From THE HINDU group of publications
Sunday, July 08, 2001


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Balaji Telefilms: Pare down exposures

Suresh Krishnamurthy

Recommendation: Investors in Balaji Telefilms can consider paring down their exposures in the stock.

If an investment in Balaji Telefilms has to pay off decent returns, then highly optimistic assumptions have to materialize. This makes the stock more vulnerable to any earnings shock an year or two down the line, when the industry fundamentals is likely to have changed.

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In short, the risk involved in an investment at the ruling market price is high.

In addition, at the prevailing market price of Rs 197, the stock appears fully valued on a relative basis. In the backdrop of a falling market, the exposure of an investor to Balaji Telefilms is only likely to have increased significantly. In order to mitigate the risk to a portfolio, it may be appropriate to reduce the exposure to this stock.

The recommendation to pare down exposure rests on the assumption that there are no news developments in the offing. It should be noted that there has been a robust increase in trading volumes since June 19.

If such developments materialize then there would be a need to evaluate afresh the investment decision. Otherwise, any continued rise in share price can be utilized to pare down exposures.

Suitability: The recommendation to reduce exposures is generally suitable for an investor with a moderate risk profile. The extent of reduction is also a decision that has to be consistent with the risk preference of the investor. The stock of Balaji Telefilms has to be considered as a high-risk, high-return investment proposition.

Background: Balaji Telefilms is a television software producer that is now dominating the scenario in the industry. In most of the major satellite broadcasting platforms in India and in DD metro, software produced by Balaji Telefilms is now attracting the highest television audience ratings.

This has put Balaji Telefilms in a unique position in the industry where success only breeds more success. In other words, successful programmes of Balaji have helped it garner a higher market share, which in turn is helping the company garner even higher market share.

The significant success of Balaji Telefilms is reflected in the financial performance of the company. In the year ended March 2001, revenues increased 143 per cent to Rs 48.88 crore -- an indication of the zooming market share of the company. At the profits level, a change in accounting convention reduced profit growth to a measly 1.6 per cent. If not for this change, the growth in profits would have been around 125 per cent.

The stock now offers a dividend yield of 0.75 per cent and has a price to earnings multiple of 47 times the earnings for the year ended March 2001.

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