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Balaji Telefilms: A rear mirror gaze - II - Views on News from Equitymaster

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Balaji Telefilms: A rear mirror gaze - II

Nov 29, 2007

Balaji Telefilms is entering an exciting phase of growth with the demand for content rising and the company foraying into the new businesses of broadcasting and film production. The scrip is touching new highs on the bourses. We have started a series of annual reports analysis of Balaji Telefilms to gauge what makes this company unique in terms of its ability to consistently produce high quality content and scale up its operations in an industry known for its difficulty to do the same. In an earlier article, we had analysed the FY04 annual report of the company. In this article we shall analyse the FY05 annual report. Management discussion and analysis:

  • This section in the report discusses the growth potential of the Indian entertainment and media industry and the television sub segment of the industry in general. The decline in the prices of television sets and an increase in the disposable income of people is leading to an increase in the penetration of television.
  • The ARPU for cable and satellite television in India at Rs 150 is very low compared to developed and even developing countries and it has actually declined in real terms. That said, ARPUs should increase going forward.

  • In the year FY05 the company made a foray into the films business with its movie 'Kya Kool Hain Hum' which was a commercial success. Balaji has forayed into the films business in order to derisk its revenues and leverage on its existing infrastructure and insight of content and story telling. Balaji plans to make 2-3 low budget films targeted at a niche audience every year. It also started producing non-fictional content. It plans to enter the areas of animation; ad films and reality TV shows.

  • Balaji's programmes accounted for 79% of the aggregate TRP of the weekday prime time shows featuring in the top 100 Hindi cable and satellite shows.

  • Balaji's serials help the customer channel to increase its profits. This can be borne by the fact that Balaji's programmes accounted for 60% of the prime time programmes on Star Plus. The advertisement rates on prime time are the highest, which helped in increasing Star Plus's revenues.

  • Balaji's core competence is in mass entertainment and it has not started producing reality shows. Reality TV has become very popular in the US and the same has started gaining popularity in India. This could adversely affect the revenues and profits of Balaji Telefilms.

Financial highlights:

  • The programming hours increased 16% to 1,720 due to the introduction of new shows on MTV and Zoom TV leading to the 10% YoY growth in operating revenues. However, realizations per hour declined by 5%. Operating margins declined from 48% in FY04 to 34%. PAT decreased by 25% YoY.

  • The cost of producing serials as a percentage of programming revenues increased from 42% in FY04 to 54% in FY05. This increase happened primarily due to the increase in artist's fees and directors and technicians fees.

Cost breakup
(Rs m) FY04 FY05 Change
Cost of producing serials 746 1,064 42.7%
% of programming revenues 41.8% 54.1%  
Payment and provisions for artists etc 181 305 68.8%
% of programming revenues 10.1% 15.5%  
Payment to directors, technicians etc 228 386 69.1%
% of programming revenues 12.8% 19.6%  

The company's programmes are either of the commissioned or sponsored variety. Contribution of sponsored programmes to total programming revenues declined from 19% in the previous year to 16% in FY05.

Programming mix…
FY04 FY05
Sponsored hours 667 789
% of total hours 45% 46%
% of total programming revenues 19% 16%
Commissioned hours 819 931
% of total hours 55% 54%
% of total programming revenues 81% 84%
Total hours 1,486 1720

Balance sheet analysis:

  • During the year the company made a preferential allotment of shares aggregating to 21% paid up share capital of the company at a premium of Rs 88 to Asian Broadcasting FZ LLC, a Star group affiliate. Star Plus is the company's major customer and this would bring more stability to the company's earnings.
  • Balaji invested Rs 107 m in production as well as postproduction equipment and art studios leading to an increase in fixed assets.

  • The debtors increased 27% YoY to Rs 535 m leading to an increase in debtor days from 83 days to 99 days.

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