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Balaji Telefilms: A rear mirror gaze - I - Views on News from Equitymaster
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  • Nov 22, 2007

    Balaji Telefilms: A rear mirror gaze - I

    Balaji Telefilms, one of India's leading content providers has had a dream run on the bourses recently. However, this is not without reason. With broadcasters making a beeline for launching new channels, especially in the general entertainment space, demand for content providers with a proven track record is on the rise. Balaji, by virtue of being the leading content provider in the industry is expected to derive the maximum benefit out of the current opportunity. Hence, we thought that it would not be a bad time to glance through the past annual reports of the company and check out for ourselves as to what makes the company such a force to reckon with in the content space. Thus, laid out below are the key takeaways from the company's FY04 annual report.

    Management discussion and analysis

    • This section in the report has a top-down analysis of the Indian entertainment industry and pegs the size of the Indian television content segment at Rs 25 bn, 20% of the total TV industry revenues and out of which Rs 5 bn is derived from international syndication (international content beamed on local channels).

    • Balaji's share as a percentage of total advertisement revenue of the mass entertainment segment declined from 57% in FY02 to 47% in FY03, primarily due to the cricket world cup, a one-off phenomenon that is expected to correct itself in FY05.The company was however insulated by the direct impact due to 82% of its content being commissioned (a fixed payment contract with TRP linked incentives) by the customer channels.

    • Fierce competition among channels expected to enhance Balaji's bargaining capacity, leading to stronger realisations.

    • Proportion of revenues from regional programming was 18% of sales, up from 14% in FY03

    • The company expects to enter children's programming, interactive shows, nature programming and youth programmes to diversify across genres

    • The company also expects to exploit its software library of more than 3,700 hrs through increased re-runs and sales in international markets with a significant Indian diaspora.

    • Also plans to make a foray into the film production business through the production of small budget films and leverage its already expensed production infrastructure and a resident insight into storytelling and production values, leading to low costs

    • The company believes CAS to be a key driver of its topline and bottomline growth as it will enable it to command a higher premium than prevailing benchmarks and exploit its existing software library more profitably

    Financial Highlights:

    • The operating revenues declined 4% due to the decline in programming hours and the postponement of CAS. The operating margin declined marginally from 50.7% to 48.7% due to the increased contribution of sponsored programmes, which have a lower operating margin than commissioned programmes. PAT declined by 5% YoY.

    • The programming hours declined from 1,681 in FY03 to 1,485 in FY04 due to the withdrawal of a serial from Sony Entertainment Television in May 2003.

    • Balaji's programmes are either of the sponsored or commissioned variety. The number of programming hours as well as the revenue contribution from sponsored programming increased from 14% to 19% in FY04.

      Programming mix…
        FY03 FY04
      Sponsored (hrs) 614 667
      % of total hours 36% 45%
      % of total programming revenues 14% 19%
      Commissioned (hrs) 1,068 819
      % of total hours 64% 55%
      % of total programming revenues 86% 81%
      Total hours 1,681 1,486

    • In FY04 the proportion of revenues from regional programming was 18 % of sales, up from 14 % in FY03. The increase was on account of increased Kannada and Telugu programming. The company derived 82% of its revenues from Hindi programming. Besides this it had only a few customers namely Star Plus, Zee, Sony. Thus any increase in the share of regional entertainment in overall revenues or poor performance of the company's key customers would hurt the company adversely.

      Language mix…
      Revenues (Rs m) FY03 FY04
      Hindi 1,601 1,462
      % of total revenues 86% 82%
      Telugu 128 205
      % of total revenues 7% 12%
      Kannada 130 112
      % of total revenues 7% 6%
      Total revenues 1,859 1,779

    • Average realisations per hour increased 9% from 1.1 m to 1.2 m. The realisations per hour in case of commissioned programmes increased 18% from 1.5 m to 1.8 m. The high TRP's of the company's programmes helped in increasing the realisations per hour.

    A look at the balance sheet

    • Balaji made an investment of Rs 90 m in production and post production equipment and studios. This helped the company in increasing its efficiency and reducing its operating costs.

    • The company does not have any debt and the surplus funds are invested in debt mutual funds.

    • The return on capital employed declined from 49% in FY03 to 35% in FY04 due to the increase in capital employed and a marginal decline in profits. The investments of the company increased from 487 m to 760 m as the profits generated after meeting the working capital and capex requirements and paying dividends are invested in debt mutual funds.



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