From THE HINDU group of publications
Sunday, April 29, 2001


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Balaji Telefilms: Buy

Recommendation: Buy

S. Vaidya Nathan

TURN on the television and switch to channels beaming Indian soaps, most, if not all, are likely to be a Balaji Telefilms offering.

A number of its `serials' are popular across various languages. All of these serials have names that begin with `K', a fetish of the company boss, Ms Ekta Kapoor.

Balaji Telefilms seems to be having a good run with its programming catching the audience imagination. For all this, however, the scrip's showing in the stock market has been quite dismal in recent times.

Flashy start, sloppy fall: It started off well though. After the initial public offer at Rs 130 per share in November 2000, everything seemed to be going well. A steady rise -- which in retrospect does raise concerns -- took the stock close to Rs 350.

Then, the Ketan Parekh-driven turmoil broke. And with it, the fortunes of the Balaji Telefilms' stock went down the tube. The stock lost 73 per cent to Rs 92 in a couple of months.

With the arrest of Mr Bharat Shah, film producer and financier, media stocks took a beating. There has always been some concern about the quality of money flowing into the media stocks in the secondary market and directly in the first instance as well.

The Ketan Parekh factor: Once Mr Ketan Parekh got into trouble, the media stocks really stumbled. As the one stock which had withstood the earlier phase of downtrend, Balaji Telefilms fell more sharply and more quickly than most others.

That the Ketan Parekh group held a stake in the company before the IPO, and that Triumph International (in which Mr Ketan Parekh has a controlling stake) was part of the co-book running lead managers were enough to drag the stock down. The possibility of sizeable chunks of shares being held within the group (which may have found their way into the market once the group faced payment problems) and the concentrated nature of ownership perhaps exaggerated the decline.

Much of the drop may well have already happened though there may be further downside if more shares from the Ketan Parekh stable come to the market. But despite all this turmoil, the Balaji Telefilms stock appears to have the underlying fundamentals to stage a comeback of sorts.

Top of the charts: The company's revenue stream for 2000-01 and 2001-2002 appears set to get a boost from the popularity of many of its serials and the attendant flow of advertisement revenues. Most serials have good ad support in terms of quantum as well as quality. In the last few months, one of the serials -- Kyunki Saas Bhi Kabhi Bahu Thi featured on STAR Plus -- has been at the top of the charts week after week.

This serial has seen some bizarre turn of events. The hero was killed (and as it now turns out did not die) and this led to a rating surge. In an even stranger turn of events, following audience resistance, the hero was resurrected. Not killed earlier but it pans that the hero had just slipped into coma and is now out of it. Dramatic as it sounds and as it is intended to be, the twists and turns have helped the serial maintain its popularity.

To some extent in the earlier months, the fact that the serial followed Kaun Banega Crorepati? also helped lift viewership levels initially. In later months, it managed to get out of the KBC shadow and, in fact, KBC is now under its shadow with its ratings being a third of what Kyunki Saas Bhi Kabhi Bahu Thi commands. But Balaji Telefilms is not a one programme show.

Diverse base: A clutch of other reasonably popular programmes such as Kahani Ghar Ghar Khi, Ghar Ek Mandir, and Koshish Ek Aasha in Hindi and a set of programmes in the southern languages give Balaji Telefilms a well-diversified revenue base. Its programmes are spread across a number of channels such as STAR Plus, Zee, Sony, and Sun Network -- another facet of diversification that could be important in a competitive scenario. Of course, there is always the possibility of some channel taking the stand `give the programmes to us, steer clear of our competitors'.

The channels are still battling for market share and none is really in a position to dictate terms on these lines. This should help keep the channel-diversification in place for some time to come. Given its track record, Balaji Telefilms is also on a strong footing on its own and could at this point in time dictate terms to channels as it has alternatives.

With its presence in Hindi, Tamil, Telugu and Kannada, the company has the flexibility to carry the same product across languages. It could also have successful scripts remade in other languages as it is doing with Kyunki Saas... in Tamil. This also gives its library of programmes the potential for re-runs.

Pulse of viewers: What is crucial from a medium-to-long-term perspective is the fact that the company seems to its finger on what the viewers want. This perception is not based on just the ratings enjoyed by its current set of programmes, but from a scrutiny of offerings over three-to-five years.

Of course, it is also easy to lose touch with what the viewers want. But the fact that the company has been able to tune into viewers preferences over a longer period and deliver the goods is a comforting factor in this context. The hands-on person is Ms Ekta Kapoor, and so far the going has been good. That the team is a young one is important from a long-term perspective.

Areas of concern: The quality of management and transparency are areas where there are bound to be concerns vis-a-vis media companies; their track record has reinforced this. Balaji Telefilms may be no exception to this unless it shows quality disclosures over the next few years to inspire confidence.

Till then, concerns over quality of disclosures and corporate actions may weigh on the valuation of the stock. It may also take the company time to live down the Ketan Parekh linkage. The more proximate concern may be the merger with Nine Network. With little known of the latter's finances and operations and with the merger set to take place when Nine Network is at a nascent stage, there is bound to be concern among Balaji Telefilms shareholders. So far nothing has been done to dispel these concerns.

That the merger was announced soon after the IPO does not exactly inspire confidence. The swap ratio is fixed at 65 shares of Balaji Telefilms for every 200 shares of Nine Network. But little else is known of Nine Network and what the merger would mean for the financials of Balaji Telefilms.

All that the company has said is that the recent turmoil and slip-up in its stock price would not lead to an abandonment of the merger idea. Depending on the transparency of the exercise, the valuation of the stock may change. If the exercise is still perceived as opaque, it could mean a permanent dent to the valuation. This is a big risk at this point in time.

Outlook: The company reported revenues of Rs 34.53 crore and earnings of Rs 6.46 crore for the nine-month period ending December 2000 (both are higher than what it managed in 1999-2000 full year). On the post-merger equity of Rs 12.90 crore, the share trades at a price earnings multiple of 16 times its earnings. Once the extraneous factors get removed over a period, the stock may get valued at a better PEM. In this backdrop, shareholders could stay invested. Investors with a penchant for high risk can consider the stock.

Pic.: Ms Ekta Kapoor...The success script-writer.

Related links:
Balaji Tele makes a strong debut
`Event programming is where the action is'

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