A Kiss is Just a Kiss, or Is it?

Finally, I am told, Ram Kapoor kissed his own wife. Moreover, he seduced her and made passionate love to her. That too on TV.

This is HOT by Indian TV standards.

In its 166th episode of Bade Achhe Lagte Hain (“I Really Like You”) which aired on March 12, Ram did all of that. The viewers were surprised, thrilled, or shocked, depending on who they were sitting with while watching the episode. TRPs will now surely soar because now “expectations for more” have been created. A man has kissed a woman and she kissed him back. On TV.

Behind every kissable man, however, there is a woman, and maybe she is not his wife. In this case, the woman behind Ram’s kisses is Ekta Kapoor, Balaji Telefilms’ Joint MD who is actively involved in the production of the content produced by her company. Balaji is a content provider to Sony TV which airs Bade Achhe Lagte Hain.

Balaji’s stockholders should hope that High TRPs will eventually translate into higher income for the company which will result in the stock being re-rated. They need this break because the stock has been a huge under-performer for several years, as the two charts below show:

The company could certainly do with some real earnings as well. That’s because its content business has been losing money for several quarters after Rupert Murdock fell out with Ms. Kapoor one fine morning but oh that’s another story which will have to wait for another day.

At its current stock price of Rs 45 per share, the market cap is Rs 290 cr. The company has zero debt. It also has Rs 220 cr of cash. So one is paying only Rs 70 cr for the business – the risky business of making movies and TV content. But if you pack your TV serials with a lot of kisses and passionate love making, perhaps TRPs will go up even more and operating profits will soar and the stock will spurt upwards. It’s a risky bet but then Ms. Kapoor likes taking risk and clearly she believes that her strategy will be good for the stock. After all, she is putting her money where her mouth is by buying it consistently from the market.

Minority stockholders might have preferred a buyback at a good premium to current stock price to see a happy ending to their sad stock story. But they will have to wait for the longer version of another story which basically starts with a kiss…

Note: I have no position in this stock as of this writing.

10 thoughts on “A Kiss is Just a Kiss, or Is it?”

  1. Sir, Balaji Telefilms Ltd looks cheap but it has Contingent Liabilities of 322.44 . So , one is paying 70 cr for best case scenario and will have to pay 322.44 + 70 = 392.40 cr for worst case scenario.

  2. Maaan..at this rate, they will have to show a full-blown (no pun intended) porn film so that the compulsory-long-term-investors in the stock can ‘recover their money’! 🙂
    cheers Sir!

  3. Professor,

    The Balaji balance sheet – price equation is indeed interesting, even more so at its recent 52 week low price of about Rs 27 when its market cap would have been just about Rs 175 cr (and the risky business of making movies and TV content would have been completely free) Some points though –

    1. Its consolidated FY11 cash is about Rs 180 cr. However, its 3QFY12 ending standalone press release states – “Rs.22687 lacs was invested in units of mutual funds & debentures issued by other corporates & Trusts”. Is that the figure you refer to when you say that the company has Rs 220 cr of cash? The reason I am asking this question is I want to understand when you say that a company has x amount of cash, do you take only pure cash and cash equivalents into consideration or do you also look at other current assets to see if anything can be included as close-to-cash?

    2. The amounts of service and sales tax litigation oriented contingent liabilities come up to an eye popping 85% of FY11 year end networth. That figure is obviously quite material to the calculations. Problem is, in the Indian context there are many otherwise good companies that have similar indirect tax litigation oriented contingent liabilities. What perspective do you look at such liabilities from? Do you try and somehow further analyze the odds of an favorable/unfavorable outcome in this context or do you simply avoid investing in a company that has a material indirect-tax litigation oriented contingent liabilities?

    3. You said the company’s contingent liabilities are ‘one’ reason why you don’t find it attractive. What are the others?

    4. The Dirty Picture has done well and its financial impact does not reflect in the standalone balance sheet or income statement (which is what the company has been announcing for its quarterly results). Consolidated results may possibly contain materially higher cash. It will also soon get another Rs 8 cr or so of cash from the sale of its Mobile and Education division.

    Awaiting your comments,

    1. 1. I only look at cash and cash equivalents. i was looking at Sept 2011 balance sheet. Keep in mind the company has a subsidiary – Balaji Motion Pictures Limited – and the company does not provide consolidated results except at year end. So actual cash on balance sheet may be lower than Rs 220 cr. We won’t know until we get the FY12 balance sheet.

      2. I would try to figure out the likely value of contingent liability (somewhere between zero and stated maximum value), only if it was worth doing.

      3. Take a look at her latest interview. http://tinyurl.com/7kxgugp. Ms. Kapoor says “I have two dreams. One is to have a big film studio of my own; I think I’ll get there in the next four years. The second is a big one and I don’t know when I’ll achieve it: I want a channel of my own.” I don’t want to be a part of these dreams 🙂 Actually, I won’t be able to sleep at night knowing this is what my partner is dreaming 🙂 Her dreams are just too risky for my liking, and maybe that’s a personal bias I have. Btw, that’s the “other” reason why I am wary about this stock.I am just too skeptical about the whole thing. You see I don’t even watch TV 🙂

      4. You won’t know the financial impact of Dirty Picture until the company tells you or until we get the annual report (because no consolidated figures would be available until then). I have read reports that this award-winning movie made Rs 100 cr. Even if that is true, we don’t know how this “Rs 100 cr” was shared. Sometimes to reduce the risk in the movie making business, producers give up a large part of the upside to others in order to recover cost and make a reasonable return. I do not know if that was the case here.

      5. The movie business is very risky. The returns can be extraordinary though if you are talented and lucky (being talented and unlucky won’t work). You need the luck factor. For investors, its always a good idea to buy into such uncertainties on very favorable terms. Maybe at 70% of cash I might get interested because then I would be acquiring uncertainty with favorable odds. But I don’t want to pay for acquiring this uncertainty. So even if you assume zero value to contingent liabilities, the stock is still above cash unless Dirty Picture cash was substantial, but I don’t know that yet.

      1. Really appreciate your candid and detailed reply Professor. Its a delight to be able to get an insight into your perspectives on the nuances of a real-time investing situation.

        As far as Ms. Kapoor is concerned, I think I share the bias that you have. Considering her dreams, one can hardly expect her to think like a good capital allocator (deploying capital where one thinks it will earn the highest rate of return). Her psyche seems more geared to prioritizing ‘size’ and ‘glamour’ in business. The kind of thinking that leads businessmen to invest in, say, an airline for example. That does not bode well for Balaji Telefilms’ cash.

        Just one last thing. When you say in point 5 that you would consider the odds favorable at 70% of cash, I understand that at Rs 220 cr of cash, if the market cap were to fall to Rs 155 cr (70% of cash) and the contingent liabilities were NIL, you would consider the odds favorable. Is my understanding correct?

        1. Yes, but if and when that happens there may be other things that are appear to be even more attractive. So one must never say I will buy it at x price or 70% of cash without also comparing with other opportunities available at that time.

  4. have heard from here and there that media cos are good value creators…….. do i have heard right ……. what kinda things one should look in a media biz. ?

Comments are closed.