MANAGEMENT DISCUSSION AND ANALYSIS

ECONOMIC OVERVIEW

The year 2014 continued to be a year of challenges on multiple fronts for the global economy. There were distinct and disturbing geo-political tensions in Ukraine and The Middle East that cast a long shadow of nervous uncertainty in the financial markets. On the economic output front, almost all the major developed economies continued to struggle to achieve desired levels. According to the World Economic Outlook published in April 2015 by the International Monetary Fund (IMF), the world output maintained its growth rate of 3.4 per cent in 2014, which is similar to 2013. According to the Global Economic Prospects published by the World Bank, the real GDP of the world grew by 2.6 per cent in 2014 compared to 2.5 per cent in 2013.

What was different in 2014 was the fact that during the year, emerging and developing economies also faced a slowdown in growth.

In the USA, there was a marked improvement due to sustained improvements in job creation and an overall rise in consumption, fuelled by the sharp fall in oil prices in the latter half of the year. The US economy grew by 2.4 per cent in 2014 against 2.2 per cent in 2012. In Eurozone, the almost five year old Greek debt-repayment crisis continued to dampen investor sentiments. In fact, the very future of the Euro as a currency started to look unsure with fears of Grexit, leading to further trepidation and anxiety in the financial markets.

In the Asian economies, China faced its slowest growth in the last three decades. The Chinese GDP for the year 2014 was 7.4 per cent, falling short of the government's target of 7.5 per cent. After nearly thirty years of double-digit GDP growth, the Chinese economy is now definitely slowing down.

It was a remarkable year for the Indian economy. Spurred by bold and structural reforms in core sectors like infrastructure, banking, insurance, defense and real estate, the economy rebounded smartly. There was a telling return of investor confidence as the India growth story re-emerged strongly. A key development during the year was the change in methodology of measuring the GDP by the Central Statistics Organisation with the base year changing from 2004-05 to 2011-12, and with GDP being henceforth measured at market prices as against factor cost. According to this new methodology, India's GDP for the FY2015 is 7.3 per cent compared to 6.9 per cent in the brvious year.

Another major development during the year was the dramatic fall in the prices of crude oil in the latter half of the year. The Brent crude oil prices fell to less than US$ 50 per barrel in January 2015 owing to inventory build-up and OPEC's stance of not curtailing production. Low oil prices had a direct effect on easing inflation to near 5 per cent level by the end of the fiscal year, which, in turn, allowed the Reserve Bank of India (RBI) to lower interest rates.

INDUSTRY OVERVIEW

The Indian real estate business has been facing stiff and challenging conditions for the last few years. The challenging economic conditions, rising input costs, high interest rates all contributed to debrss demand in all segment of the industry. While residential buyers brferred to defer their purchases, commercial buyers and lessees were under compelling cost brssures and could not undertake new leases. On the other hand, real estate developer could not reduce rates as they were incurring costs both for inputs costs as well as financing costs. This lead a significant inventory pile up across sub-segments and key cities.

However, there was a sense of optimism for the real estate industry as the government brought in key reforms and changes. These include notification by Securities and Exchanges Board of India (SEBI)'s notification regarding Real Estate Investment Trusts (REIT) that will make REIT more feasible, and amendment to Foreign Direct Investment rules reducing both the minimum size and investment requirements. New initiatives like Smart Cities and Housing for All by 2020 are expected to go a long way in reviving the fortunes of the real estate business.

Residential

According to a recent report by Knight Frank Research, there was a sharp decline in both sales as well as new launches in 2014 compared to 2013.A total of 234,930 units were sold during 2014 compared to 284,550 units in 2013, while 268,950 units were launched in 2014, against 372,160 units in 2013. Mumbai had the highest slowdown in new launches at 43 per cent . Mumbai also has the highest number of unsold units in India, at more than 200,000 as of December 2014 However, as far as sales volumes are concerned, Mumbai retains the top spot among the six cities.

Commercial Real Estate

The commercial real estate sub-segment has been the worst hit in the last few years with supply far out-stripping demand. According to a report by JLL research report, the supply of office real estate was higher than demand by 4 million sq.ft. to 10 million sq. ft. till 2014. However, in 2014, developers started to strategically reduce supply with a view to improve the demand-supply balance. As a result, there was an improvement in vacancy rates from 18.5 per cent a year back to 17 per cent in 2014. According to a Knight Frank Research report, Mumbai has the highest vacancy rate at 23 per cent, followed closely by NCR.

Retail Real Estate

The retail real estate segment too fared poorly during 2014. One of the key factors affecting the segment was the explosion of on-line retail platforms who lured buyers across categories with a combination of deals and offers, media campaigns and delivery options. The effect was more telling on malls that were poorly located and badly managed.

During the year, many malls were forced to convert to office spaces as vacancy rates rose to alarming highs. In poorly built and managed malls, vacancy rates were as high as 20 per cent, while in better malls, vacancy rates were in the vicinity of 10 per cent. A few progressive mall developers took measures like revamping the tenant mix and bringing theme based shopping experiences, which are common in overseas markets

BUSINESS OVERVIEW

Cineline India Limited is part of the Kanakia Group - amongst the leading real-estate developers in Mumbai. The Company is head-quartered in Mumbai and listed on the Bombay Stock Exchange as well as the National Stock Exchange.

Cineline India Limited's operations are focussed on the western part of India, particularly in the state of Maharashtra and Gujarat. The Company owns nine multiplexes, one mall and two windmills.

The nine multiplexes of the Company are all leased out to PVR Cinemas. These properties of the Company ensure a steady cash flow in form of rental income. The Company's mall -Eternity Mall is located in the prime area of Variety Square in Nagpur. The mall has some of the leading Indian and international retailers as its tenants. The rental income from Eternity Mall also adds to the steady cash flow income. In addition to rent, the Company earns revenues in form car-parking charges as well as advertising charges from Eternity Mall.

The Company also has a brsence in the renewable energy space through its two windmills located at Viswada in Gujarat and Revangaon in Maharashtra. The capacities of these two windmills are 0.6 MWA and 1.6 MWA respectively. The power generated from these two windmills are sold and contribute to the total revenues of the Company.

REVIEW OF FINANCIAL PERFORMANCE

The total revenue for the Company for the year 2014-15 was Rs. 2659.74 lacs. EBIDTA for the year was Rs. 1965.16 lacs and PAT for the year was Rs. 394.94 lacs.

Opportunities and Outlook

After many years of facing stiff headwinds, the Indian economy is back on the high-growth track. Both the International Monetary Fund (IMF) and the World Bank have forecast the Indian economy to grow at a minimum of 7.5 per cent for the next few years. Further, oil prices are also expected to remain low in the foreseeable future, further boosting growth prospects in the country. On the back of sustained economic progress as well as benign inflation levels, consumer demand is expected to remain high.

In the real estate sector, there are already definitive signs of revival of demand, both in residential as well as commercial sub-segments. Buyers, who had deferred their purchases, are fast coming back as interest rates are now favourable. Initiatives like Make In India, Digital India, Smart Cities are all long-term programmes that will have a long-term impact on the real estate sector. In the commercial sub-segment, vacancy levels are expected to rise further as a growing business prospects is allowing key segments like BFSI, Telecommunications and ITeS to expand.

RISKS AND CONCERNS

The real estate business is a highly capital intensive business. The cash flow cycles are typically longer with substantial capital invested in land, planning and construction. On the other hand, sales are highly dependent on interest rates, while prices and margins depend greatly on market conditions. These are all business risks that are associated with the real estate projects. However, Cineline India Limited has a brdominantly rental business models with long-term agreements in place for its properties. Thus, many of the typical real estate risks are not applicable.

Material Development in Human Resources

Cineline India Limited has always given employee satisfaction a top priority. Ensuring a workplace that is safe and promotes performance and efficiency has always been in focus. The Company has a well-defined Code of Conduct that guides all employees in their interaction with the various stakeholders of the Company. The skill-sets of the employees are regularly upgraded through learning and development initiatives, workshops, seminars and programmes by the internal HR department as well as by professionals in the field.

The Company enjoyed a cordial relationship with all its employees during the year. As on 31st March, 2015, the total employees of the Company were 25.

Internal Control Systems and their Adequacy

Cineline India Limited has a combrhensive and commensurate internal control systems in place. The guidelines comprise of a well-defined frame-worked covering various aspects of governance, compliance, control, audit and reporting. All systems and processes are clearly documented, regularly appraised and updated, and strictly followed. The senior management of the Company regularly monitors all aspects of operations and accounts.

CAUTIONARY STATEMENT

This report contains forward looking statements that involve risks and uncertainties including, but not limited to, risk inherent in the Company's growth strategy, acquisition plans, dependence on certain businesses, dependence on availability of qualified and trained manpower and other factors. Actual results, performances or achievements could differ materially from those exbrssed or implied in such forward-looking statements. This report should be read in conjunction with the financial statements included herein and the notes thereto.