Balaji Telefilms

 

Reliance Big's Interest In Balaji Telefilms Stake Augurs Well For Both Players

 

MEDIA and entertainment company Balaji Telefilms has so far failed to offer returns to investors over a one-year horizon. However, media reports that suggest Reliance Big Entertainment has evinced interest in buying a significant stake in the company may offer some solace for investors.

   In the past three years, Balaji Telefilms has emerged as one of the better-placed companies in the media and entertainment industry. Besides having domination in terms of high TRP TV serials across various channels, the company has diversified into movie production. As much as 80% of the company's revenues come from commissioned programming — an arrangement under which channels approach the company for content on a mutually agreed fee, which can be increased on the basis of success of the content.

   This arrangement is lucrative for the company, as the marketing expenses involved in promoting a serial are taken care of when a channel approaches it. Also, the company's production business has also done well. In the past four years, the company's consolidated revenue from film production has increased from Rs 2.75 crore in to Rs 42 crore in FY09.

   According to media reports, entertainment major Reliance Big Entertainment has evinced interest in buying Star India's stake — around 26% — in Balaji. Balaji's unique business model offers Reliance Big an easy access to the lucrative segment of commissioned programming. The development may provide some support to the stock.

   In the past four years, Balaji's market capitalisation has fallen from a peak of Rs 1,280 crore at the end of March '08 to the current value of Rs 315 crore. The company's stock has lost over 24% since last June. Entering at this price point would be lucrative for Reliance Big Entertainment.

   Big and established players in the media sector have resorted to consolidation — either in terms of acquisition or stake sale. Consolidation offers better opportunities, as it improves bargaining power on advertising rates and entails optimum utilisation of resources by either company. Given this, the reports of Reliance Big's interest in buying the stake of Star India in Balaji Telefilms, is expected to benefit both players.