The promoters of Balaji Telefilms Limied (BTL) have agreed to terminate the agreement in relation to the 25.99% equity stake held by Asian Broadcasting FZ LLC (Star) in the company.
This implies that the promoter group is now entitled to purchase, themselves and / or through third, parties nominated by them, the entire shareholding held by ABF in BTL.
Star had earlier bought a 21% stake in the company at Rs90 per share on 18 August, 2004. The promoter group can make this purchase at a price of Rs190 per share within a period of 240 days, failing which, Star will be entitled to sell its stake to other entities excluding competitors of BTL.
In the recent past, Star’s association restricted flexibility for BTL in terms of feeding other prime time slots.
Existing programs are witnessing waning popularity. New program slate may take a couple of quarters to get reflected in the revenues. In the meantime, potentially lower realizations from Star (due to the disassociation) may impact revenues and profitability. These headwinds may lead to flattish core profit growth in FY09E.
However, higher volumes given due to greater flexibility and the recent and proposed GEC launches remain sources of opportunity.
The current valuations look reasonable given challenging outlook for core content business for FY09E. Addition to content volumes (expected H2FY09) will lead to greater future earnings visibility and share price performance.
The stock is likely to remain range-bound till greater visibility on FY10E earnings - possible through new show additions and a revival in product slate popularity (for content).
BTL’s intent to scale up volumes profitably and reasonable management keep us sanguine on future business prospects. The Rs35 per share cash on the balance - sheet is an added advantage. We maintain a BUY with a marginally revised price target of Rs220 (Rs225 earlier).