The Hindu Business Line : Balaji Telefilms: Buy

An investment can be considered in the stock of television content provider Balaji Telefilms. The stock has been an under-performer in the recent mid-cap rally. The current market price is still about 30 per cent below its May-2006 levels. Valuations are now at attractive levels; the stock trades at less than 10 times its likely FY08 earnings, assuming a conservative 15 per cent growth in per-share earnings.

Balaji Telefilms continues to script success stories in the television family-soap space. Clearly, the Indian masses are not tired of following the twists and turns of Saas-Bahu dramas.

Balaji's serials occupy more than 40 of the top 100 slots in the TRP ratings on a consistent basis. Its content continues to be the driver of viewership for Star Plus. Balaji has successfully translated this strength into higher realisations for its programmes.

Realisation per hour from commissioned programmes, for which Balaji receives a fixed fee from the channel, increased by 15 per cent on a quarter-on-quarter basis and by 38 per cent on a year-on-year basis. The higher pricing has helped offset the impact of two programmes, K Street Pali Hill on Star and Kaisa Yeh Pyaar Hai on Sony, going off air during the quarter.

Operating margins are now closer to the 40 per cent levels once again. Commissioned programmes now account for more than 90 per cent of its revenues. As the company does not bear the risk of marketing its programmes to advertisers, the revenue mix lends stability to its operations, even as it enhances its margin profile.

Balaji Telefilms is likely to continue to enjoy this pricing power as a leading content provider. In the post-CAS (conditional access system) scenario, channels are likely to pay a premium for content to woo viewers. New entertainment-channel launches are on the horizon, which could provide an opportunity for more programmes from Balaji. It has begun to make an impact on channels other than Star, with its show Kasamh Se on Zee also topping the rating charts.

Failures of its planned film releases could, however, dampen earnings and is a risk to our recommendation.

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