MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY STRUCTURE AND DEVELOPMENT

With the Change in leadership in the Central government , the economy may not have seen a dramatic turnaround as everyone expected what cannot be denied however is that the new government has tried to make some positive fundamental changes the effect of which may be seen in the coming years, the inflation levels have been under control which has helped the final consumer in terms of lowered credit rates, the GDP growth rate is above 7% (the methodology of calculating the new GDP although a little debatable), several rating agencies including the Moody's have upgraded India's credit outlook and so the positive hope and sentiment still continues. We have seen earlier that a positive development in macro economy and core sectors sets the system rolling in a manner which has a positive impact on the services economy including Media and Entertainment.

In the media sector digital media continues its rapid penetration. One of the major highlights of  2014 was the announcement of "Digital India: A programme to transform India into a digitally empowered society and knowledge economy" by the government. As per the FICCI-KPMG Report on Media and Entertainment (M&E) industry, 2015, this industry as a whole witnessed a growth of 11.7% during the year 2014, from INR 918 billion during the FY 2013 to INR 1026 billion in the FY 2014. In the same period the film industry grew at 1% from INR 125.3 billion to INR 126.4 billion. Further, it is also estimated that due to the factors like digitization, growth of regional media, fast increasing new media business, M&E industry is estimated to achieve a growth rate of 13% in  2015 to touch INR 1159 billions. Going forward, this sector is projected to grow at a healthy CAGR of 14% to reach INR 1964 billion by 2019. It is expected that during the same period film industry will reach INR 204 billion at a CAGR of 10%.

Overall the year 2014 has been a correction of sorts for the entire Film Industry as the lack of growth was characterized by death of home video, correction in the satellite right rates and almost no growth in the domestic theatrical. At the same time however the ancillary revenue streams such as in-cinema advertising, merchandising, pay-per-view on various platforms have increased remarkably at 20% from last year giving an indication of the promise going ahead for the innovative and alternate revenue streams. The regional cinemas, dominated by the Tamil and Telugu market, continued its rise. Tamil movies especially had a great year with close to 300 movies releasing, compared to 255 in Telugu and 200 in Hindi. Various Tamil movies like "I" and "Lingaa" had a pan India release and stood out for their innovative and aggressive marketing strategies. Besides, there were innumerable small budget films with good and fresh content which performed exceptionally well at the box office. Telugu movies on the other hand had a correction in 2014 similar to that of Hindi film industry. The challenge for Tamil industry remains to ensure that all the movies get enough space to be seen and for Telugu industry which can be very star driven, to allow diversity in content and appetite for new talent. The best part about the South Indian film industry is that it has grown in terms of quantity, collection and satellite prices even with restricted access to the organized funding. This further confirms our belief on the potential of this industry and the heights to which it can reach with organized funding.

The key challenges going forward for the industry shall be to combat piracy, managing costs (especially the still uncorrected star costs and the marketing expenses), built infrastructure and regulatory framework, get trained manpower, ensure more transparency in box office monitoring/ tracking and implementation of revised cinematography act. The industry continues to be highly  fragmented and lack of cohesive production & distribution infrastructure and lack of efforts for media penetration in lower socio-economic classes are some of the bottlenecks that the Industry is facing. While the capital is being poured in through organised and unorganised channels, the industry still faced challenges in delivering robust bottom line results. Multiplex expansion, ticket prices growth and the expansion of digital screens are all likely to slow down in the near term -challenging the industry to find new avenues to maintain momentum. However, India is a heavily under-screened country and the macro story for the film industry remains strong.

The future looks immensely bright and with more number of multiplex screens, better internet penetration and bandwidth, the Tier 2 and Tier 3 cities may soon hold the prime focus of the industry. In many projects, the professionally run business houses and the family owned ones are learning to operate cohesively and leveraging on each other's strength. While a star may provide good opening, a strong content is required to sustain the momentum. The regional films especially Tamil and Telugu with their dedicated fan base and niche stories will have a larger pie in the overall industry going forward.

OPPORTUNITIES AND THREATS

Concept of crossover and content based movies, emergence of new distribution channels, emergence of Tier 2 and Tier 3 cities, penetration of internet at affordable prices, rise in ancillary revenue streams, technological innovations like animations, etc. are some of the opportunities that the Industry may foresee in the times to come. Sourcing of film financing has been largely unorganized due to high risk nature of the business. However, with scaling up of revenues, Indian films are increasingly attracting private equity / venture capital funding from institutions directly. This indicates the growth of organized film financing for the film industry, and is expected to sustain and grow in the years ahead.

On the other hand, this Industry is facing threats like piracy, lack of transparent data to make apt decisions, lack of trained manpower and industry still being largely unorganized. India is one of the top countries witnessing peer-to-peer file sharing infringement worldwide. For the first time in 2014, India has been included in the International Piracy Watch List by the US, a list of four countries where piracy is rampant. Further, large foreign studios or investors indicate that they are reluctant to invest in the Indian film industry because there is no way of verifying or validating the data made available in the public domain about the amount a film has grossed and its profitability.

FINANCIAL PERFORMANCE [CONSOLIDATED BASIS]

? Capital Structure There is no change in the capital structure during the period under report

? Reserves and Surplus The increase in Reserves and Surplus has been contributed by the profit for the year under report.

? Borrowings The Long term and Short term Borrowings as at the end of the financial year 2015 stood at Rs.208.89 crore as against Rs.108.65 crore in 2014.

? Fixed Assets There is no significant change in the fixed assets of the company.

? Non-current Investment It is the amount invested by the Company in Mutual Funds

? Long Term and Short Term Loans and Advances This indicates various loans and advances made by the company towards film production and film financing as part of its business operations.

? Inventories Inventory at the year end consists of film production work in progress (WIP).

? Revenue from Operations The consolidated revenue decreased to Rs.54.83 crore from Rs.101.24 crore during the brvious year.

? Movie Production Expenses The movie production expenses for the year 2015 stood at Rs.16.63 crore, which rebrsents the expenses incurred on production of movies by the company and released during the year.

? Employee Cost The decrease in employee cost was due to allocation of resources to various projects and re-organising the senior executives in the Company.

? Net Profit The consolidated net profit for the year was Rs.2.91 crore and has decreased when compared to the consolidated net profit generated during the brvious year. Predominantly it was contributed only by Film funding and the Movies under production are set to release in  2015-16. OUTLOOK

There is a steady rise in the dynamism and confidence in India's film sector. Increasing consumption in tier 2 and 3 cities, growing importance of regional markets, greater focus on market research, innovation in content and evolution of marketing and delivery platforms to serve different niches - all point towards a very positive future for the Indian film industry.

RISKS AND CONCERNS

In the talent driven M&E Industry, the ability to attract and retain right people has always been a concern for most of the Companies operating in this Industry. The issue of piracy remains a critical issue for the Indian film industry. However, there are some changes that have helped the industry battle this issue aggressively. A few years ago, a film reached television and home video only after six months of its theatrical release. Pirates could take advantage of this delay, and would flood the market with pirated DVDs/VCDs. Currently the theatre-to-television window has been reduced to less than 3 months. Further steps being taken are- proposed new Cinematograph Act, 2013 tough stance by certain producers to release the movie only on digital screens and various initiatives to raise consumer awareness. According to Motion Pictures Distributors Association (MPDA) India is the fourth largest downloader of films after the US, Great Britain and Canada. It estimates the loss due to piracy in 2012 was USD 1.1 billion, an increase of 15.79 percent from that in 2008. In this context, it is important that industries collaborate and create efficient mechanisms for content protection. With cooperation from the government and internet service providers, site-blocking measures can combat online piracy.

While India leads world averages in terms of the number of films produced each year and attendance, the under penetration of theatre screens in India remains the biggest challenge for the industry. There are just 7-8 screens per million people, unlike in the United States, where there are 117 per million. Besides, unlike other countries such as US, U.K. and China, India's merchandizing market is still very brmature.

High entertainment tax acts as a major impediment to the growth of M&E industry, as the overall tax implication is as high as 40-50 percent in states like Maharashtra, Uttar Pradesh, Bihar and Karnataka. Such high rates of entertainment tax on box office admissions seem irrational considering that films are available on other platforms like television and Internet platforms for free or very little cost. Such regulations have also led to many corrupt trade practices. Separately, it will be useful to provide tax holiday benefits for infrastructural development on setting up Cineplexes in tier 2 and tier 3 cities to incentivize the sector and boost growth and development of such cities.

Ticket pricing in many states is regulated by state governments. The industry expects the governments to relax regulations on fixed number of shows and cap on ticket pricing and let the exhibitors decide on the admission rates according to demand. Flexible pricing will also help to reduce black-marketing of tickets since theatre owners will have freedom to revise the rates according to the audience inflow.

INTERNAL CONTROL SYSTEM AND THEIR ADEQUACY

The internal audit and other internal checks implemented in the Company are adequate and commensurate with the size and nature of operations providing sufficient assurance and safe guarding all assets, authorizing transactions and its recording and timely reporting.

HUMAN RESOURCES AND INDUSTRIAL RELATIONS

Industrial relations are harmonious. The company recognizes the importance and contribution of the human resources for its growth and development.

As on 31st March 2015 the Company had total strength of 34 employees.

CAUTIONARY STATEMENTS

Statements in this Management Discussion and Analysis may contain forward-looking statements, which may be identified by their use of words like 'plans', 'expects', 'will', 'anticipates', 'believes', 'intends', 'projects', 'estimates' or other words of similar meaning. These statements are based on certain assumptions and expectations of future events.

The Company cannot guarantee that these assumptions and expectations are accurate or will be realized. The Company's actual results, performance or achievements could thus differ materially from those projected in any suchforward-looking statements. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events.

Important developments that could affect the company's operations include a downtrend in media and entertainment sector, significant changes in political and economic environment in India or key financial markets abroad, tax laws, litigations, exchange rate fluctuations, interest and other costs.