Mumbai: Broking house, Merrill Lynch is bullish on Balaji Telefilms and has maintained buy rating on the stock.
The Merrill Lynch report on Balaji Telefilms:
Strong performance of commissioned programming segment drives profitability
Balaji Telefilms registered revenues of Rs 735 million, +16 per cent YoY (MLe Rs 773 million) in 1QFY07.
This was primarily attributable to higher realizations (up 22 per cent YoY) combined with increase in content for the commissioned programming segment.
Operating profits at Rs 260 million (+ 26 per cent) were in line with our expectations.
Higher other income on the back of Rs 1.85 billion of surplus cash resulted in 39 per cent YoY growth in net profits to Rs 174 million (MLe Rs 162 million).
1QFY07 reinforces our argument that Balaji is set to reap the rewards of investments made in programming during FY05 and that the stock would transition to become a defensive growth stock v/s value earlier. Maintain Buy.
Revenue up 16 per cent YoY
Operating income was up 16 per cent YoY driven by 41.5 per cent growth in revenues from commissioned programming (91 per cent of revenue) on the back of increase in realisations (+22 per cent) and programming content (+15.7 per cent).
However, sponsored programming (9 per cent of revenue) reported 24 per cent decline in revenues due to lower content and realisation.
EBITDA up 26 per cent YoY; Net profits up 39 per cent YoY
Operating margins improved substantially to 35.4 per cent in 1QFY07 (vs 32.6 per cent in 1QFY06) given the growth in revenues was driven by better overall realisations.
Other income at Rs 21 million was up 81 per cent YoY as the company is currently sitting on a huge cash chest of Rs 1.85 billion. Net profits at Rs 174 million were up 39 per cent YoY.
Outlook remains positive
Balaji continues to dominate the Hindi C&S space with about 60 per cent viewership market share in the Top 50 programmes (TAM Ratings: MF4+, C&S).
These sustained ratings qualify Balaji for a reasonable rate hike going forward. Further, the company has plans to augment its sponsored program offerings and also venture into some programming for the international markets.
Maintain Buy with PO of Rs 145 (+38 per cent potential)
We maintain our Buy rating on Balaji based on defensive earnings growth (15 per cent over FY06-08E), reasonable valuations (8.3x FY08E EPS, 5.4x EV/EBITDA) & attractive yield (4.8 per cent).
Our PO of Rs 145 (38 per cent upside), is based on 12x estimated 1-year forward earnings, premium to its current valuations, which we think is justified by improving visibility of growth. Risk to PO: To maintain creativity & ratings of serials on Star Plus (show rates are now linked to ratings) & retain talent.
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