Balaji Telefilms - Turnaround in core business - Centrum

Balaji Telefilms posted better than expected Q1FY13 results with a turnaround in core TV production business after 12 quarters. Steady commissioned programming hours along with healthy realisations gave fillip to revenues. Selling of non-core business and cost rationalisation helped the turnaround of the company. Going forward we expect the movie business to start contributing substantially which would help in increasing profitability. We upgrade the stock to BUY.

- Q1FY13 results better than expectations: Sales for the company was at Rs378mn on the back of Rs60mn incremental revenue from GIFTC events during the quarter. Operating profit was at Rs26mn after 12 quarters of losses due to the reduction in cost as the company sold loss making businesses. PAT was down by 55%YoY as the company had low other come. On a consolidated basis PAT was at Rs13.8mn on the back of losses in the movie business.

- Realisations and programming hours to improve: During the quarter the company had 132 hours of commissioned programming which was up from 102hours YoY and 114 hours QoQ. The company currently has 5 programmes on air and is expected to add one more from Q3 on Zee TV. Realisations for commissioned programming increased to 1.97mn/hour from Rs1.85mn/hour in Q1FY12. We expect these levels to sustain as the company is focussing on profitability. Sponsored programming hours grew by 22%YoY to 129 hours, but realisation declined by 51% to Rs0.19mn/hour with the company posting operating loss in this division. We believe the company could close this division in the next few quarters if it does not turn operating positive by Dec 2012.

- Movies to overtake television production business: Balaji Telefilms through its 100% subsidiary Balaji Motion Pictures is expected to overtake the core television production business not only in revenues but also in profitability in FY14E. In FY13 the company is expected to release 2 Hindi movies at a total cost of ~Rs700mn while in FY14E the 4 movies expected to be released would have COP of ~1.4bn. The company is expecting minimum 15-20% returns on this portfolio as it tends to de-risk its strategy by pre-selling the distribution and satellite rights. We have modeled revenues of Rs850mn and Rs1.75bn with PAT at Rs96mn and Rs240mn for FY13E/FY14E respectively.

- Margins to expand going forward: The company posted operating margins of 6.8% as it cut is expenditure on the back of selling loss making non-core businesses as well as increase in revenue. We believe with this revenue the company would have 7-9% operating margins in the standalone business while the movies business would have operating margins of 15-17%.

- Upgrade to BUY: The stock is currently trading at 11.3x and 7x FY13E and FY14E respectively. We believe the turnaround in the television production business and strong traction in the movie business would give fillip to the stock. We upgrade the stock to BUY with a target price of Rs48.

Source : Equity Bulls

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