The management of Balaji Telefilms Ltd (BTL) has categorically denied any plans to launch a Hindi general entertainment channel (GEC), dismissing the media reports on the company’s GEC plans as pure speculation.
We opine that the launch of a Hindi GEC in the current cluttered and highly competitive scenario would have severe financial implications for the company and also affect its core business of television content.
Hence, we are inclined to believe that the reports of the launch of a GEC by the company are mere speculation.
BTL has launched a new show, “Kootukari”, on Surya TV in the prime time slot. Earlier “Kalyani”, another of its show on Surya TV, had gone off air in mid-July 2008. BTL will be offered additional slots on various channels of the Sun Network going forward that would help it increase the number of programmes under the sponsored segment.
Our interaction with the company’s management suggests that the maximum number of programmes that could be launched in the sponsored category can go up to eight against the current four shows.
However, despite an increase in the sponsored programming hours, the contribution of the sponsored content business to the company’s top line and bottom line shall remain relatively small.
We understand from the management that no further development has taken place on the proposed stake sale by STAR. The promoters of BTL had been given 240 days (ending April 2009) to buy out STAR’s 25.99% stake in the company at Rs190 per share.
Considering the quantum of the amount involved (Rs322 crore), we expect the promoters to rope in financial / strategic partners that might lead to an open offer. This would be a trigger for the stock going ahead.
Our outlook on the television content business of BTL remains positive, as the company is a scaleable player in a non-scaleable business. However, the near-term profitability of BTL would be affected by a drop in the realisations due to the end of the company’s exclusivity arrangement with STAR and the going off air of one of its popular shows.
At the current market price of Rs148.7, the stock trades at 7.5x FY10E earnings per share (EPS) of Rs19.9. We maintain our BUY recommendation on the stock with a price target of Rs268.