Merill Lynch maintains 'underperform' ratings on Balaji

Balaji Telefilms
cmp: Rs 163.05
target price: Rs 177

MERILL Lynch has maintained its ���underperform��� ratings on Balaji Telefilms. Recently, the STAR Group (STAR) had said it would sell 25.99% stake in BTL to the promoters or parties nominated by it at Rs 190 per share in 240 days. This implies that Balaji would be free to do programming for STAR���s rivals in certain time slots. ���However, given the dominance of STAR Plus in the Hindi general entertainment (GE) space, we believe that the incremental opportunity could have lower ratings and higher costs. We think it is fraught with lower margins, lower RoE, and therefore, not positive for Balaji,��� the Merrill note to clients said. ���We believe earnings in Balaji���s core content business is set to slow ��� 12% CAGR (FY08-10 estimated) against a robust 27% (FY05-07),��� the note added, citing limited prime time slots left for programming in the Hindi GE space, weak ratings on STAR Plus, entry into lower margin movies and higher costs on political intervention in labour matters as the reasons.