MANAGEMENT DISCUSSION AND ANALYSIS REPORT (Pursuant to clause 49 of the Listing Agreement with Stock Exchanges) The figures have been stated in Rs. Crores for better readability. Investors are cautioned that this discussion contains forward looking statements that involve risks and uncertainties including, but not limited to, risks inherent in the Company's growth strategy, acquisition plans, dependence on certain businesses, dependence on availability of qualified and trained manpower and other factors. The following discussion and analysis should be read in conjunction with the Company's financial statements included herein and the notes thereto. INDUSTRY The Indian media and entertainment (M&E) industry is on an imbrssive growth path with its various segments - film, television, advertising, prints media and music among others witnessing tremendous growth in the last few years. The Indian Government, considering that the industry plays a significant role in creating awareness on many issues that impact the masses and India's population which is over 1.2 billion has supported growth of this industry by taking various initiatives such as digitising the cable distribution sector to attract greater institutional funding, increasing FDI limit from 74 per cent to 100 per cent in cable and DTH satellite platforms, and granting industry status to the film industry for easy access to institutional finance. In the media and entertainment industry, digital media continued its rapid penetration, the Digital India programme announced by the government of India set to transform India into a digitally empowered society and knowledge economy'. India topped as the world's fastest growing smartphone market. This growth brsents a good opportunity for digital content aggregators, advertisers, app developers and online streaming companies to engage users through relevant mobile-led strategies. The advent of 4G services, healthy growth in the number of 3G subscribers, continued adoption of 2G by the masses in the hinterlands and concerted efforts by various digital ecosystem players under the 'Digital India' initaitive, have played a major role in making this growth possible. This is helping in emergence of new business models and revenue streams. The television industry continued to have a dynamic operating environment in 2014. Television advertising bounced back significantly on account of elections and improved macro-economic environment leading to companies increasing their ad spends. E-commerce emerged as a key sector driving growth, followed by mobile handset companies. The ecosystem for TV ad revenue growth is expected to remain strong in 2015 on account of the rebound in the India growth story. The implementation of the viewership measurement system by Broadcast Audience Research Council (BARC) in 2015, will likely impact the way advertising spend is allocated among different genres and channels, due to inclusion of new markets and increase in sample size. In the case of Radio Industry the year 2014 was an important year as the Government started proceedings on the much delayed and highly anticipated Phase III auctions. Although the final auctions would be due in the latter half of 2015, the Government has given its nod to the partial auctions for 135 channels in 69 cities. It is believed that Phase III, which had been delayed for more than two years, could herald a new era in the industry. Sun TV Network Limited (Sun Network) maintains its dominant position in the southern states of India as one of the largest television and radio entertainment Company in India with a portfolio of Satellite Television Channels sbrad across four languages and in genres of GEC, news, music, action, life, movies, kids and comedy. Sun Network also has a large network pan India in the FM Radio broadcasting segment along with its subsidiaries. Sun Network continues to consolidate its leadership position, built over the years, by fortifying its hold over key aspects of pricing and access to quality content. Sun Network has a distinct advantage in the southern regional markets on account of its insightful understanding of the regional brferences and with key competitive strengths including that of a large movie library of regional languages. Sun Network is the brferred choice for content providers as it is the only player with maximum reach in the areas it operates. OPPORTUNITIES ANDTHREATS Opportunities: The on going digitalization of content, shift to online and mobile distribution of content and the rapid pace of invocation create opportunities to serve new customers in new markets. The brsence of large and wealthy Indian diaspora abroad is another powerful enabler for market expansion abroad. The M&E industry influenced by digitalization, the convergence of TV, mobile telephony and the Internet poised for a growth trend. The fact that significant households of India are still without television connectivity highlights the scope of growth in the segment. The majority of the revenue generated in the television industry is through advertisements, followed by subscription. Strong growth projected in DTH, Digital Cable segment would result in substantial increase in subscription revenue overthe years to come. Increasing interest in regional content among Indian population across the borders, results in increased overseas viewership thereby attracting foreign investment. Radio broadcasting in India, which is still in its infancy, is evolving to be a revenue spinner in the coming years. Threats: It is difficult to brdict our revenues and expenses as they fluctuate significantly given the nature of the markets in which we operate. This increases the likelihood that our results could fall below the expectation of market analysts. Certain threats are summarized below: Advertising income continue to be the major source of Sun Network's revenues, which could decline due to a variety of factors. The commercial success of Sun Network depends on our ability to cater to viewer performance and maintain high audience shares which could be affected. The competition and increasing prices may adversely affect our ability to acquire desired programming and artistic talent. Sun Network operates in an intensely competitive industry. Sun Network is a regional broadcaster, which may limit our opportunities for growth as well as our attractiveness to advertising customers and others. Technological failures could adversely affect our business. Our inability to effectively deploy and manage funds could affect our profitability. SEGMENT Sun Network operations brdominantly relate to a single segment "Broadcasting". OUTLOOK Sun Network with its brsence across genres like general entertainment, movies, music, news, kids, action, life and with a dominant market share in the four southern states of India (Tamil Nadu, Kerala, Karnataka and Andhra Pradesh) ensures continued and sustained viewership and prominent role in the Media and Entertainment Industry. A steady flow of highly popular programs and a dominant share of audience viewership have given the network tremendous pricing power vis-a-vis competitors. The drive initiated by Government towards digitalisation and addressability for cable television would help Sun TV Network, being the largest regional television network to be one of the major beneficiaries of the recent growth in the DTH space, it is expected that this new stream of revenue for the Company arising from the increased DTH subscriber base in South India would maintain a positive momentum in the coming years. FINANCE AND HUMAN RESOURCE Finance: The Total Income for the year ended 31st March 2015 was Rs.2,331.45 crores as against Rs.2,175.99 crores during the brvious year ended 31st March 2014. Profit Before Tax was Rs.1,111.99 crores as against Rs.1,084.71 crores in the brvious year. Profit After Tax was Rs.737.23 crores as against Rs.716.96 crores in the brvious year. During the financial year ended 31st March 2015, the Board of Directors has declared Interim Dividends of Rs.2.25/- per equity share (45%), Rs.2.25/- per equity share (45%) and Rs.6.75/- per equity share (135%) declared at the Board Meetings held on August 8, 2014, November 7, 2014 and February 6, 2015 respectively and have not recommended any Final Dividend. The dividend payout would result in a total dividend of 225%, i.e., Rs.11.25/- per equity share of face value of Rs.5.00/- each for the financial year ended 31st March 2015. (Prev. Year of 190%, i.e., Rs 9.50/- per equity share of face value of Rs.5.00/- each). The Reserve and surplus of the Company as on 31st March 2015 stood at Rs. 3,182.66 crores as against Rs. 2,974.76 crores as on 31st March 2014. Human Resources: At Sun Network, with 2005 employees, human resource is a key asset capital and an important business driver for the Company's sustained growth and profitability. Hence, we at Sun Network believe that training, like all organizational development processes cannot be a function of time, but rather an ongoing process with the developmental needs and business planning processes being formalized constantly. A continuous review of the monitoring process is underway and procedures and systems are being institutionalized across the organization. FINANCIAL REVIEW & RISK MANAGEMENT (INCLUDING INTERNAL CONTROL) Separate report on this is annexed. On behalf of the Board K. Vijaykumar Managing Director & Chief Executive Officer Date: July 31, 2015 Place: Chennai |