Break-ups hurt. But who?

The Star-Balaji affair has ended. Ekta Kapoor will have to rejig her plans

Till some time ago, the mirror on the Indian teletube wall always said that Ekta Kapoor’s K-recipe was the fairest of them all. But times have changed. Falling TRPs of her ace serials are leading many to conclude that the charm of Balaji’s kitchen-politics was wearing off. So now when we hear that Star Network and Balaji Telefilms Ltd. have broken their 2007 JV to launch regional channels together, the development demands attention. What’s more, Star has also announced an exit for its 25.99% stake in Ekta Kapoor’s production house, valued at Rs.1.23 billion. Clearly, something is brewing.

Says R. Karthik, CEO, Balaji Telefilms: “It was an investment which has been called off. It was a strategic move which had to be realigned.” But this tragic love story would certainly hurt Balaji, at least in the short run. For one, a majority of Balaji’s revenues were coming from Star, thanks in part to the prime time exclusivity agreement that the two shared. Balaji currently airs six shows on STAR Plus and derives around 65-70% of its revenues from the channel.

On its part, Star has nothing to lose from this break-up. “There are multiple content providers in the country, from which content can be sourced anyway. Moreover on the competition front, while Star faces intense competition in the GEC domain, it continues to maintain its strong market leadership with GRPs in excess of 300,” asserts Salil Pitale, Head-Media & Telecom, Enam Securities.

And although Star CEO Uday Shankar says that the “relationship between Star and Balaji as broadcaster and content provider will not be affected,” fact is that the end of their contract allows Star to re-negotiate the premium rates it pays to Balaji. Given that Ekta’s soaps are no longer ruling the charts – Bidayi, Star’s highest TRP grosser in recent times is not a Balaji production – the respite for Star will come in the form of not shelling out premium rates to the under-performing production house. In fact, 2009 may turn out to be an immensely challenging year for Balaji, as the production company has also launched a very high production cost shows - Mahabharata - and in the absence of premium revenues from cash cow Star, its margins are likely to be impacted.

However, all is not so bleak as it sounds. There are some positives for Balaji too. As per Angel Broking, Balaji will post a CAGR of 12.5% and 10.35% in consolidated top line and earnings driven largely by volume growth. Counting on such numbers even Jagat Dave, Director- corporate finance of Ambit Corporate Finance (exclusive financial advisor to Balaji) asserts, “Balaji Telefilms is a cash-rich company having around Rs.2.2 bn of cash reserves, as on March 31, ‘08, and it continues to evaluate various strategic opportunities in the Indian Media & Entertainment industry.” In the current scenario, wherein all broadcasters are vying with each other for premium content, Balaji Telefilms, with its track record is uniquely positioned to cater to this demand. Rumour has it that Anil Ambani’s ADAG may be up there in the race to net Star’s abandoned equity. Confirms a source in ADAG: “Yes, we are definitely looking out for production houses to add synergy to our channels and Balaji’s stake would definitely provide an edge to us.” And why not! This step by the company will provide aid to ADAG, as it plans to launch 20 channels to supplement its DTH venture (Big TV) and this deal will provide them an exclusivity of content to their channels.

If Anil Ambani’s ADAG hops on board, Balaji will certainly be able to tide over this unique quagmire that it finds itself in. And not to forget, the leading lady of Hindi soaps may still be able to make good on her dream to rule the regional content space.

Neha Saraiya

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Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

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Price hike isn’t a way out for durables industry

Cash registers kept ringing in for them until last year. The flourishing optimism not only had a positive impact on their earnings but also prompted the consumer durables sector to crave more. In fact, according to a survey conducted by FICCI in 2007 the consumer durables market in India was projected to grow at about 12% this year.

However, with inflation touching a 13-year high of 11.42% coupled with an expected downturn in the economy & exchange rates, this seems to be almost like an unfulfilled wish for durable biggies. Forget the growth, the Rs.250 billion consumer durable industry is now finding it hard to pull back from the 20% fall in the sales that it witnessed during the first quarter of this year (FY 2008). All thanks to the rise in input costs! While the price of steel has gone up by 40%, copper and aluminum too boast a 20% increase. Even the price of oil (the basic material for all plastics) has shot to the roof ($144 a barrel). In fact, the average bill of materials (BOM) of an appliance has increased by about 15-25% across categories. This has left the durable biggies including LG, Godrej, Mirc electronics et al with no option but to hike the prices of their products by about 5-7%. Certainly an age old strategy to pass on some burden to consumers as George Menezes, COO, Godrej & Boyce Mfg. Co. Ltd. puts it, “What has been passed to the market is just about 3-5% increase which is a minuscule part of the overall cost impact.” But here comes the million dollar question. Will this increase in prices would be of any help to shrinking margins of manufactures (considering the segment sales are already on the verge of sinking)? “The price increase always comes with some objectives as you cannot do business at a loss and this slowdown is a temporary jiff which will soon fade away,” a top Electrolux official has been quoted as saying.

However, analysts believe that the major reason for the slowdown in this segment is the Euro’s meteoric rise against dollar. This in the last three months has alone taken up the cost of imported material by about 5-8%. “With interest rates likely to go up soon, further increase in product prices will adversely affect consumers,” avers Kalyanmoy Chatterjee, CEO, Consumer Research, GSK Mode. And this is not all! What seems as a solution for the companies - the price rise - is actually a curse in disguise! After registering negative sales in the quarter even big banks and finance companies have stopped funding aam admi for the purchase of such products.

But, remaining on a positive side, manufacturers still hope to tap the market amid rising prices. They plan to do it by creating a unique differentiation in the value proposition of their products “I believe manufacturers will try the age old practice of launching promos and schemes to cash in on whatever they can,” adds Chatterjee. But, what when everyone starts following the same? So, considering the current macroeconomic scenario, the only respite one can expect is from the government, else we can only hope that the durables prices don’t end the fate of fuel prices!

Neha Saraiya

For more articles, Click on IIPM Article.

Source : IIPM Editorial, 2008

An Initiative of IIPM, Malay Chaudhuri and Arindam chaudhuri (Renowned Management Guru and Economist).

For More IIPM Info, Visit below mentioned IIPM articles.
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