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Balaji Telefilms Ltd: Research meet extracts - Views on News from Equitymaster
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Balaji Telefilms Ltd: Research meet extracts
Dec 26, 2007

We recently met Mr R. Karthik, the CEO of Balaji Telefilms, to get an overview of the company’s current operations and its growth plans in its various businesses. Company overview: Balaji Telefilms is the number one entertainment software provider in India’s fast growing television market. Recently, it has also forayed into the film production and distribution business and into regional broadcasting in a JV with Star India.

Programming business: Balaji produces content for the Hindi general entertainment channels and also for South Indian channels. Currently, Balaji produces 20 out of the top 50 shows in the Hindi cable and satellite television. The entry of new players like INX, NDTV, UTV and Viacom-18 in the Hindi GEC space is helping Balaji to increase its programming hours and also its realisations per hour. Balaji is producing two shows for 9X (INX’s GEC) and may also produce shows for the other new broadcasters. Balaji has also ventured into production of reality shows

In the case of sponsored programming, Balaji would no longer be producing shows for Sun TV network as it has forayed into broadcasting in a JV with Star India. It would produce shows for the channels, which would be a part of the Star Balaji JV. One channel Star Vijay (Tamil) is already on air. Channels in the other languages of Telugu, Kannada and Malayalam are also planned. Balaji would be producing a minimum of 4 shows per channel, translating into 10 hours of programming per channel per week.

Balaji expects to produce 1500 hrs of programming overall in FY08. It expects the realisations per hour to remain stable at these levels. It does not foresee any cost pressures and is confident of maintaining its margins at current levels.

Contract with Star: Star India holds a 26% stake in the company and is also its major customer. For its programming business, Balaji has a contract with Star whereby it has the first right of refusal over any content produced by Balaji. Besides this, there is also a no compete clause wherein Balaji cannot air its content on another channel in the same time slot when its content is being aired on Star. This contract applies only to those time slots wherein Balaji is getting premium realisations from Star. This contract has an annual escalation clause and is valid till June 2008.

Broadcasting business: It has ventured into regional broadcasting in a JV with Star. Under this JV, one channel Star Vijay (Tamil) is already on air since the last six years. This channel has turned profitable in the last two years. Telegu channel is expected to be launched by Q4FY08. In the next two years, Kannada and Malayalam channels would also be launched. Balaji expects to achieve breakeven in all these channels within 18 to 24 months from the date of launch.

Film production and distribution business: Balaji has formed a 100% subsidiary Balaji Motion Pictures Pvt Ltd for production and distribution of Hindi feature films. Ramesh Sippy, a distributor with 37 years of experience has been appointed as the CEO of this subsidiary. This year, the company has met with huge success in this business. Its co production ‘Shootout at Lokhandwala’ was a hit at the box office. Its distribution property ‘Bhool Bhulaiya’ was also a big hit.

Enthused by this success, Balaji plans to ramp up its films business in a big way. It plans to undertake 3 home productions, 5-6 co productions, 3-4 distribution ventures in a year. For co- production, it has tied up with ‘T-Series’ for 7 films and with ‘Popcorn Entertainment’ (Hindi film actor Suniel Shetty’s company) for 4 films. In the case of home production and co production, Balaji would be undertaking domestic as well as overseas distribution itself. Film production and distribution is a very risky and an unpredictable business. However, the Hindi film industry is becoming more organized with reputed producers being able to procure funds from financial institutions. Besides this, now day’s films are able to garner high revenues from the sale of TV rights, music rights and overseas distribution rights. Domestic theatrical rights also fetch higher amounts due to the advent of multiplexes in even smaller Indian cities. Some reputed producers are able to make a risk less profit even before the release of a movie. Balaji has invested Rs 300 m in this business. It expects to generate revenues of Rs 500 m and a net profit of Rs 200 m in FY08 in the movies business. In FY09, it expects to generate revenues of Rs 1 bn in this business. In order to fund its growth plans in the movie business, it may dilute some stake to private equity players.

Capex: Balaji would be incurring capex of Rs 450-500 m on its studios for its programming business and a capex of Rs 600 m for its broadcasting venture. It presently has cash and investments aggregating to Rs 2.1 bn and does not have any debt.

What to expect? We would be coming out with a detailed research report on the company shortly. Balaji, Zee, Media

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