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S. Vaidya Nathan

A still from Kyunki Saas Bhi Kabhi Bahu Thi on STAR Plus — Still heavily dependent on aging soaps.

SHAREHOLDERS in Balaji Telefilms can cut exposures in the stock, as the slippage in its key performance parameters such as revenues and earnings remains a cause for concern. The recommendation to sell represents a reiteration of the view expressed in Business Line's (August 10) when the stock traded at about Rs 75. The share now trades at Rs 71.

Earlier in 2003, Business Line had recommended a buy on the stock when it traded at Rs 52 and Rs 63. Balalji Telefilms is still in search of the next success story that can scale up revenues and earnings.

A steady decline in revenues on a quarter-to-quarter basis is a worrying trend as Balaji Telefilms remains India's premier television content company. Its serials still have a share of between 40 per cent and 45 per cent in the most-watched-50-and-100 programmes on entertainment channels. Over the past year-and-half, its share in the top 25 programmes declined as other content providers have found a place.

Balaji Telefilms still continues to rely heavily on two long-running soaps on STAR Plus — Kyunki Saas Bhi Kabhi Bahu Thi and Kahani Ghar Ghar Ki, both of which still dominate the rating charts. But they have reached a stage of saturation and may, at best, provide a stable source of revenue than be drivers of growth. If advertising interest wanes, rates commanded for these long-running shows may slip.

After a promising start and a good run for about a year, its other prime-time offering — Kasautii Zindagii Kay — is slipping. Balaji Telefilms' new serial on STAR Plus has so far not shown signs of becoming a revenue driver. STAR Plus has also been diversifying content sourcing for prime time. This could weaken the negotiating power of Balaji Telefilms, though it still dominates the channel's prime-time band. This may mean that Balaji Telefilms may not get the kind of spike in rates for commissioned programmes (one which are acquired and marketed by the broadcaster) as it did in the past.

No longer are commissioned programmes the prime revenue generators for Balaji Telefilms with their contribution dropping by 14 percentage points over the past year; they now account for 76 per cent of revenues. This trend is likely to continue with no big-ticket success, and the increasing choice available to broadcasters.

It will also require the company to step up skill-sets in marketing programmes to would-be advertisers, a new area for Balaji Telefilms. As sponsored programmes (marketed by the company to the advertisers) take an increasing share of revenue, profitability improvements will depend on the success in marketing as much of the available time as possible.

The sponsored programmes are mostly on channels that are not at the top of viewer preferences. The `Balaji Telefilms' tag may, for now, lure advertisers on the other channels they may be faced with mediocre programming alternatives. Rack rates are also likely to be lower than those on Sony and STAR Plus platforms. These aspects increase the challenges that Balaji Telefilms faces in ramping up revenue growth.

Encouragingly, Balaji Telefilms appears to have made a good beginning. Its operating profits from sponsored programmes has risen threefold in the latest, July-September, quarter. The profitability levels have also moved up to a healthy 52 per cent, lagging that of commissioned programmes by six percentage points. If the company sustains this pace, it may well be able to handle the emerging shift in its revenue profile better.

However, the room for expansion in the profitability of sponsored programmes may be limited. Revenue expansion is the key to earnings growth, and till Balaji Telefilms comes up with at least a couple of success scripts, it may better to track the stock for possible investment at a later date.

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