In mid-August, even as the promoters of Balaji Telefilms were preparing for the release of their latest movie CKkompany, they were hit with news of rather anti-climactic proportions. Rupert Murdoch’s Asian Broadcasting FZLLC, a holding company for STAR Group and 26 per cent shareholder in Balaji, announced that it wanted out of the joint venture.
The two immediate concerns for equity analysts tracking the stock were: One, how would the termination of this exclusive agreement affect Balaji’s prospects, considering that 60 per cent of its revenues were coming from the STAR channels; two, how would the promoters, Jeetendra Kapoor and his family, rustle up the Rs 325 crore needed to buy out STAR’s entire stake in Balaji—the Kapoors have 240 days to do so, failing which STAR has the right to offer the stake to any other party.
Balaji’s Kapoor: Weighing his options
Analysts tracking Balaji point out that, with the exclusive agreement with STAR gone, its profitability will be affected. “We have to forget the premium pricing Balaji enjoyed for exclusive content, and this will impact on profitability,” says Ritesh Palodia, an analyst at Dolat Capital Market, who tracks the media & entertainment sector.
Palodia expects Balaji’s operating profit margins to come down to 31-32 per cent over the next few years from 37-38 per cent now. The good news, as Palodia adds, is that there will be volume growth with more work coming from other channels. After all, the termination of the exclusive agreement with STAR paves the way for Balaji to make TV serials for other channels, which can be run during prime time concurrently.
The agreement with STAR prevented the Mumbai production house from making soaps for rival channels if they were to run at the same time as STAR’s Balaji-made prime-time shows. Without STAR as a partner, Balaji now has new opportunities to explore, in the guise of recently-launched entertainment channels like NDTV Imagine and 9X.
What may help Balaji is that the CEOs of both NDTV Imagine and 9X are former STAR TV honchos— Sameer Nair and Peter Mukherjea, respectively. When Mukherjea and Nair were at the helm as #1 and #2, the fortunes of both STAR and Balaji went on an upswing, thanks largely to the success of the saasbahu format.
So, whilst Balaji may still be in clover without STAR, the bigger worry is whether its promoters will be able to buy out Murdoch’s stake. “There are multiple options being considered by the promoters; either to buy the entire stake or give part of the stake to other investors,” says Sandeep Jain, Chief Financial Officer, Balaji Telefilms. Jeetendra Kapoor, Chairman of Balaji, declined to comment. What makes Balaji’s task even more difficult is that even if it succeeds in buying out STAR, it will then have to make an open offer for an additional 20 per cent at the same price of Rs 190 per share (as per regulations).
This will call for another Rs 247 crore. Jain, however, is hopeful that the Securities & Exchange Board of India could make an exemption and the promoters may not have to make an offer.
The Kapoors, who currently have a 40 per cent stake in Balaji, may decide to take it up to 51 per cent; the balance 15 per cent (of STAR’s 26 per cent) may be sold to investors, strategic or financial, say investment bankers. If everything works out to plan, the one-liner in the CKkompany Posters, “When losers become rulers,” may well hold true for Balaji—it might have lost STAR, but it still could rule the small screen at prime time.