HDFC Sec - Balaji Telefilms

HDFC Securities report on Balaji Telefilms:

Balaji Telefilms, BTL is India’s largest TV content producer. It clocked ~1800 programming hours during FY07. It has a presence on all major General Entertainment Channels (GEC) in the country and offers content in Hindi, Tamil, Kannada, Malayalam, and Telugu. With strong quality content, BTL is the best play in the domestic content production story.

BTL formed a 51:49 JV with Star TV in FY07. This JV will launch regional GEC channels in south Indian markets of TN, Karnataka, AP and Kerala. We expect ~1150 programming hours from this JV during FY09E, resulting in revenues of Rs 196 million for BTL.

We expect BTL to post a CAGR of 20% in revenues between FY07-09E and 19% in earnings. With the company reducing its exposure in sponsored programming (low margin), its JV with Star TV for regional programs and venture into international markets such as the Middle East, Sri Lanka and Indonesia, makes us believe the prospects of BTL are positive. At the CMP of Rs 223, the stock trades at a PER of 15x and 13x our FY08E and FY09E EPS estimates of Rs 15.26 and Rs.17.18. We have a price target of Rs 275. At our target price, the stock would trade at a PER of 16x our FY09E estimates. We initiate coverage with a “BUY” rating.