QFY08 Change 1HFY07 1HFY08 Change
Sales 815 779 -4.4% 1,551 1,525 -1.7%
Expenditure 525 449 -14.5% 1,000 899 -10.1%
Operating Profit 290 330 13.9% 550 625 13.6%
EBIDTA margin(%) 35.6% 42.4% 35.5% 41.0%
Other Income 23 64 181.5% 44 89 100.1%
Depreciation 28 31 11.6% 55 63 14.2%
Interest - - 0 - 0.0%
Profit Before Tax 285 364 27.5% 539 651 20.7%
Tax 92 101 9.5% 173 204 18.0%
Profit After Tax 193 263 36.2% 367 447 21.9%
Net Profit Margin(%) 23.7% 33.7% 23.7% 29.3%
No of shares (m) 65.2 65.2 65.2 65.2
Diluted Earnings per share* 13.5
P/E* 21.7
*On a trailing 12-month basis

What is the company’s business?
Balaji Telefilms is the leading entertainment software provider in India’s fast growing television market. It is promoted by veteran Indian actor Jeetendra Kapoor, his wife Sobha Kapoor, daughter Ekta Kapoor. Star Group is its prime customer and major shareholder (holding a 26% stake in the company). Balaji develops content for Star Plus, Sony TV, Zee TV, Sun TV, Gemini TV, Surya TV, and DD Chandana. Its popular serials include Kyunki Saas Bhi Kabhi Bahu Thi, Kahaani Ghar Ghar Kii. It has started producing and distributing Hindi films and has entered into a JV with Star TV for broadcasting. It also produces programmes for foreign channels through a wholly owned subsidiary.

What has driven performance in 2QFY08?
Decline in programming hours: The programming hours declined by 34% YoY on account of increasing popularity of other programming genres like reality and music shows. Commissioned programming which accounted for 60% of the total programming hours declined by 36% YoY, whereas sponsored programming witnessed a 32% YoY fall in the hours. Though the decline remains a cause of worry for the management, the entry of NDTV, UTV, INX Media in the Hindi general entertainment space would also help to increase the number of programming hours going forward.

Programming Mix: The topline declined by 4% mainly due to a 6% YoY decline in the commissioned revenues. The sponsored revenues has however increased by 16% YoY.

Commissioned Sponsored
Q2FY07 Q2FY08 Q2FY07 Q2FY08
% contribution to sales 93.9 92.6 6.1 7.4
% of total hours 61.1 60 38.9 40
Realisations per hour (Rs m) 2.6 3.8 0.26 0.45
Change in realisations 47.3% 71.0%

Increase in realisations: Commissioned programming accounted for 93% share of the total programming revenues. Realisations per hour from commissioned programming increased by 47% YoY to 3.8 m per hour. This was possible due to the sustenance in the high TRP ratings of the company’s serials. Balaji’s programmes accounted for 11 out of the top 25 programmes in the Hindi cable and satellite homes. (Source: Tam Ratings for the week ended September 29, 2007, MF 4+, C & S). The sponsored programming, which accounted for 7% of the programming revenues in 2QFY08, witnessed a 71% YoY growth in realisations. The bargaining power of the content providers has also increased due to the foray of NDTV, UTV, INX Media in the Hindi general entertainment space, which helped Balaji to increase its realizations per hour.

New businesses: Balaji has forayed into the new businesses of broadcasting, film production and distribution and foreign programming. Balaji’s JV with Star for launch of channels in southern regional languages is expected to be operational by end February 2008. However, Balaji’s broadcasting venture would take a lot of time to break even and it would also face intense competition from Sun TV. Balaji Motion Pictures, a wholly owned subsidiary of the company, released its distribution film projects “Darling” and “Bhool Bhulaiyaa” successfully. ‘Khwaish’ from Balaji Telefilms FZE, wholly owned subsidiary of the company, has got encouraging response from audiences of various countries.

Decline in operating expenses: The operating expenses declined by 14 % YoY led by the decline of 19% YoY in the cost of production and telecast fees. Production and telecast fees declined due to the decline in the number of programming hours. For 1HFY08, the margins expanded by 5.5% YoY.

Cost Break up
(Rs m) 2QFY07 2QFY08 Change 1HFY07 1HFY08 Change
Cost of production and telecast fees 434 350 -19.3% 809 697 -13.8%
% of sales 53.3% 45.0%   52.2% 45.7%  
Staff Cost 22 34 54.7% 43 65 49.2%
% of sales 2.7% 4.4%   2.8% 4.2%  
Other expenditure 70.77 69.92 -1.2% 124.96 144.56 15.7%
% of sales 8.7% 9.0%   8.1% 9.5%  

Bottomline view: The net profits were up 36% YoY for 2QFY08. Higher operating margins and a 119% YoY growth in other income led to the growth in bottomline. Further the tax rate also declined from 32% in 2QFY07 to 28% in the current quarter.

What to expect?
At the current price of Rs 292, the stock is trading at 21.7 times its trailing 12-month earnings. With the entry into new businesses of Hindi movie production, broadcasting and foreign programming we expect the topline performance to do well going forward. We also expect the realisations per hour in the Hindi programming business to continue witnessing growth due to the sustenance in the high TRP ratings and entry of new channels. However, the company’s inability to successfully produce other genres of programmes such as reality shows, comedies remains a major area of concern. Further, any further decline in the share of mass entertainment programming (Balaji’s core competence) in terms of revenues or a decline in Balaji’s serials TRPs would adversely affect Balaji’s performance. Though the growth potential looks good, the business model continues to remain risky and unpredictable.

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