Moneycontrol
Jul 14, 2017 09:25 AM IST | Source: Moneycontrol.com

Investors worried about Balaji Telefilms' turnaround script post group CEO's exit

The group CEO Sameer Nair is stepping down from the role effective July 15, 2017. While the transformation journey at Balaji has started, a senior-level exit gets investors jittery if the turnaround plan will continue to keep pace

Investors worried about Balaji Telefilms' turnaround script post group CEO's exit

Jitendra Kumar Gupta

Moneycontrol News

The group CEO of Balaji Telefilms, Sameer Nair, whose salary was increased by 54% in FY16 to Rs 4.35 crore — close to 22% of the total employee cost of the company in FY16 — also had a decent stake in the company. He owns 0.91% stake, or 6.92 lakh shares, allotted to him in the past, worth Rs 11.4 crore.

The announcement that Sameer Nair is stepping down from the role of group CEO effective July 15, 2017, has now led the market to question the company's turnaround strategy, which was largely backed by the expected profits from the movies business and success of the digital initiative under ALTBalaji. Nair will continue to be with the company as a consultant.

The Sameer Nair Factor

Since the time Nair joined, the market capitalisation of the company has moved up from Rs 302 crore in FY14 to Rs 1,265 crore currently. Many prominent investors like DMart’s Radhakishan Damani and Enam’s Vallabh Bhanshali (through Talma Chemical, a group company) have invested in the company in the past.

Balaji, which was largely perceived to be a family-run business, had raised a lot of expectations on the Street after professionals like Sameer Nair joined as group CEO in 2014. The company also inducted few known faces including Shubhodip Pal, who joined from Micromax in March 2015 to head its movies business. Importantly, Shubhodip Pal also left Balaji by the end of November 2015.

Nair, aged 52, had a very successful stint with STAR India as CEO at a time when the channel was doing phenomenally well with the successes of Kaun Banega Crorepati in the year 2000 and huge success of the traditional family shows such as Kyunki Saas Bhi Kabhi Bahu Thi, thereby putting the channel in the top slot.

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At Balaji, Nair's immediate challenge was to revive both the programming and the movies business. He also masterminded strategies for the digital initiatives and was responsible for scaling up the business and leveraging its capabilities.

During the first year of Nair's leadership, Balaji Tele went through a few changes, such as shifting focus of its programming business from sponsored content (managing content and advertising) to commissioned programming (based on fixed rates of the telecast), and improving the volumes. The number of programming hours produced increased from 590 in FY14 to 1,002 in FY16. Profits of this vertical also shot up from Rs 10 crore in FY14 to 37.1 crore in FY16.

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FY17 – Not a Year to Remember

But the last one year has not been good for Balaji Telefilms, which has seen losses mounting in the movies business and falling profits in the programming business. Profits of the programming business have fallen from Rs 37.1 crore in FY16 to Rs 31 crore in FY17. Importantly, the movies business, which employs Rs 144 crore of capital, has seen losses increase from Rs 5.4 crore in FY15 to Rs 44.3 crore in FY17.

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With the intention of limiting losses, the company is scaling down this business to unlock capital. The movies business has around Rs 60-70 crore of capital deployed in advances which will get released once the operation is scaled down. While its digital initiatives through the ALTBalaji are expected to be futuristic, the reality today is that it is making no contribution.

Market also worries that the sustainability of digital unit, ALTBalaji (similar to Netflix and Amazon Prime), depends a lot on its success. It has already invested over Rs 50 crore for the content and development of the ALTBalaji. It further intends to step up investments to the extent of Rs 300-400 crore. Since it is supposed to have its own original content, it will need to burn a lot more cash so that it keeps on creating a regular flow of content and increases awareness.

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While the transformation journey at Balaji has started, a senior-level exit might turn investors jittery to start with, unless the company has a credible Plan B to share with the investors.

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