Balaji Stock Downgraded After First Ever Quarterly Loss; Realizations, Commissioned Hours Drop

 Balaji Telefilms Ltd, the Mumbai-based producer of television software, posted its first quarterly loss yesterday. The company swung from a net profit of Rs23.85 crore for Q408 to a net loss of Rs14.62 crore for the corresponding quarter this fiscal. Consolidated net profit dropped 99.14% from Rs95.59 crore, to Rs47 lakhs. Net sales for the quarter ended 31 March dropped 48.8% y-o-y to Rs49.41 crore. Brokerage Angel Broking downgraded the stock to 'Reduce' with a target price of Rs35. On the Bombay Stock Exchange, the Balaji scrip dropped 5.36% to close at Rs41.5.  Excerpts from the Angel Broking's latest report on the stock: Commissioned hours of programming have reduced by 51% y-o-y during the quarter under review to 42.3 hours, owing to the decommissioning of three shows by Star Plus and one by Zee TV. "Moreover, Other Expenditure increased by a whopping 200% yoy to Rs23cr (Rs7.7cr) largely on account of significant jump in provision for doubtful debts (dues from INX Media) to Rs15.7cr, legal charges against Star and partly due to diminution in long term investments further adding to the woes." Film division: Balaji Motion Pictures Ltd, a wholly owned subsidiary of the company, posted a net loss of Rs23.3 crore on revenues of Rs42.6 crore. "Profitability of this division was partially hit due to Rs8.85cr write-off which the company took on account of advances made for Movie Projects which it doesn't expect to pursue further (due to financial non-viability of the projects)." Organizational Restructuring: Under Group CEO Puneet Kinra, the company has appointed three new divisional CEOs. Nachiket Pantvaidya for television, Uday Sodhi for new media and Ajit Thakur for movies. Pantvaidya was general manager, south asia, BBC Worldwide, before joining Balaji, while Sodhi was senior vice-president, interactive services, at Rediff.com (NSDQ: REDF) and Thakur was COO at UTV Television.  Bottomline: "We believe BTL is going through extremely tough times owing to its ongoing tussle with Star, lack of demand for its content and falling realisations ... Going ahead, we expect BTL's financial performance to remain under pressure owing to low visibility of its programming slate (3 out of 5 commissioned shows on-air were launched in 4QFY2009) and dipping realisations," analyst Anand Shah wrote. "Given significantly poor 4QFY2009 results, limited show pipeline, sharp losses in Movie business and lack of demand for its content, we downgrade the stock from Accumulate to Reduce with a Target Price of Rs35 (Rs52) based on cash on books of Rs216cr (likely to act as downside cushion). Moreover, exodus of Top level Management, ongoing tussle with Star and lack of clarity over dues from INX Media is likely to weigh heavily on the stock." Balaji management could not immediately be reached for comment. Flash Back: Balaji seems to have been hit hard by the end of a long and beneficial relationship with Star India Pvt Ltd, India's biggest private broadcaster. For years, Balaji soaps on Star, such as Kyunki Saas Bhi Kabhi Bahu Thi and Kahaani Ghar Ghar Ki topped ratings and defined what worked in terms of television content. Balaji produced shows for Star under an exclusivity agreement—Star would pay a premium for Balaji shows, but the content shop could not produce shows for rival channels that would run on the same time slot as Star. While the premium was never disclosed, the extent of the drop in average realisations post the decommissioning of Star shows gives some idea of the higher rates Balaji attracted. The relationship grew stronger when Star picked up a 25% stake in Balaji and the two companies formed a joint venture to launch entertainment channels in regional languages. Curiously, there was a sudden deterioration of their relationship in early 2008 and in August that year, the two companies agreed to part ways, ending with it the exclusivity agreement and the premium Star paid. Balaji agreed to buy back the stake owned by Star and the regional language GEC was wound up. Star later dropped three Balaji shows from its programming line up. The breakdown in relationship coincided with the entry of a number of new, well-funded entertainment channels, such as 9X and NDTV Imagine, both headed by former Star India CEOs (Peter Mukerjea and Sameer Nair) who enjoyed good working relationship with Balaji and wanted its shows for their new channels. 9X has since seen tough times and Balaji has now had to make higher provisions for "doubtful debts" from that channel's broadcaster INX Media.  From our Sponsors: Lotame Locate, Target, and Message your customer using Social Data What happens when events in Social Media threaten your brand, like Dominos Pizza? Read the real world case study that tells you exactly what to do and what not to do, if your brand comes under attack. This FREE case study from Lotame is a must read for every CEO, CMO and Brand Manager, EVEN if you don’t use Social Media today. Click here to download the case study.