Quarterly results analysis : May 2003
Balaji Telefilms
Programming costs, revenues under pressure
Balaji's results came in lower than expected. The company posted a net profit of Rs 11.96 crore for the quarter ended March 2003, which was 33.9 per cent higher than the net profit of Rs 8.93 crore in the corresponding quarter the previous year.
However, revenues dipped 15.5 per cent and profits dipped 31.5 per cent on a sequential (quarter-on-quarter) basis.
The effect was visible in the stock markets the next day as the stock crashed over seven per cent and came within a whisker of touching an all-time low. Costs on a per-hour basis went up even as revenues came under pressure. The company wrote off bad debts of Rs1.38 crore in the quarter.
However, the main concern for the markets is that Balaji Tele is no longer a huge channel shark as the company has lost a number of programmes across channels.
The ICC cricket World Cup resulted in sponsored programme revenues declining 35.6 per cent q-o-q, again much higher than expectations.
However, it is expected that revenues should recover in the forthcoming quarters, particularly driven by the newly-launched serials.
A point of concern is that absolute programming costs refused to go down, even as the number of programming hours dipped.
In fact on a per-hour basis, there could be a further increase in programming costs, given Balaji's substantial infrastructure and a reasonably large manpower base.
This could impact profit margins adversely. About five serials went off the air in the quarter ended March 2003 and these included popular serials like Kutumb and Kammal.
Uncertainty due to conditional access system (CAS) being implemented is another factor bothering the markets as Balaji's typical high-cost programmes are a risky proposition for channels, thereby reducing the chances for new launches in the first quarter of this fiscal.
Balaji is unlikely to get any fresh programmes off the ground till at least a month after July 14, 2003, when CAS comes into effect in the four metros.
The probability of a rate hike is also low in the first quarter of the current fiscal because players such as Star have started talking about huge cuts in programming budgets in case CAS leads to revenue losses.
Balaji's exit from Zee and a drop in programming on Sony have seen it being more dependant on Star. Other factors like waning interest in family soaps and Zee and Star's recent attempts at alternate programming by getting into the comedy and action genres does not bode well for the company either.
However, the stock still has some allure given Balaji's strength in the programming business along with a reasonably inexpensive price-earnings of 5.7x FY04 forward earnings.
The success of CAS and its impact on programming budgets, and finally Balaji's success in pushing through new programmes, would be crucial to its performance.
Bank of India
Treasury gains push up profits
For the quarter ended March 2003, Bank of India's net profit rose by a whopping 212 per cent to touch Rs 282.53 crore, as compared to Rs 94.02 crore for the quarter ended March 2002. For the year ended March 2003, the bank recorded net profit growth of 67.52 per cent to touch Rs 851 crore.
On the face of it, the figures look good. However, a closer look shows that much of this was because of treasury profits the bank booked during the year.
It booked treasury income of Rs 431 crore for the financial year 2003, suggesting that its net profit may have actually come down had it not been for this.
This could imply a pressure on profits should interest rates stabilise at these levels. Worse, if interest rates rise, it may lead to treasury losses.
However, company officials beg to differ. They draw attention to the fact that the bank has unrealised profits of Rs 1182 crore.
Additionally, the bank has built up an investment fluctuation reserve of three per cent. This combined with unrealised gains would ensure that the bank does not suffer a loss on the value of its investments as long as interest rates do not rise more than two per cent, claim bank officials.
However, what could be of greater concern is that the bank's deposits have grown only by 20 per cent, much lower than its aggressive peers.
For instance, HDFC Bank's deposits grew by over 30 per cent for the year. The management said, slower growth in deposits was due to conscious decision to match short-term liabilities with short-term assets.
There has been a lot of talk about the Securitisation Bill and the effect it would have on bottomlines of banks.
And Bank of India has done its bit too. It issued 110 notices to companies, whose aggregate non-performing assets stood at Rs 310.48 crore.
Of this, it has managed to recover Rs 23.99 crore. It also restructured 292 accounts this year, amounting to Rs 1359 crore. Going forward, the bank is going ahead full steam with its computerisation programme.
It plans to computerise all the branches by year-end and increase the number of networked ones to 750. It also plans to introduce a fresh round of VRS for 1,000 officers and 2,000 clerks.
However, this is subject to the government's approval. For the financial year 2004, the bank has set a target of achieving an operating profit of Rs 2400 crore, a growth of 18.23 per cent over last year.
Godrej Consumer products
Asset turnover improves significantly
Godrej Consumer's performance has improved on various parameters in 2002-03 - its return on capital employed (ROCE), which was already high at 90 per cent in FY02, has jumped further to 115 per cent.
Based on the Du Pont analysis, the jump in ROCE was helped by an improvement in both asset turnover as well as profitability.
While total asset turnover has improved to 6.91 times compared to 5.86 times in FY02, the company's EBIT margin has increased 72 basis points to 15.29 per cent. Besides, net working capital fell further to -3.8 per cent of sales from -1.7 per cent in FY02.
Net profit grew 27.6 per cent to Rs 53.56 crore, but topline grew just 2.4 per cent because of a fall in revenues for the contract manufacturing division. Sales of Godrej's branded products (91 per cent of total revenues) grew at a healthy eight per cent.
There was an improvement in operating margin, but most of it was on account of lower ad- spend. Operating profits, as a result, grew 6.45 per cent and even the growth in PBT wasn't very high at 10.8 per cent.
It was only thanks to a lower deferred tax liability that the company managed a 27.6 per cent jump in net profit.
The picture was worse in the March quarter, which was hit due to the uncertainty on the implementation of VAT. In the March quarter, sales fell 3.2 per cent and thanks to a 150 basis points dip in operating margin, earnings (before taxes) fell 10.6 per cent.
But the markets seem to have taken this as an aberration, considering that the stock continues to trade at pre-result levels.
Besides, the company's liberal dividend policy and its regular buybacks make a case for investment, especially since the stock gets a discounting of less than 10 times based on estimated FY04 earnings.
