Balaji Telefilms - Turnaround expected; Maintain Buy - Centrum

We believe the financials of the company will turn around following big budget movie releases in Q2FY14, Rs1.12bn non-theatrical revenues that will accrue in the next three quarters and new programme launches with higher realisations. Strong movie slate for FY15 will help the company continue this momentum and hence we maintain Buy on the stock. Balaji Telefilms' Q1FY14 results were disappointing following lower programming hours and realisation for the television production business. Deferment of Rs150mn of satellite right revenues and Rs70mn in marketing & distribution expenses for forthcoming movies impacted the movies division.

Q1FY14 results disappoint: Lower programming hours (down 6.8% YoY and 8.9% QoQ) coupled with lower realizations (down 11% YoY and 21% QoQ) impacted standalone results which posted an operating loss of Rs13mn after four positive quarters. On a consolidated basis, the company posted 15% revenues above estimates with operating loss of Rs50mn on the back of Rs70mn in marketing & distribution expenses for forthcoming movies. High other income due to the maturing of Keyman insurance policy (Rs67mn) helped the company post PAT of Rs36mn.

Television production business to turn around: New programme launches on Star Plus, Life OK and Doordarshan over the next two quarters coupled with high realisation (Rs2.8mn/hour) from 'Jodha Akbar' on Zee TV will help the company turn around the television production business from Q2FY14. Closure of two big programmes in the quarter impacted profitability.

Deferment of revenues and high M&D impact movies business: Deferment of Rs150mn in revenues for satellite right sale of two movies coupled with Rs70mn cost for marketing & distribution of two forthcoming movies impacted the movies business in the quarter which posted an operating loss of Rs35mn. Non-theatrical rights of Rs1.12bn have been signed for four movies which will accrue over next 2/3 quarters, boosting profitability. We believe Q2FY14 will be the best quarter for the movies business as the company is expected to release big budget movies in the period.

Maintain Buy: Balaji Telefilms is currently trading at attractive valuations of 5.1x and 4.7x FY14E and FY15E EPS of Rs7.3 and Rs8 respectively. We maintain Buy rating on the stock with a target price of Rs60 (7.5x FY15E). Key risk to our assumption will be the failure of movies at the box office, high contingent liabilities and constant programme churn in the television production business.

Source : Equity Bulls

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