Balaji Telefilms Limited - Cash Bargain

Stock Opportunities
1

I was looking at theBalance Sheet of Balaji Telefilms including its Q3 Reports (mainly because it was the first listed company I audited the company and have a personal inclination towards it).

What I saw surprised me :

Cash as on 31st March 2011 : 4 crores

Mf Investments (quoted investments) as on 31st March 11: 170 crores

The company also sold its Mira Bhayandar Land for consideration of 51 crores and its internet venture for 4 crores (source Dec 2011 â Published results of the company)

The companyâs operation was in losses till last year, but they have turned back into green this year. So I can safely assume that they havenât lost cash in this year

So if I calculate everything I get 229 crores( 4+170+51+4) as against some 6.5 crores outstanding shares.

That is Rs. 35/share straight away.

Other Issues worth noting:

1). They are Debt Free

2). Company has a subsidiary called Balaji Motion Pictures Limited which has successfully produced â The Dirty Picture, Shor in the City and Ragini MMS this year. The results are not consolidated quarterly, but are done so at the year end. So the profits of this subsidiary are still to accrue. Since I know their Business Model, I am sure they would have had a table profit even before the movie went on to release (in form of Music rights, TV rights, Distribution Rights ,Minimum Guaranteeâs etc). Plus the additional income from share in revenues of select multiplexes. (PVR amongst others operates on a sharing basis)

3). The company has successful shows going on air right now (Bade Acche Lagte Hai, Kya hua tera wada, etc)

4). Promoters have increased their shareholding by almost a percent over the last 3 months

5). I am still to value others assets of the company.

I think it is a cash bargain. You get the entire company at less than 4/share based on todayâs CMP.

Please punch holes in my thesis.

2

Hi Ashwini,

Yes, with the success of Dirty Picture, the stock does add lot of value now but I’m a bit concerned about the contingent liabilities worth over 200 Cr (service tax, sales tax etc)

3

Ayush,

I value your comment. I had seen the Contingent Liabilities. With respect to Service Tax, they have already won at one forum (the Service Tax dept has gone for an appeal , which has been pending since 2 years now).

Sales Tax is a concern. What however gives me comfort is that their Tax representative is Snehal Shah who is a renowned name in the Tax planning for Film Industry.

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4

a) A land parcel in Mumbai is like a family jewel. Why would Balaji sell it? Wouldn’t taking debt be cheaper?

b) Land parcel sold, money has come. Great. What has been the history of capital allocation and return ratios for Balaji?

Just the Dirty Picture is not the whole picture. If you read through their annual report and quarterly statements, there has been a reduction in the number of shows per week. Except for 2 shows, none of its shows are in prime time.

c) And as Ayush points out, the Sales tax is a concern and will be a overhang on the stock. Too big an amount.

Cigar butt? Maybe.

Rising tide lifting this boat too? Maybe.

Better investments out there? Certainly.

Would I invest in this? Nope.

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5

The land mentioned is not in Mumbai but outside the city limits of Mumbai at Mira Road. Real estate agents maintain that there is a state of art studio coming up there. So its really surprising that they have sold the land unless they are in need of money.

6

there was a dispute about transfer of conveyance :

http://articles.timesofindia.indiatimes.com/2009-08-20/mumbai/28188459_1_police-station-mira-road-hazare

7

Shaadi Ke side Effects releasing with two leading stars Vidya Balan and Farhan Akhtar … it could be good trading bet

8

Triggers:
Post dated content
Huge serials library
Great promoter
Entertainment and TV boom
Annuity from Netflix and Hotstar type businesses in future
Others buying their content for rights
Youth getting into Serials mode in Rural areas with Digitalization of TV.

9

Atyant Capital
RK Damani
Aadi Finance- Bansali’s owned
etc… are in the list of Shareholders.

11

Hi Ashwini,

Just wanted to understand as to how do you know that their Tax representative is Snehal Shah.Is there some database of tax consultants of company/annual report where it is mentioned ? Apologies for ignorance.