CMP = Rs 230 (as of Monday)
Price target: Rs 303
Key points
- The revenues of the company grew by 14.2% year on year (yoy) to Rs320.2 crore. The net profit increased by 33.4% yoy and substantially outperformed the top line growth. The operating profit margin (OPM) improved by 391 basis points to 37.3%.
- The revenue model of the TV content business is shifting more towards the high-margin commissioned programming segment. This shift is in keeping with the company's twin objectives of exiting the low-margin business of sponsored programming and focusing on developing content for its forthcoming regional language channels.
- The realisations in the commissioned segment improved by 25.5% yoy for the financial year, mirroring sustained popularity of its shows and closure of some low budget shows.
- In FY2007, BTL entered into a joint venture (JV; a 49% stake) with Star for launching regional general entertainment channels. Star brings to the JV its already running Tamil channel "Star Vijay". The JV plans to launch similar channels in Telugu, Kannada, Malayalam, Gujarati, Bengali and Marathi within a couple of years.
- I believe while the JV provides huge volume growth to its core content business, its stake in the JV promises big value creation over the medium to long term.
- After ruling the Indian small screen for years BTL has now ventured overseas to tap Asian markets with similar ethnic and cultural backgrounds. It has formed a subsidiary in Sharjah and already launched a show "Khwaish" there. It has also launched a show on Sirasa TV of Sri Lanka and also eyes the Indonesian market.
- In May 2007, it re-entered the Hindi film industry (Bollywood) with the release of its co-production "Shootout at Lokhandwala", which was a big hit. Encouraged by the success BTL is ramping up its film production and distribution business.
- I like Balaji Telefilms for the huge opportunities that are emerging in the TV content space and for its diversifying business model from content producer to a broadcaster. As against our sum-of-the-parts price target of Rs303 the stock is trading at Rs233 per share.
- I maintain Buy recommendation on the stock.
