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Balaji: Great results, use trailing stop losses


Balaji Telefilms has announced it’s 4th Quarter 07 results. The quarter was stellar, growing profits 37.25%, from 15.5 cr. to 21.28 cr. from the same quarter last year.

EPS for the year 06-07 as grown 33.66%, from Rs. 9.15 a share to Rs. 12.23 per share.

Other significant moves:
Revenue up from Rs. 2,80.37 cr. to Rs. 3,17.47 cr. (Up 13.23%)
Profit after tax up from Rs. 59.42 cr. to Rs. 79.43 cr. (Up33.67%)
Cash and Cash Equivalents of Rs. 1,83.45 cr. as on March 31, 2007, a value of Rs. 28.14 per share.

They paid Rs. 3.5 per share as dividend on March 13; at this time the price of the stock was Rs. 113, and the yield would have been about 3%. Since then, the price has moved to Rs. 201 today.

Balaji has a serial called “Khwaish” coming out in the middle east in June, and has another serial “Kayamath” that they launched last quarter. In addition they have set up a fully owned subsediary which will make films (not that great a business in my opinion, it’s a lot of luck and money). But guess what, the first release of their film “Shootout at Lokhandwala” is on May 25, 2007 and that might boost visibility as well.

They also have a JV with Star to make regional channels. Not just content but the channel as well. Given that the biggest viewership in India is regional, this bodes well for the company.

I could go on forever about the prospects of this company. But remember that such virtues only exist on paper. Despite the company clocking 20-30% annual growth every quarter, there was no recognition of this and the price went down to nearly Rs. 100! Obviously people in the markets are blind to the fundamentals – there is no rocket science involved; for a company that would have a Rs. 12 EPS, a 33% consistent growth, paying less than 10 P/E when other media companies were valued at 40 P/E + was fairly senseless.

Yet, the company was undervalued. The fact that it got recognised is good, but it could have stayed this way for another couple years! How do you know that a share is being recognised? Price breakouts, and volume breakouts are one answer.

I had noticed a quick move to 160 and a spike upmove to 180 which was perhaps an indication that someone somewhere knew about these results – possibly so. But the company has delivered quite good results earlier too, and there was no price movement at these kind of levels, so there’s something more in the offing.

Either ways, what to do now?

Ride your profit. From now on, maintain a trailing stop loss with Balaji. A 10% trailing stop loss means if it falls 10% from its highest close, you should sell. Today the stock closed at it’s highest, Rs. 201. So the stop loss is around Rs. 180. If the stock moves up, say to Rs. 250, your new trailing stop loss will be Rs. 225 (10% below the highest value).

There’s no “loss” here – you probably make profits selling now, or 10% below now. The idea here is to ride a “trend” – the trailing stop loss ensures that if this stock moves out of favour, you get out before it really goes down.

You may say: But the company has such good prospects! Why are you asking us to sell?

But didn’t it always have good prospects? What has happened here is the market has recognised it. Tomorrow, just as easily, the market can forget it. You are just protecting yourself. In fact, if you sell at 180 and it comes back down to the 120 levels, buy it again, because it’s now value all over again.

The worst situation is: if the stock moves down to Rs. 170, and then goes back up to Rs. 250! If you’re afraid of that you can increase your trailing stop loss to 15%, but remember you will lose more money on a downturn.

The trailing stop loss is a good way to ride your profits. Don’t book them just because the stock is up – wait for the trend to reverse against you, confirm the reversal and then sell. If you are a long term investor, you can even do this in 5 minutes every day by looking at the closing values. No need to keep tracking the stock every minute.

Happy investing. I will post a message if Balaji’s trailing stop is breached.


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