Fame India Ltd Merged Management Discussions

FAME INDIA LIMITED ANNUAL REPORT 2011-2012 MANAGEMENT DISCUSSION AND ANALYSIS INDUSTRY STRUCTURE AND DEVELOPMENTS The film exhibition business and the domestic box office is expanding at a fast pace and is exhibiting positive growth. The industry is projected to grow at a Compound Average Growth Rate (CAGR) of 10.1%* to touch Rs. 150 billion in 2016. The industry expects domestic theatrical revenues to continue dominating the overall pie. It is also worthy to mention here multiplexes account for 50% of the Indian theatrical revenues, despite having less than 15% market share in terms of screen count. With multiplex chains charting out an aggressive expansion roadmap, increasing digitalization of screens enabling wider film print releases, experimentation with different content, increasing popularity of regional film segment and arrest of piracy, are some of the major drivers of growth, riding on which, the industry is expected to be follow a strong growth path. OPPORTUNITIES: Multiplexes have been successful in bringing the audience back to cinema theatres, and are the preferred out-of-home choice of entertainment for the Indian consumer. The option of choosing from 9-10 titles a day was unheard of decade back. Temperature controlled auditoriums, luxurious recliner seats, state-of-art sound and projection systems - in addition to a variety of lip-smacking snacks, made going to the movies very chic, hip and fashionable. People additionally felt much safer in multiplexes considering the safety precautions undertaken. 2011 witnessed significant capacity expansion by multiplex chains, including Fame India Ltd. Urbanization and growing middle class, under- screened market and better viewing experiences have fuelled this growth. The industry is expected to double the multiplex screens over the next five years taking the total tally to over 2,200 screens in 2016. An increased number of shows on account of reduction in film duration combined with growth in properties and quality of film-going experience continues to drive overall footfalls at multiplexes as evidenced by improved occupancy rates in 2011. In addition, the contribution of regional cinema to multiplex chains has continued to increase. With 3D films getting much more prevalent in Hindi film industry, besides Hollywood, multiplexes have been able to increase their ticket prices for the high-end 3D technology - thereby providing an improved viewing experience. Cinema Exhibition Business is undergoing a tremendous technological change as Theatre Owners are now converting their current projectors with high-end Digital Projectors or Digital Cinema. Digital Cinema refers to use of Digital Technology to capture, distribute and project motion pictures. Use of this technology will allow distribution of movie via hard drives, optical disks or satellite and projected using a digital projector. FAME too has initiated the process of converting its current projectors with high-end Digital Projectors or Digital Cinema. This will help in savings of print costs, wide release of Film, durability of Media, curb on piracy, etc. The industry has witnessed a marked improvement in transparency of ticket sales over the years. Systems and processes introduced by multiplex chains in addition to digitization of theatres is the key contributor. This has not only helped film makers and distributors; it has also given a boost to cinema advertising. Advertisers now have better access to occupancy rates and film revenues. The market has grown at a healthy 18%* in 2011to reach Rs. 140 Crores. It must be mentioned here that there has been a lot of investment made in the infrastructure facilities with new film cities offering one-stop shop for making films. From shooting floors, post and pre production facilities to film processing lab, these facilities are expected to increase efficiency in production in less time. THREATS/RISKS/CONCERNS: The shelf-life of movies in theatres has seen a steady decline. The growing popularity of alternate distribution platforms like DTH, satellite television and the launch of 3G enabled mobile handsets are a potential threat to theatrical exhibition. It has been observed that films chasing particular release date and time of the year are resulting in some kind of a trend thereby eating up the market. Although this trend has declined considerably with many big-banner movies releasing during IPL and during the month of Ramzan, there is still an apprehension amongst film-makers to release their movies during these gaps - and focusing on Eid, Diwali, Christmas releases. Piracy continues to be a major concern for the film industry. Technological advancements such as digitalization of film content and delivery should help arrest piracy to a great extent. Controlled ticket rates in some of the states and high entertainment taxes make it difficult to keep pace with increasing rentals. Allowing markets to determine the ticket rates would provide more flexibility to the exhibitors. SEGMENT WISE ANALYSIS (CONSOLIDATED): The business of the Group is divided into two segments, theatrical exhibition and film distribution. Upto last year, theatrical exhibition and management of multiplexes were classified as separate business segments. During the current year, the management has reviewed the classification and in view of similar risks and rewards in the same, they are considered as single business segment. During 2011-12, segment revenue from theatrical exhibition amounted to Rs.227.15 crores and the loss from the segment amounted to Rs. 0.81 crore. The segment result was impacted due to the exceptional expenditure on account of prior years service tax on renting of immovable properties amounting to Rs. 8.24 crores, which was accounted during the year. Segment revenue from distribution amounted to Rs. 0.52 crore. However, a loss of Rs. 0.05 crore was incurred in this segment. MULTIPLEXES/FILM EXHIBITION: Total revenue from theatrical exhibition segment during the financial year ended 31st March 2012 amounted to Rs. 22,888.83 Lacs. The loss from this Segment was Rs. 81.19 Lacs for the financial year ended 31st March 2012. The increase in total revenue from this segment is attributed to commencement of operations of new property at Chennai and improved occupancy and ATP of the properties across the country. As on date, the Company has 27 multiplexes, 102 screens in 13 cities across India. With the additions of a number of 3D screens across the country, your company today has 3D screens in Mumbai, Baroda, Chennai, Nashik, Aurangabad, Pune, Bangalore, Kolkata, Dhanbad, Anand, and Surat which has also contributed to the increase in total revenue. OTHER SEGMENTS: Total revenue from Other Segments viz. film distribution, during the financial year ended 31st March 2012 was Rs. 52.11 lacs. However, the Company suffered a loss to the tune of Rs. 4.89 lacs in this segment for the financial year ended 31st March 2012. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY: The Company has an adequate system of internal controls commensurate with its size and nature of operations to provide reasonable assurance that all assets are safeguarded, transactions are authorized, recorded and reported properly and applicable statues, codes of conducts and corporate policies are duly complied with. The Audit Committee reviews the reports submitted by the Internal Auditors and monitors follow-up and corrective action by Management. DISCUSSION OF FINANCIAL PERFORMANCE WITH RESPECT TO OPERATIONAL PERFORMANCE: The Companys financial performance is discussed under the head Financial Results in Directors Report to the Members. MATERIAL DEVELOPMENTS IN HUMAN RESOURCES: A. RECRUITMENT & SELECTION We develop and maintain our talent pool by recruiting from diverse service sectors like Hotels, Entertainment, Retail, Engineering, Aviation, Media and Management Colleges. Our professional and successful management team is drawn from the above backgrounds. The Current employee strength including on rolls and Contractual is around 1650. B. TRAINING & DEVELOPMENT Our employees continue to be our most valuable assets. We thrive upon our Systems and Service oriented work culture to achieve and maintain consistently high service standards. Our constructive and progressive management style enables us to attract and retain the best talent in the industry. Thus, we continuously maintain a strategic competitive advantage for sustaining long term business objectives. * Digital Dawn - The metamorphosis begins - FICCI-KPMG Indian Media and Entertainment Industry Report 2012.