MANAGEMENT DISCUSSION Your Board of Directors hereunder presents the Management Discussion and AnalysisReport for the Financial Year ended 31st December 2009:
1. Industry Scenario:
The Indian media industry experienced challenging times in 2008-09. After two years ofdouble digit growth, the media market slowed down in 2008-as the downturn in the economicenvironment led to a steep decline in advertising expenditure by most advertisers. Digitalmedia, comprising Internet and mobile phones, continued to grow though on a small scaleand attract significant traction from the advertisers who are now splitting theiradvertisement budget in to multiple medias. While this trend has created new avenues ofdissemination of information, there is need for better IPR protection to the Contentdeveloped with painstaking efforts and a level playing field amongst various players inthe industry so thatthe advertisement revenue is distributed amongst them in commensuratewith the efforts put in.
The liberalization of Telecom sector through the National Telecom Policy of 1999 andentry of Private Telecom Operators has resulted in virtual boom with teledensity recordingan impressive growth year after year surpassing handsomely the earlier projections. At thesame time it has resulted in the decline in the market share of PSU's Telcos therebyaffecting adversely revenue generation possibilities in the Telephone Directory YellowPages (TDYP) segment of the Directional Media Industry, since only PSU Telcos i.e. BSNLwas following the Indian Telegraph Rules and publishing the Telephone directory. Thesituation further aggravated with BSNL taking a stand of not including the telephonenumbers of the private sector operators in the White pages published by them even if theadvertisers were willing to pay for the entry. The Teiecom Regulator TRAI after dueprocess has recommended the issue of guidelines for publication of Integrated Directory ofall Operators in April 2008. However, the New Guidelines are yet to be implemented. Theimplementation of these guidelines is in the interest of the consumer as well as TelephoneDirectory Yellow Pages (TDYP) segment of the directional media Industry.
2. Business Overview:
During the year under review, reeling under recession many SME advertisers werecompelled to restrict / postpone advertising expenditure. This drastically affected therevenue generation potential of the company in major part of the year and the publicationdates of several directories had to be rescheduled and postponed. The paper prices whichwere ruling high during initial period of the year stabilised at lower level in the secondhalf of 2009. Despite these drawbacks, the Company successfully executed major telecomcontracts during the year under review. Moving forward and pending the implementation ofthe New integrated Telephone directory policy the Company emphasised on focusing on itskey markets with the publication of its Stand-alone Publications and provide multiplatformofferings to cater to the emerging market needs. The Company also introduced Health Guidesin major cities of operations. Rising Personnel cost coupled with high attrition continuesto remain a concern for the industry as a whole.
The Company continued to invest in the domain of Content Acquisition and maintainbusiness listings. Demand for the IPR protected content is expected to arise significantlywith the realisation of its importance in providing VAS in the Mobile industry. With theconsistent increase in fresh and updated database, the Content Licensing business of thecompany can play a significant role in increasing the total revenue of the Company incoming years. Further Investment need to be made in the marketing and upgrading the database infrastructure.
3. Results of Operation and Accounting Method:
Your Company follows method of accounting income and expenditure on the publication ofdirectory and rendering of the services. As per the audited financial results for the yearended 31st December 2009, the turnover has been Rs. 14.59 Crores as against Rs. 23.37Crores for the previous Financial Year. As against a profit before tax of Rs. 1.35 Croresfor the previous financial year, the loss before tax for the year stood at Rs. 3.94Crores. There has been significant impact on the turnover and profitability mainly onaccount of less advertising orders and steep increase in the paper prices. The cash-flowsof the Company were affected on account of reduced market collection from operations. Eventhough the Company significantly cut its infrastructure costs to keep up the margins,there has been working capital gap throughout the year, on account of which there has beensome delays in payment of certain statutory liabilities.
4. Internal Control System:
The Company has internal control systems whereby the internal audit of the accounts,controls, processes and systems take place periodically. Major observations of theinternal audit are submitted to the Management and reviewed by the Audit Committee of theBoard. The scope of internal audit is reviewed in line with the growing complexity in thebusiness and increasing portfolio of the products / services.
5. Human Resources:
Your Company continues to accord importance to the human resources and recognizes thechallenges in keeping them abreast of latest developments. They play a pivotal role intaking up new lines of business. Continuous efforts are made to train the employees andinduct fresh talent. The total number of employees on role on 31st December2009 was approximately 100 as against 180 on 30th June, 2008. The decline in number ofemployees was due to cost rationalization measures adopted by the Company during the year.Besides this Company has large numbers of franchisees and associates throughout thecountry for the existing and new line of business. The relations with Employees have beencordial during the year.
6. Business-wise or Product-wise Performance:
During the year 2008-09, turnover from the traditional business of advertisements andsale of Directories to BSNL accounted major portion of total turnover. This business ofprint publication includes several products like Telephone Directory with Yellow Pages,Standalone Yellow Pages, Regional Business Directory, and newly introduced Health Guide.Contents of these publications are also available on the CD as well as hosted on thewebsites www.indiacom.com and www.tellme.co.in. After the completion of BSNL TDYPcontracts and riding on the popularity of the brand 'Indiacom', the Company has come outwith its Stand-alone Publications in most of the cities of its operations. Thesepublications with inclusion of private telecom operators' numbers and new value-addedfeatures like email-id website & maps coupled have proved to cater to the need of thedirectional information and leads to the advertisers.
During the year, the Company continued to expand its activity of licensing its contentwith more focus on geo-coded listings. The Company has developed in-house software andtools to facilitate data processing of the database. Major search engines continued todisplay contents provided by the Company on their Local Portals. This has given morevisibility to the SME's and re-enforced the reliability factor of the brand Indiacom as apioneer in information services in the Country.
7. Opportunities and Threats:
The delay in implementing TRAI recommendations on Integrated Telephone Directory Policyposes a threat in the achievement of full potential of the TDYP industry. This concept iswell established in developed world particularly EU and US and not getting implemented inIndia resulting in on one hand denial of a convenient mode of access of all telephonenumbers to users and on other hand loss of potential revenue arising out of this media.Several players with short-term approach are in print and On-line YP market place who bytheir unviable price quotes for advertisements are causing confusion in the advertisers'mind and exerting pricing pressure which could impact the bottom-line of serious playersin the industry.
The recent rulings in an Hon'ble High Court on safeguarding Intellectual PropertyRights of the content owners, augurs well for increased scope & demand for IPRprotected content. This may add significantly to the top-line and bottom-line of theCompany. Cost of self-acquired and maintained database will restrict the entry of smalltimers to enter this arena and hence, they are unlikely to progress beyond a point. Delayin implementation of telephone numbers portability is imposing avoidable extra cost andburden on the televalidation activity. In the long run well categorized and validated IPRprotected content will have greater scope in the increasing possibilities of itsapplication in different sectors.
8. CAUTIONARY STATEMENT:
Management Discussion and Analysis Report is in compliance with the provisions of theListing Agreement with Company's Stock Exchange and such statements may beforward-looking statements within the meaning of applicable securities lawsand regulations. Actual results might differ materially from those expressed or implied.The factors that could make a difference to the Company's operations are the economicconditions in the domestic and global markets, changes in the regulatory framework,taxation laws and other statutes, changes in the consumer preferences, the technologicalchanges and user behavior, etc.