Recommendation: Buy
CMP = Rs 231 (as of Monday)
Price target: Rs 303
Key points
- Content in demand: The Indian general entertainment space is witnessing a lot of action. Supported by the rise in ad spending and the changing landscape for subscription revenues, broadcasting has become an attractive business and resulted in a flurry of announcements of new channel launches.
- While this creates tremendous growth opportunities for content providers, the rising competition for quality content also augurs well for their realisation growth.
- Excellent track record: Balaji Telefilms Ltd (BTL) has revolutionised the Indian small screen with its family dramas. Over several years its "Saas Bahu" soaps have been the mainstay of Star Plus and have consistently hit the top slots on the rating charts.
- About eight of the most watched Top 10 shows in the C&S households are produced by BTL. BTL produced an unmatched volume of 1,820 hours of content (in FY2007) in Hindi and all major south Indian languages, and the quality of the content is no doubt the most admirable factor.
- But what differentiates BTL from competition are its creative force and infrastructure which make scaleability appear a lesser issue when compared to the others.
- Broadcasting JV—a key value creator: BTL has entered into a JV with Star to launch regional GECs. While Star brings to the JV its already running Tamil channel Star Vijay, the JV within a couple of years plans to launch similar channels in Telugu, Kannada, Malayalam, Bengali, Marathi and Gujarati.
- I believe the JV has the potential to drive the volume growth of BTL's core content business. The stake in the JV promises to be big value creator going forward.
- Attractive valuation: At the current market price of Rs 231 the stock quotes at 12.6x its FY2009E EPS of Rs 18.3. I believe the valuations are attractive considering the overtly bullish scenario for BTL and the new steps it has taken into broadcasting.
- I recommend a Buy on the stock with a price target of Rs 303.
