ALTBalaji ramp-up on track; margin likely to be muted in FY19 owing to launch of new shows; ‘Buy’ retained
TV realisation jumped 20% y-o-y in Q2 (similar rise q-o-q) as company capitalised on healthy performance of its key TV shows on weekdays/weekends; gross margin expanded q-o-q to 22% (vs. 13% in Q1) as shows launched in Q1 stabilised. With more new shows to be launched in H2 (4 shows launched in H1), we expect margin to remain subdued in FY19, but to bounce back in FY20 as these shows stabilise.
ALTBalaji’s aggregate pay subs ramped up to 5.3 million in Q2 (3.4 million in Q1; 8.9 mn currently) – addition was visible across direct subs (through app) and telcos (mix largely stable at 1:2). We tweak our estimates to factor in strong TV realisation; ALT assumptions largely stable. Maintain Buy with SoTP-based TP of Rs 150 on (a) expected ramp-up in TV business and (b) ALTBalaji’ sub additions which can surprise positively given expected ramp-up in content and benefit from distribution tie-ups.
Standalone performance (TV + movies): Q2 revenue grew 7.5% y-o-y to Rs 1,130 million. TV content revenue was flat y-o-y, while movie revenue declined 20% y-o-y due to subdued performance of its new movie, Laila Majnu. Ebitda margin declined to 3.4% vs. 8.1% y-o-y on higher overheads and ESOP cost; however, PAT stood at Rs 71 million (Rs 49 mn y-o-y) on higher other income.
TV content: H1 content hours declined 24% to 364; targets 750 hours in FY19 and 900-950 hours in FY20. Gross margin stood at 18% (vs. 26% y-o-y) on addition of new shows (higher expenses in initial quarters); H2 margin will be 20-25% (more shows to be added); FY20 to see improvement as most of shows would stabilise by then.
ALTBalaji: Revenue grew to Rs 143 mn (Rs 58 mn in Q1) with Ebitda loss at Rs 235 mn (H1 loss at Rs 513 mn); targets Rs 0.5 bn revenue with Ebitda loss of <Rs 1 bn in FY19. ALT is exploring to expand distribution further through new partnerships across OTT/DTH/digital players, which will aid further revenue growth.
Distribution tie-ups (especially telcos) and scale-up in content offering (launched three new shows in Q2; 24 shows now) will help grow ALTBalaji’ subs additions; however, as most domestic sub adds will be led by telcos, we expect monthly ARPU growth to remain moderate; expect 7/11/14 million exit paying subs in FY19/20/21e.