Management Discussion and Analysis

Forward-Looking Statements

This report contains 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 import. All statements that address expectations or projections about the future, including but not limited to statements about the Company’s strategy for growth, product development, market position, expenditure, and financial results, are forward-looking statements. Forward-looking 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 di3er materially from those projected in any such forward-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.

Overview

Indian Economy and Media and Entertainment Industry

Theeconomicgrowthfortheyear2015-2016isestimated to be same as it was a year before. Maintaining a growth of over 7% with the expectation of still higher growth in 2016-17 is truly incredible. The global economy has numerous challenges to address but India is expected to deliver a progressively higher growth because of its strong macroeconomic fundamentals, demographic advantage, strong domestic demand, government’s push on rural infrastructure and investment in general and other confidence building measures being taken up by the government. In the year 2016-17, urban as well as rural demand is expected to get an additional boost from the implementation of the recommendation of the 7th Pay commission as well as policy of One Rank and One Pension and a good monsoon after couple of years of drought.

We believe that India is currently at the inflection point of the next level of growth which will be achieved through a healthy mix of investment and consumption instead of growth which is only consumption driven and was the outcome of first phase of reforms. The blended growth now being targeted is more sustainable in the long term.

The performance of the media and entertainment industry is invariably an outcome of economic activity and the consumer sentiment. The industry gains additionally if the economic growth is driven as much by the consumption as it is driven by investment. We expect substantially increased consumer spend in the year 2016-17 in general and in particular in the states, which are investing in inclusive development. We, therefore, see a more rewarding 2016-17 for the media and entertainment industry.

The year 2015-16 witnessed the industry recording its highest growth in the past three years. While stability in the economy is one of the key reasons for the growth, we also believe that confidence that India is back on the path of a sustainable growth seems to be the real trigger for the industry.

Besides the growth, the year 2015-16 was remarkable even otherwise for all the segments of the industry. For the television industry, birth of Broadcast Audience Research Council (BARC) was a huge positive as the industry now has more relevant and credible viewership data which augurs well for future and faster growth. For the print industry, this was perhaps the only year in the last decade when the circulation revenue grew faster than the advertisement revenue.

In the Radio Industry, the long awaited Phase-III auction could conclude successfully. The roll out of new stations will expand the reach of this mass medium and the broadcast of news whenever allowed by the government will be the high point for the industry. While digital continues to grow dramatically it still has very low penetration at merely 1/3rd of the total population. Digital infrastructure and the high cost of internet compatible mobile handsets will continue to be the challenges for rapid expansion of this medium, but the government’s push behind digital is a welcome e3ort. We believe that the rollout of 4-G is likely to be a landmark step and it will go a long way in providing internet to the common man at a3ordable prices.

Other forms of media such as OOH continue to remain small in size in relation to the total media industry. The fragmentation and domination of this medium by the unorganised sector is the bottleneck in realising the true potential of this medium. The entertainment industry, of which film is the key constituent, is largely dependent on the mass appeal of the films. The year 2015 was far more satisfactory for the film industry as compared to the earlier year and therefore for whole of entertainment industry, which registered a growth of nearly 8% as against negligible growth in the previous year.

Print Industry

Print industry continues to grow and remains the second largest constituent of the media industry. This year too, there was an increase in circulation numbers as well as increase in cover prices. The purported price sensitivity of the media consumer in India has neither been experienced nor is expected to be experienced by this industry at least to the extent it is talked about by the people because India, unlike western world, continues to carry very low cover price with newspaper delivered at the door step.

While there continues to be strong advocacy of free content, we believe no credible quality content can be created without incurring costs. The reporters, editors/ producers and technology do not come free and expecting advertisers or others to pay for the consumers of content is unfair and economically unsustainable for the industry. The newspaper industry is the largest producer and provider of trustworthy content to the whole universe of the business of news through the tireless e3orts of millions of reporters / editors working fearlessly day in and day out risking at times their lives and digging out stories reaching some of the remotest areas, which no other media can hope to replicate. Therefore, it commands the price for its content not only from its readers but even from those who use its content to earn their revenues.

It is this ability of keeping people informed on the happenings surrounding them and trustworthiness of the print media which will ensure that it always remains relevant, in spite of the renewed debates about its fate in the face of the roll out of 4G. Globally, the print medium faced challenges due to a lack of focus on localisation of content, complacency by not embracing technology and allowing it to disrupt the existing business model and not developing the display advertisement market (in which local market has a key role to play) to the extent required. The Indian print industry has learnt from these mistakes and is ensuring that the same are not replicated.

There are also several socio cultural Differences between India and the western world which critics lose sight of. Some of the key Differences that support the Indian print industry are door delivery of newspapers coupled with extremely low cover price, significant advertisement spend by government and its newspaper friendly policies, deeper reach, the wide gap between " can read" and " do read" population and a very low consumption of media in general in the country. All forms of media complement each other and have to co-exist if India has to catch up with the global average of media consumption first and then the media consumption in advanced countries which is way ahead of the global average. India is a country where there is room for everyone to grow provided we have the agility to identify the need gap and the willingness and the ability to fill that gap e3ciently. If we fail to understand this, we can neither blame the industry nor anyone else but only ourselves for the loss. The industry would grow irrespective of whether we grow or not.

In terms of percentage, growth in advertisement revenue in the year 2015-16 was similar to that of the previous year but in reality it is better than what the numbers show as in the current year, inflation was lower. However, there was some loss of share of print in the total pie. Part of this loss can be attributed to magazines where the trend is not expected to be reversed and part of this loss is attributed to the rigidity of certain print players who allowed the advertisers either to shift their budget to other mediums or not to advertise at all; not out of choice but because of un-a3ordability.

We must also recognize that the loss of share is imminent when new mediums emerge and evolve. We believe all forms of media complement each other and if each vertical and player delivers desired profits and return on investment, the overall industry will feed off each other and grow. If print is losing some share, it is well placed to compensate this loss by increasing its share in digital which is an integral part of the print industry.

As far as various categories of advertisers are concerned, FMCG, Auto and Education continue to be the top 3 categories for print amongst commercial advertisers. Print showed a growth across almost all major categories including these three. The two important categories which did not do well were BFSI and Real Estate which are interest sensitive sectors but are now likely to do better with moderation in rate of interest.

Although there is neither a threat to the industry nor is it likely to starve due to lack of desired growth, it has its own problems which need quick redressal if it has to capitalise on the opportunities which Emerging India is offering to everyone. These include the uncertainty about an authentic readership survey which is the only relevant measurement tool for assessing the e3ectiveness of a newspaper in India, lack of innovation, slower adoption of technology, ine3ciencies in the system, fragmentation and unfair trade practices adopted by a select few publishers. The industry also needs to recognize that as it becomes larger in size with significant business and economic outcomes, it can no longer remain a vehicle of power or an entity meant for social good alone. Thus, in sum, the outlook for the print industry is bright provided it learns to become more adaptable in dealing with the highly competitive environment around it and demonstrates the acumen of a truly commercial enterprise.

Please also refer to an article titled "As Digital Fatigue Sets In, Readers are Waking Up to Newspapers" published by the Editor and Publisher on 2nd May 2016 on the future prospects of the newspaper in the world.

Web link to read the article: http://www.editorandpublisher.com/feature/as-digital-fatigue-sets-in-readers-are-waking-up-to-newspapers/

Radio Industry

A significant movement in current fiscal was the start of the next stage of growth with the completion of Part I of the Phase III auctions, migration of existing operators from Phase II to Phase III and the announcement of the hike in the foreign direct investment (FDI) cap for FM radio from 26% to 49%.

The radio players spent Rs. 1056 crores to acquire 91 new stations and Rs. 1967 crores for migration of their existing 243 stations to Phase III in 2015. Part I of Phase III rollout fortifies the government’s commitment to see FM radio proliferate to more than 85% of India – reaching newer cities and audiences and its rollout was the cause of much optimism within the industry.

Radio’s share of the overall pie is estimated to continue at 4% in the short term. However growth is likely to surpass the current CAGR of 14.5% and the industry can expect to reach a size of 6% of the advertising wallet in the medium term as and when Phase III is rolled out in its entirety.

In Phase III, some of the players acquired second frequency in the existing cities. However, we believe that acquisition of second frequency is not likely to increase the current listener base to attract more advertisement as the creation of Difference in content is unlikely. We also believe that given the similarity of content between two stations in the same city, acquisition of second frequency at such high prices will make the economic viability still more di3cult especially in cases where advertisement inventory is not yet fully utilised in the existing stations. However, Music Broad Cast Limited would be open to acquiring second station in a select few towns should the frequency become available at a later date at reasonable prices.

Digital media

The digital advertisement spend was higher than expected in 2015, growing almost by 38.2% over 2014 to reach Rs. 60 billion. It is expected to cross Rs. 255 billion in 2020. Currently, in India, the digital advertising constitutes about 12.6% of the total advertising market and is expected to grow to 26% of the total advertising market by 2020. Increasing second screen consumption, growing mobile internet and device penetration and technology innovations will drive digital advertising growth at a CAGR of 33.5% over the next five years.

One of the biggest growth drivers for digital advertising in India is regional markets where current internet penetration is still lower. The India internet story has to be driven by languages since 88% are non- English speakers. Increase in local language content on Internet will significantly increase the current Internet user base and as a result share of digital advertising in local language is expected to rise from 5% to 30% by 2020. This is where print players who are well versed with the local markets and are strengthening their digital presence will have an edge over others and attract good amount of revenue.

These expectations are of course dependent on creation of suitable digital infrastructure in the country at the earliest. Besides 4G, the government’s push will also go a long way in helping the cause.

The Company, its Subsidiaries and Associates (collectively referred to as Group)

The Group comprises Company, its two operating subsidiaries, two operating associates, and 5 other subsidiaries which do not have any business operations. Subsidiary Midday Infomedia Limited (MIL) is a publisher of English daily Midday, Gujrati daily Midday Gujrati and India’s largest read Urdu daily Inquilab. Its operations are primarily in Mumbai, although its Urdu daily is published and circulated in various towns of north including Delhi. The other operational subsidiary is Music Broadcast Limited (MBL) which operates FM radio in the brand name of Radio City from 20 stations across 9 states and has added 3 more states to its bouquet through phase III. The two operating associates are in the outdoor business and are not significant. The Company has plans to exit from these two associates with a complete exit from outdoor media. Out of the 5 non-operational subsidiaries, 3 namely Suvi Info -Management (Indore) Private Limited, Spectrum Broadcast Holdings Private Limited and Crystal Sound and Music Private Limited are in process of being amalgamated into the Company. The Group also includes Music Broadcast Employee Welfare Trust which is wholly controlled by the Company. The trust holds 7.18% of the equity capital of MBL with negligible transactions during the year.

In the year under report, the Group continued to expand and scale up its operations. The Group completed the acquisition of one of the strongest radio assets of the country known as Radio City, crossed the mark of Rs. 2000 crores in sales and went past Rs. 500 crores of operating profit. Foray into Radio Industry was strengthened by acquiring 11 new stations and finalising the takeover of a network of 8 stations from the promoters through the process of demerger. For strategic and focussed expansion of digital business, we worked closely with one of the foremost consultants in the digital space to outline the next 5 years going forward strategy with an objective of becoming a significant player in the digital media space, as Jagran is in the print space, both in terms of revenue share and consumer base. The going forward strategy would revolve around concentrating on the key verticals of high e-CPM categories and markets like UP and Bihar, which are markets of strength for the Group and will drive digital growth in future. The said plan has been rolled out.

While pursuing growth, we have never lost focus on profit and accordingly discontinued the publication of loss making English weekly City Plus from August 2015 and fortnightly magazine Josh Plus from April 2016. This step has not only saved significant recurring losses but more importantly this has also saved precious management bandwidth. The money saved will be invested in expansion of digital as discussed above.

As reported in the previous year, the management has already decided to exit from outdoor advertising and event management businesses as these are dominated by the unorganised sector and scalability remains an issue in both the cases. Even though outdoor advertising has some profits and event business too is expected to turn into profit in the current year, the management believes that the returns are not commensurate with the investment and the e3orts required to be put in. We have not yet succeeded in our endeavour but we continue to look for an exit that helps us recover our investment at least.

The Group’s existing print businesses once again outperformed the industry with a growth of 10% in advertisement revenue which is the best amongst comparable peers and far higher than the industry’s growth rate. The brand strength, market position, opportunity available in its areas of operation and its strategy to drive growth are the reasons for this remarkable performance. The Company invested in increasing circulation of Dainik Jagran as well as

I-Next which was converted into a broadsheet format from September 2015. The relaunched I-next had an immediate acceptance from the readers and its circulation shot up by more than 50%. It has also given incremental advertisement revenue but it will take some time before the expected revenues start flowing in. We are confident that despite increase in circulation and conversion from compact to full size newspaper, I-next will continue to remain in profit. Increase in circulation of Dainik Jagran was coupled with yet another improved Per Copy realisation.

Naidunia’s performance was better than the previous year as it has improved its profits through near a double digit growth as against no growth in advertisement revenue and cost control measures. However, as it had remained below expectations, the management restructured the top management team. Given the past track record and experience of the new team, it is hoped that Naidunia will deliver on the expected lines in the year 2016-17.

In terms of profit, the contribution of MIL and Punjabi Jagran was outstanding. MIL had an operating profit of Rs. 22.86 crores (previous year Rs. 13.04 Crores) with margin of 20.00%. Punjabi Jagran reported operating profit of

Rs. 6.38 Crores (previous year loss of Rs. 0.72 Crores) with margin of 30.42%. In case of MIL, its consistent growth in advertisement revenue since December 2015 is remarkable if it is seen considering the fact that its area of operation is primarily Mumbai which every media pundit considers to have already stagnated for print. This turnaround has come primarily through improved per copy realisation, growth against de-growth in advertisement revenue in second half of the year, stable cost structure, continued good performance of Inquilab. We remain optimistic about Midday and expect that 2016-17 to be still more rewarding. Punjabi Jagran surprised positively with its profit numbers achieved from a very high growth in advertisement revenue; albeit on a low base.

In the year 2015-16, with over 671 thousand Average Daily Visitors to its websites, the Group was ranked

#1 Language Media Group and #5 News Media Group in the country in digital. Despite the high intensity of competition, the Company’s education portal JagranJosh.com continues to be rated #1 and its news portal Jagran.com too has been rated #1 Hindi news portal by COMSCORE (Web + Mobile - March 2016). The Jagran digital network reached on an average of 15.35 Million monthly unique visitors and delivered

228 million page views in a month. We have added more languages and local coverage and have thus augmented the company’s online offerings. Its multi-platform approach now serves users on web, mobile and applications (apps).

Radio revenues grew at 13% over the previous year. The growth drivers were increase in e3ective rate (ER) of 7% in all markets and growth of around 8% in volume in identified focus markets in Tier-2. Additionally, there was increased focus on key clients and categories which helped increase the market share in the critical client list by 2% over our average share. E-commerce companies emerged as big spenders in 2015-16 in radio. Internet start-up companies were aggressive in their communication with high emphasis on tactical promotions and on customising their offers for local and regional markets. Radio City was able to garner a higher share of these clients through a focussed approach which resulted in a contribution of 8% from the E-commerce category, which was 1% higher than the rest of the industry. Other critical categories for Radio City were Government, Real Estate, Finance and Auto.

In Phase III, Radio City implemented its stated philosophy of expanding in top tier towns, building its footprint in key states like UP and Rajasthan, which were complementary to the Group and ensuring the possibility of creating cost e3ective networks like the Maharashtra network in its portfolio. Radio City also successfully concluded the migration of its current 20 stations to Phase III on payment of the originally anticipated amount of Rs. 211 crores. The Company’s radio business will further be strengthened after demerger of radio business currently run under the brand name Radio Mantra gets completed in this fiscal.

The balance sheet of the Group continues to be strong due to robust cash accruals from print as well as radio businesses and as a result CRISIL has rea3rmed its credit rating AA+Stable for long and medium term and A1+ for short term in respect of the Company, AA(-)/stable for long term in respect of MIL and AA Stable for long term in respect of MBL.

Awards and Recognitions

1. April 2015 : DainikJagran wins Silver at Asian Media Awards of WAN IFRA in the category "Best in Newspaper Marketing" for its campaign "E KachraCampaign"

2. April 2015 : DainikJagran wins Bronze at Asian Media Awards of WAN IFRA in the category "Best in Community Service" for its campaign "Jan Jagran for Democracy"

3. April 2015 : DainikJagran wins the Gold at the Asian Consumer Engagement Forum (ACEF) for the "Most Admired Customer Engaging Newspaper"

4. April 2015 : DainikJagran wins the Gold at the Asian Consumer Engagement Forum (ACEF) in the category "Best in Newspaper Promotion" for its campaign "JagranSanskarshala"

5. April 2015 : DainikJagran wins the Gold at the Asian Consumer Engagement Forum (ACEF) in the category "Best in Newspaper E3ectiveness" for its campaign "E KachraCampaign"

6. April 2015 : DainikJagran wins the Silver at the Asian Consumer Engagement Forum (ACEF) in the category "Successful Use of CSR Activity" for its campaign "Ganga Jagran"

7. April 2015 : DainikJagran wins the Silver at the Asian Consumer Engagement Forum (ACEF) in the category "Best in Newspaper Promotion" for its campaign "Ganga Jagran"

8. April 2015 : DainikJagran wins the Bronze at the Asian Consumer Engagement Forum (ACEF) in the category "Successful Use of CSR Activity" for its campaign "E Kachra Campaign"

9. April 2015 : DainikJagran wins the Silver at the Asian Consumer Engagement Forum (ACEF) in the category "Best in Newspaper Promotion" for its campaign "Jan Jagran for Democracy"

10. April 2015 : DainikJagran wins the Bronze at the Asian Consumer Engagement Forum (ACEF) in the category "Best in Newspaper E3ectiveness" for its campaign "Ganga Jagran"

11. April 2015 : DainikJagran wins the Gold at the Abby Awards at Goafest conducted by Bombay Ad Club in the category "Best Marketing of a Newspaper" for its campaign "Ganga Jagran"

12. April 2015 : DainikJagran wins the Silver at the Abby Awards at Goafest conducted by Bombay Ad

Club in the category "Best Cause Related Marketing Initiative" for its campaign "Ganga Jagran"

13. April 2015 : DainikJagran wins the Silver at the Abby Awards at Goafest conducted by Bombay Ad Club in the category "Best Cause Related Marketing Initiative" for its campaign "Bharat RakshaParv"

14. April 2015 : DainikJagran wins the Bronze at the Abby Awards at Goafest conducted by Bombay Ad Club in the category "Best Publishing Brand Activation" for its campaign "Ganga Jagran"

15. May 2015 : DainikJagran wins 1st Place at the INMA Awards in the category "Best Idea to Encourage Print Readership or Engagement" for its campaign "Jan Jagran for Democracy"

16. May 2015 : DainikJagran wins 3rd Place at the INMA Awards in the category "Best Public Relations or Community Service Campaign" for its campaign "E Kachra"

17. May 2015 : Radio City wins the award for RJ of the Year (Hindi)- RJ Ginnie at IRF Excellence in Radio Awards

18. May 2015 : Radio City wins the award for RJ of the Year (Kannada) - RJ Pradeepa at IRF Excellence in Radio Awards

19. May 2015 : Radio City wins the award for Excellence in New Media Initiative -Slappiesat IRF Excellence in Radio Awards

20. May 2015 : Radio City wins the award for Best Radio Promo (In-house) (Marathi)- Ganpati Guards at IRF Excellence in Radio Awards

21. May 2015 : Radio City wins the award for Best Radio Promo (In-House) (Tamil)-Radio City Blue Carpet at IRF Excellence in Radio Awards

22. May 2015 : Radio City wins the award for Best Radio Programme (Kannada)-City Mathuat IRF Excellence in Radio Awards

23. May 2015 : Radio City wins the award for Best Breakfast Program (Telugu)-RJ Shiv atIRF Excellence in Radio Awards

24. June 2015 : DainikJagran wins Bronze at the WOW Awards in the category "On Ground Promotion of the Year for Brand Awareness" for its campaign "JagranYuvaSampadak"

25. June 2015 : DainikJagran wins Silver at the WOW Awards in the category "Contact Programme of the Year" for its campaign "JagranSanskarshala"

26. June 2015 : Radio City wins Silver at the WOW Awards in the category "Digital Presence for a Property" for its campaign "Radio City Freedom Awards"

27. August 2015 :Jagran Prakashan Ltd wins the QCI – D L Shah Silver Award on excellent performance in continual process improvements in the field of ‘NEWSPRINT WASTE REDUCTION".

28. August 2015 : Jagran Prakashan Ltd was awarded the prestigious Dataquest Business Technology Award for ‘Excellence in the use of Technology for Business Benefits’

29. September 2015 : Radio City wins the award for RJ Promotion - Radio City Love Guru at Big Bang Awards – Bangalore

30. September 2015 : Radio City wins the award for Radio City Super Singer – Season 7 at Brand Excellence Awards

31. September 2015 : Radio City wins the award for CEO, Woman Personality of the year at Brand Excellence Awards

32. October 2015 : Jagran Prakashan bagged the prestigious PrintWeek Quality Award-- "Newspaper Printer of the year 2015".

33. Nov 2015 : Jagran Prakashan bagged The ICONIC IDC Insights award 2015 for Excellence in Innovation.

34. March 2016 : DainikJagran wins Bronze at Asian Media Awards of WAN IFRA in the category "Best in Community Service" for its campaign "Aligarh Lake Campaign"

Risks and Concerns

The management regularly reviews various businesses and operational risks. It has instituted appropriate control procedures to mitigate those risks. The Group’s senior management team identifies risks and the steps are taken to mitigate the same. The management works to make optimum use of the technology to strengthen the controls, minimise or eliminate human intervention in various processes to the extent possible and thereby mitigates the operational and reporting risks.

As on date, the management identifies following risks:-

Print:

1) Adverse change in macro-economic conditions

Low economic growth, high inflation, high interest rate and volatile global economic conditions may hurt the overall consumer sentiment which will negatively impact the consumption and thus media.

Management Perception

We do not expect any of the above risks except the volatility in global economic conditions and consequent low global growth. However, global event should not impact media enough to cause worry. Further, the management’s ability to identify adverse events in a timely fashion and take corrective action has always helped the Company minimise the impact of any adverse economic conditions. Additionally the Company’s business model provides enough flexibility to adjust its operation and scale to prevailing economic conditions.

2) Over dependence on advertisement revenue

The Group derives 74% of total revenue from advertisement. Shortfall in expected growth in revenue for any reason will disproportionately reduce the growth in profits or result in lower profits because advertisement revenue has high operating leverage

Management Perception

This is a risk applicable to whole industry and impact of low revenue growth cannot be fully nullified. Recognising this risk, the management always looks for opportunities in taking increase in cover price and utilising its printing and other infrastructure to generate revenue from other streams such as job work. Currently job work is being done at various printing facilities across the country to ensure optimum utilisation of available print facilities.

3) Competition

India’s print market is highly fragmented; there is sti3 competition, which challenges the profit earning capacity of a print company. Similarly, other media platforms, especially digital are also posing a threat.

Management Perception

The Company strongly believes that no media platform can be a substitute for the other. Print media has its own inherent advantages which include credibility, local content, easy accessibility and low cost of content. Therefore, it cannot be replaced by digital or any other media platform. Digital is simply a form of delivery of content, the largest producer of which is the print.

As far as competition from peers is concerned, the Company has always emerged as a winner on the strength of its content and brand.

Please also refer to the section titled as ‘Print Industry’.

4) Newsprint price fluctuation

Newsprint as the primary raw material represents a significant portion of overall expenses. It was 31.5% in 2016 and 34% in 2015 of total operating revenue of print business of the Group. Traditionally, newsprint prices fluctuate widely. This trend, coupled with the foreign exchange rate fluctuation may adversely impact profitability.

Management Perception

We expect the prices to remain stable, given continued low prices of fuel, global demand being under pressure and dollar remaining stable. Further, the Company has already tied up the required quantity of imported newsprint for the entire year. Therefore, any fluctuation in international prices of newsprint will be immaterial.

5) Absence of trustworthy readership survey has an adverse impact on the Company, which has been the leader in the industry since 2003

Management Perception

A readership survey is the most important source to assess the strength of a publication, especially in countries like India where readership per copy (RPC) varies widely from location to location and it also depends upon factors like size of family, prosperity and literacy. However, for the government, it is the certified circulation that matters. Similarly, for local advertisers response to advertisement on immediate basis is of primary concern. Thus, readership findings are more relevant for the national or large advertisers than for any other advertiser.

Nevertheless, the importance of the readership survey for the advertisers, especially large ones, cannot be overemphasised and the industry has to resolve the issue at the earliest in its own interest.

6) Wage Board Award

A select few employees have approached the Supreme Court alleging that the Company is not compliant with the Wage Board recommendations, notified by the central government in 2011. The apex court’s decision against the Company may result in significant financial burden.

Management Perception

This is not a company specific problem and such allegations have been made even against other print media companies, especially those with large operations.

As per legal advice received, the Company is fully compliant with the recommendations and is strongly opposing these allegations. Various establishments of the Company have already been inspected by the labour department of some states. In all such inspections, the offcials have categorically confirmed the compliances by the Company.

7) Digital

If the Group is unable to maintain its position and scale up its operations, it may not be able to attract planned revenue. Further, it may face fierce competition for revenue from local as well as international giants like Google and Facebook which have lion’s share in digital pie.

Management Perception

The Group has firmed up its digital strategy keeping in view these challenges and expects that it will continue to succeed as hitherto with appropriate investment as committed by the management. Further, the Group believes that digital complements print in which the Group holds a leadership position and that future growth of digital in India will be driven by those like JPL who are rich with regional content.

RADIO

As the industry gets ready for Phase III, issues apart from macro-economic changes that could impact it negatively are an inordinate delay in the setup of the infrastructure being provided by BECIL for the new stations and a further delay in the auctioning of the balance Phase III licenses. Also as digital grows across all frontiers, a rationalization of music royalties on digital platforms, as happened in the case of terrestrial radio, could go a long way in ensuring that both the music creators and music aggregators and distributors such as radio stations across technologies flourish and grow. However for that to take place, the music industry needs to see the big picture and not get blinkered by short term gains

Internal control systems and their adequacy

Adequate internal control has been put in place, in all areas of operation. The role and responsibility of all managerial positions are established, monitored and controlled regularly. All transactions are authorised, timely recorded and reported truly and fairly.

During the year, the management has tested internal financial control (IFC) and addressed the deficiencies which came to the notice. In this exercise, the management was assisted by one of the big 4 accounting and consultancy firms. In addition, various IT processes including those relating to generation of reports were evaluated and documented to bring in absolute transparency. As part of an ongoing process, the Group further strengthened internal control in various other areas and further increased the use of technology wherever it is possible. The Group has also started implementation of one of the most robust software purchased from a vendor of international repute for various pre-printing processes which aims at improving the e3ciency and minimizing human intervention in a few processes.

To ensure adherence to the laid-down systems, apart from internal reporting and monitoring, the Company has put in place formal Internal Audit System, commensurate with the size and nature of the business. Internal audit is conducted by one of the big 4 accounting and consultancy firms and they submit their report to the management as well as audit committee periodically.

The Group is fully committed to continually work in strengthening the systems and processes so as to achieve the highest degree of transparency, e3ciency and accuracy in reporting, monitoring and decision making.

Segment performance

Till the previous year, the Company did not have any reportable segment other than print under Accounting Standard 17 on Segment Reporting as notified under the Companies Act. After acquisition of Radio City, the Company has more than one segment to be reported. Please refer to Note No.43 to the financial statements for the performance and investments in various segments of the business. In terms of revenue, print constitutes 87%, radio 9% and other remaining businesses 4% of the total revenue. In terms of operating profit, radio has the highest margin and event has negative margin. Amongst various print brands, Dainik Jagran has the highest margin. As far as return on capital is concerned, print has the highest and outdoor and event businesses both put together have the negative return.

Financial performance

Figures of the previous year have been recast wherever required to make them comparable with the current year’s figures. Further, the figures have been rounded off to nearest lakh of rupees.

The Company (Standalone)

Profit and Loss:

REVENUE ANALYSIS

( Rs. in lakhs- rounded off to nearest lakh)
2015-16 Percentage (In relation to Revenue from Operations) 2014-15 Percentage (In relation to Revenue from Operations)
Revenue from Operations 180402 100.00 166172 100.00

Sales and other operating income

Advertisement revenue accounts for 74.8% (previous year 73.7%) and Circulation revenue accounts for 22.4% (previous year 23.3%) of the total print revenue.

The Company recorded growth in advertisement revenue far ahead of the industry, in spite of the fact that the base included revenue from City Plus (which was closed down from August 2015) and also some revenues from General Election. All publications grew their advertisement revenues near double digit. Punjabi Jagran and I-Next, however, did exceptionally well by registering a growth of 39% and 18.50%. Digital stepped up its growth to 48.8% from the previous year. In case of print, the growth was achieved through mix of more e3cient utilisation of advertisement inventory, increase in space and improvement in yield in some cases. Digital grew by selling more inventory and improving its e-CPM rate which is still far lower than what our strength should command. It has therefore scope for significant improvement.

Circulation revenue increased on expected lines. However, in case of Naidunia we had to defer the planned growth in circulation due to the market conditions. Our growth in circulation revenue is lower than that reported by some of our peers because our cover prices were already significantly higher and continue to be the highest even now. We, therefore, do not have much of scope to take further increase without the competitors increasing the cover prices further. However, since we believe in increasing cover prices, we have taken and will continue to take increase wherever there is an opportunity because we firmly believe that the cover prices in India are still very low and can be increased further without any loss of circulation provided we supply the quality and relevant content to our readers.

Revenues from job work, event management, outdoor advertising and other remaining streams which constitute 7.51 % (previous year 7.91%) of total operating revenue had hardly any increase as we are looking for exiting from outdoor and event businesses.

Please also refer the Section ‘The Company and its Subsidiaries’.

EXPENDITURE AND PROFIT ANALYSIS

( Rs. in lakhs- rounded off to nearest lakh)

2015-16 Percentage (In relation to Revenue from Operations) 2014-15 Percentage (In relation to Revenue from Operations)
Cost of Raw Materials consumed* 60194 33.37 59330 35.70
Employee Benefits 24683 13.68 23048 13.87
Other Expenses 45324 25.12 39922 24.02
Total 130201 72.17 122300 73.60
Operating Profit (EBIDTA) 50201 27.83 43872 26.40
Depreciation and Amortisation 8406 4.66 9507 5.72
Less: Net Finance Costs 3140 1.74 909 0.55
Finance Costs 5664 3.14 3524 2.12
Less: Other Income 2894 1.60 3000 1.81
Add: Exchange 370 0.21 385 0.23
Rate
Fluctuation
Loss
Profit Before Tax (PBT) 38655 21.43 33456 20.13
Taxation 13153 7.29 11101 6.68
Profit After Tax (PAT) 25502 14.14 22355 13.45
* Includes increase/decrease in stock, which is insignificant.

Cost of Raw Materials consumed

Raw Material comprises news print and ink. It has increased lower than the increase in volume of printing as news print as well as ink prices were lower. The price benefit, which was negligible, in Q4 was around 8% in case of newsprint and around 6% in case of ink.

Employee Benefits

Employee cost increased primarily due to annual increments and increase in bonus liability due to the legislative change. However, the increase was partly compensated by lower gratuity and leave expense, liability, for which is actuarially determined. The saving in these expenses is not account of any change in assumptions but because there was higher actuarial loss in the previous year. Leave expense was also lower because the management encouraged employees to take their due leaves to maintain work life balance which resulted in lower un-availed leaves at the year end.

Other Expenses

Other expenses represent all those expenses which do not get captured elsewhere. These are production, marketing and administrative expenses. Some of these like direct expenses relating to outdoor / event businesses and incentives are variable, some like power and fuel and stores are semi variable but most of these like promotion/ publicity, freight on newspaper distribution, communication cost and repairs are more or less fixed in nature and scale of business hardly has any bearing on these expenses. These fixed expenses include expenses which are capable of being controlled whenever required. Increase in these expenses is primarily due to steep increase in incentives to agencies due to increased sale, promotion expenses due to launch of editions in our areas by the competitor as well as to combat the competition in certain other areas and publicity/branding expenses. Increase in promotion, publicity/branding and incentive expenses was of Rs. 25.52 Crores, an increase of 37.62% over the previous year. Other exceptional increase is in provision for bad and doubtful debts and advances and diminution in value of investments. This has increased by Rs. 6.80 cores, an increase of 57.30% over the previous year. The remaining increase of Rs. 21.55 crores out of total increase of Rs. 53.87 crores in other expenses is 6.67% which, if adjusted for increase in scale of operations, is well below inflation and shows that the management does not lose sight of keeping overheads under check even when revenue growth is good.

Operating Profit increased as a result of above factors.

Depreciation and Amortisation: Depreciation is provided as per the written down value method, as against the straight line method adopted by the peers.

As a result, the depreciation remains significantly higher in the initial years. The charge is significantly lower on expected lines in this fiscal as in the previous year additional depreciation of Rs. 23.10 crores was provided due to revision in useful life of assets and revision of rates under the law. The increase in tax expense is almost proportionate to increase in income. Slight increase in applicable tax rate is due to increase in surcharge. There are certain ongoing tax disputes with the department where the Company has won first appeal and in some cases even second appeal. Therefore, the Company does not expect any liability arising out of settlement of these disputes.

Finance costs increased by Rs. 21.40 crores as compared to the previous year. Increase in finance cost was mainly due to payment of interest on loans from wholly owned subsidiaries and others to invest in working capital / radio business. The total finance cost includes an amount of Rs. 10.66 crores paid to a wholly owned subsidiary which is in process of amalgamation into the Company and to this extent the interest expense is cancelled on consolidation.

Other Income

Other income primarily comprises treasury income, miscellaneous income and profit on sale of assets.

This income is slightly lower as funds were either invested in Fixed Maturity Plan with maturity of 3 years on which income can be accounted for only on maturity or were utilized to complete acquisition of Radio City and payment of Dividend. Once IndAs becomes applicable from next year, income even on these investments can be accounted for on accrual basis as against current accounting principles which allow accounting of income only on maturity.

Exchange Rate Fluctuation Loss

During the year, the Company again su3ered loss aggregating Rs. 370 lakhs, as against Rs. 385 lakhs in the previous year. From next year, it is not going to be significant as long term ECB has since been repaid.

Profit before tax increased by 15.54% and profit after tax increased by 14.08% as a result of the above.

Balance Sheet:

Shareholders’ Funds comprise Paid up share capital and Reserves and surplus which in aggregate have increased by Rs. 255.02 crores representing essentially net profit for the year. The paid up capital has remained same as it was in the previous year. For details, refer to Note 2 to the Financial Statements.

Increase in these funds implies improved financial health of the Company and enhances its potential liquidity by adding to the capacity of borrowing.

Non-current Liabilities are long term borrowing, deferred tax liabilities and other long term liabilities and provisions.

Long Term Borrowings have increased from the previous year primarily because of increase in borrowing from Suvi Info-Management (Indore) Private Limited, a wholly owned subsidiary of the Company which is in the process of amalgamation into the Company. This borrowing will get cancelled upon amalgamation which is expected soon. On cancellation of this loan, the Company’s interest expense will also come down significantly. As far as other items are concerned, there is no significant movement needing explanation except that majority of the unsecured debentures from Company’s holding company have been redeemed during the year and premium accrued thereon has been paid after availing appropriate discount for earlier redemption.

Current Liabilities represent short term borrowings, trade payables and other current liabilities and short term provisions. There is a significant reduction in short term borrowings, short term provisions and other current liabilities. Short term provisions have come down as no dividend is proposed to be paid for the financial year 2015-16 whereas significant reduction in other two items is due to repayments of portion of long term loans which were due for repayment within 12 months from the close of the previous year.

Non-Current Assets comprise fixed assets, investments with maturity exceeding one year, loans and advances and other current assets realisable / expected to be realisable after one year. During the current year, net addition to the fixed assets was one of the lowest in recent past and was in the nature of maintenance CAPEX only. There is a significant increase in investment which is primarily because of acquisition of Radio City. Reduction in long term advances was primarily due to recovery of tax advances.

Current Assets represent investments with maturity of less than one year, trade receivables and inventories besides short term advances, current assets and cash and bank balances.

Investments are generally investment in units of mutual fund realisable in next one year. The increase is primarily due to shifting of investment from long term to short term as either remaining maturity period is less than one year or because the Company is keeping its option open to get these redeemed in next one year. Year end inventories were significantly lower as no increase in prices in short term was expected. Trade receivables have increased in proportion of increase in scale of operation and bank balances have decreased as the funds were utilised for payment to the seller of Radio City.

There is no significant Contingent Liability or Capital Commitment outstanding as on the date.

Consolidated Profit and Loss

( Rs. in lakhs- rounded off to nearest lakh)

2015-16 Percentage (In relation to Revenue from Operations) 2014-15 Percentage (In relation to Revenue from Operations)
Revenue from Operations 210,651 100.00 176,976 100.00
Operating Cost 151,695 72.01 131,921 74.54
Operating Profit 58,956 27.99 45,055 25.46
Less: Depreciation 10,439 4.96 10,354 5.85
Less: Net Finance Costs 1,777 0.84 901 0.51
Finance Costs 5,227 2.48 3,693 2.09
Less: Other Income 3,824 1.81 3,206 1.81
Add: Exchange 374 0.18 414 0.23
Rate
Fluctuation
Loss
Add: Extraordinary items 11,630 5.52 8,031 4.54
Profit Before Tax 58,370 27.71 41,831 23.64
Taxation 13,904 6.60 11,022 6.23
Profit After Tax (PAT)

44,466

21.11

30,809

17.41

Less/(Add): Share of Minority Interests in Profits / (Losses) - 15 0.01
Add/(Less): Share of Net Profit/(loss) of Associates 7 0.00 3 0.00
Profit for the Year 44,473 21.11 30,797 17.40

Consolidated Balance Sheet

( Rs. in lakhs- rounded off to nearest lakh)

2015-16 2014-15
Shareholders’ Funds 158,124 113,421
Minority Interest 0 102
Borrowings 51,201 54,792
Other Liabilities 47,799 57,200
Total Liabilities: 257,124 225,515
Fixed Assets
Tangible 51,206 53,437
Intangible 81,059 23,877
Capital Work in Progress 14,498 7,222
Investments 30,684 35,729
Other Assets 79,677 105,250
Total Assets: 257,124 225,515

Consolidated Cash Flow Statement

The summary of cash flows is as follows:

( Rs. in crores rounded off to nearest crores)
2015-16 2014-15
(A) Net Cash Surplus/(Deficit) from operating activities 518 439
(B) Net Cash Surplus / (Deficit) from investing activities (6) (441)
(C) Net Cash Surplus/(Deficit) from financing activities (554) 17
(D) Net Surplus/(Deficit) (other than surplus generated from operating activities) (B) + (C) (560) (424)
(E) Net Increase/(Decrease) in cash and cash equivalent (A) + (D) (42) 15

The section titled as "the Company and its Subsidiaries" of this Chapter read with Note 2 to the financial statements lists out the entities that have been considered while compiling the consolidated financial statements and define the relationship of each entity with the Company.

The said section may also be referred to and read with this section for operational and financial highlights that are considered relevant for the evaluation of performance of the Group and its financial health.

Further, while comparing the figures of the financial year 2015-16 with the corresponding figures of the previous year, we have to bear in mind that the Group did not have Radio business in the previous year and therefore previous year’s figures do not include Radio business related figures.

In this Section, percentages have been rounded off to nearest number

Consolidated Profit and Loss

1. Music Broadcast Limited which operates FM Radio stations under the brand name Radio City was acquired through acquisition of its holding company and another fellow subsidiary with e3ect from 11.6.2015 and accordingly, the profit and loss account includes revenue, expense and profit only from that date.

2. Out of total increase in operating revenue of

Rs. 337 Crores, contribution of radio business, which as stated above was not part of the group in the previous year, is Rs. 193 crores or growth of 19% in revenue comprises 11% owing to first time inclusion of radio business and remaining 8% is contributed by the existing businesses. Similarly, out of growth of Rs. 139 Crores in operating profit, contribution of radio was Rs. 67 Crores which is 48% of the total increase. Since Radio business had higher operating margins than the Company’s margin as well as margin reported by fellow subsidiary MIL, it improved consolidated margin by 67 basis points. Whereas MIL is in course of improving its margins year after year and it is expected that it would come nearer to the print margin of the Company in couple of years, Company’s print margins which are higher than the radio business margin are pulled down by outdoor and event businesses from which the Company is endeavouring to exit the soonest possible.

3. Extraordinary item which appears both the years and which is not likely to be repeated in future represents profit arising on sale of treasury shares held by Company’s subsidiary Suvi Info-Management (Indore) Private Limited. Out of total 15.6 million treasury shares, the promoters have bought 9.6 million shares and balance 6 million shares were sold to public in open market. Sale of these shares part funded the acquisition of radio business and thus avoided stress on balance sheet.

4. Interest is higher primarily due to the funds borrowed by MBL for payment of fees for migration to Phase III.

5. Since the Group follows written down value method for determination of depreciation in respect of majority of its assets, depreciation for the year in the existing businesses was lower on expected lines and allowed the Group to absorb additional depreciation relating to the radio business without having any additional impact on the profit for the year. This conservative policy adopted by the management which impacted the Group adversely as compared to its peers in initial years will help the Group report progressively lower depreciation and higher profits.

6. Included in the consolidated profit is Company’s share of profit of Rs. 6.80 lakhs out of the total profit of Rs. 19.18 lakhs on total revenue of Rs. 227 lakhs of the two associates viz. Leet OOH Media Private Limited and X-Pert Publicity Private Limited.

7. MIL and MBL both had accumulated losses / unabsorbed depreciation, tax on which was not recognised in the accounts as deferred tax asset in earlier years in absence of virtual certainty about its recovery. These losses / unabsorbed depreciation were set-off against the profits reported by these two. Extraordinary item being the profit arising on sale of treasury shares at stock exchanges was STT paid and hence tax free.

Average tax rate of 24% is therefore lower than the normal rate of tax at 35 %, average tax rate for Company at 34 % and previous year’s average tax rate of 26%. In the next fiscal too, average rate of tax is expected to be lower than normal tax rate.

Consolidated Balance Sheet

1. Increase in shareholders’ funds by nearly 40% over the previous year is the result of profits earned during the year by the Company, its operating subsidiaries, Suvi Info-Management (Indore) Private Limited ("Suvi") and its associates. The profit earned by Suvi was primarily gain arising on sale of treasury shares which was akin to raising capital for long term needs of the Group. Other non-operating subsidiaries had negligible losses.

2. MIL became 100% subsidiary of the Company during the year by acquiring the entire minority interest held by erstwhile promoter group. MIL has small borrowing from bank for its working capital needs. MIL repaid all outstanding loans along with accrued interest and overdue liabilities out of its accruals to its holding company during the year. The total amount so paid to the Company was about 33 crores. MBL borrowed Rs. 200 crores for payment of migration fees. Out of this amount, amount of Rs. 50 crores forms part of other liabilities as it is repayable in March 2017. MBL borrowed additionally from holding company for payment of fees for new licenses but repaid almost entire amount along with interest out of its own accruals by the end of the year. Besides these two, none of the subsidiaries has any borrowing. Both these borrowings are secured by the charge on their respective assets.

3. In spite of acquisition of radio business, other liabilities are lower than the previous year primarily because there is no proposed dividend for the year 2015-16.

4. There were hardly any additions to the tangible fixed assets in any of the subsidiaries. In the Company as well, the net additions were very low. On the other hand, the depreciation was significant and was higher than value of net additions. As a result, book value of fixed assets is lower than that for the previous year in spite of takeover of assets from MBL.

5. Intangible assets primarily represent the goodwill arising on consolidation of Rs. 598.05 crores and license fees of Rs. 206.28 crores paid to government of India for migration of radio stations to Phase-III. Goodwill arising on consolidation represents Difference between the value of consideration paid and the book value of assets of the businesses acquired duly adjusted for value of minority interest and impairment, if any. The Company has acquired business of Naidunia, Radio City and minority interest in Midday from erstwhile promoter group of Midday that have resulted in creation of this goodwill. The Company tests the carrying value of goodwill at the end of every year to determine impairment, if any on the basis of expected future cash accruals of the businesses. Since acquisition of businesses, no impairment has been identified except an amount of Rs. 50 crores in the value of business of Naidunia which has been duly written off in the year of determination itself. The said impairment loss was compensated by certain gains realised by the Company but not considered in purchase consideration paid to the seller. As far as license fees is concerned, it is going to be evenly amortised over the period of license i.e. 15 years.

After amalgamation of 3 subsidiaries viz. Suvi Info-Management (Indore) Private Limited, Spectrum Broadcast Holdings Private Limited and Crystal Sound and Music Private Limited into the Company which is in process, significant part of goodwill arising on consolidation will get allocated to various assets as per IndAS. There will be additional charge on account of depreciation/amortization to the profit and loss account of the Company post such allocation because part of allocated amount will get added to depreciable/amortizable assets.

6. The increase in capital work in progress is primarily due to payment of fees to acquire new licenses for

11 FM radio stations in the states of U.P., Bihar, Jharkhand, Rajasthan, Punjab, Maharashtra and Tamil Nadu to strengthen the existing net work.

7. The Group’s cash and bank balances have decreased from Rs. 493.13 crores to Rs. 77.02 crores due to payment of consideration for acquisition of radio business from the escrow account which was in existence on 31st March 2015.

8. There was no other item requiring special mention and rest of the movements in assets /liabilities are in normal course of business.

Consolidated Cash Flow Statement

In continuation of the previous year, cash generation from operations continues to be robust and the Company for the first time crossed mark of Rs. 500 crores as far as generation of cash from operations is concerned. Besides the Company itself which generated an amount of Rs. 373 crores, the operating subsidiaries MBL and MIL both made significant contribution aggregating Rs. 72 crores. The said funds were utilised for meeting repayment obligations, investment in shares of radio business and payment of dividend.

The Company’s liquidity position remains strong with additional inflow in form of maturity value of nearly Rs. 200 crores of units of fixed maturity plan maturing in next six months.

Material development in Human Resources

There was no material development during the year except that the Group acquired Radio City which has been consistently ranked as No.1 company in the media industry and one of the top 50 companies in the country by a leading independent research and consulting firm in the area of work culture assessment. The Group will benefit from the vastly experienced HR team of Radio City and has started making use of their services. As far as relationship with the workforce is concerned, it was by and large harmonious. There were certain illegal agitations at some of the places which the management has suitably dealt with. Further, as reported in the previous year, there are a select few who have filed certain petitions against the Company before the Supreme Court. These are still pending for disposal.

The Group is committed to create a work environment that encourages free expression of opinion, decision making and responsible execution of the task.

   

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