Jagran Prakashan Ltd Management Discussions.

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 Companys 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 Companys actual results, performance or achievements could thus differ 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:

In the post-Brexit and post-Trump era that we are all learning to grapple with, and the early warning signals we are seeing of increasing protectionism and closing boundaries, the Indian economy continues to be a shining albeit flickering light in the world economy. Latest official estimates project a GDP growth rate of 7.1 percent for the year 2016-17 which is lower than the one attained in the previous fiscal. Inflation is also well within control and fiscal deficit will not cause worry even if it exceeds the target. Thus, macro fundamentals of the economy which typically are used to highlight the strength of an economy are positive and seem to suggest a foundation of higher growth, prosperity and wellness. Even the business confidence and the consumer confidence indices are high suggesting a platform for increased level of economic activity supported by a spurt in demand.

However, the challenges which the economy is currently facing are serious in nature and are likely to come in the way of materialization of these expectations and demand escalation in the near future. These challenges are unemployment, underemployment, one of the lowest gross fixed capital formation and increasing inequality in distribution of income despite the governments good intentions. While a 7% plus growth being recorded year after year for more than 3 years makes the Indian economy the fastest growing economy of the world; joblessness and underemployment are the key risks to the sustainability of this kind of growth in the medium to long term.

In fiscal 2016-17, the growth in manufacturing and mining remained muted and was lower than the previous year. It was agriculture that helped the country register growth exceeding 7%. Due to a good monsoon, the year began with a lot of optimism. However, still higher growth expected because of the stimulus provided by the implementation of the 7th pay commission and a good monsoon, in the economy and in the media and entertainment industry which thrives on increased income and liquidity, did not materialize. The economy did very well till the end of the festive season but the demonetization derailed the progress and the growth nosedived for everyone. In fact, many categories reported steep de-growth in their sales in the months after demonetization. We, however, believe that the pains caused by demonetization are short term in nature and will recede in a couple of quarters. But, returning to the growth levels of 2015-16 may take more than a year.

The year 2016-17 will also go down in Indian history as a year of one of the biggest ever financial reforms in the form of GST which is expected to be rolled out from July 2017. There is no doubt that this was a long awaited and much needed reform and will help the Indian economy in the medium to long term, but its short term impact on growth and consumption is uncertain largely because of initial teething problems in implementation, application and enforcement.

Exports, for India, have been a growth engine and off shore employment opportunities have provided jobs to many Indians but we can no longer rely on exports nor depend on these opportunities in the current protectionist environment. The need of the hour is to fundamentally reignite domestic consumption and create job opportunities at a faster pace through reimagining our strategies.

Indian Media and Entertainment Industry:

The Indian Media industry grew at 9.1% which was the slowest growth registered in the last five years due to the adverse impact of demonetisation. While a 9.1% growth as compared to global benchmarks is very attractive but by Indian standards it is far from satisfactory. This drop reaffirms the discretionary nature of advertising spends in the country and the impact that any large scale turbulence in the economy can have on this industry, as may be seen from the table below :

Pre Post
demontisation demontisation
Industry Projected Growth Actual Growth
TV 13.8% 8.5%
Print 7.7% 7.0%
Films 14.8% 3.0%
Radio 18.2% 14.6%
Digital Advertising 34.9% 28.0%
Music 12.0% 13.0%
Animation and VFX 14.1% 16.4%
Gaming 16.2% 16.2%
OOH 16.0% 7.0%
Total 13.7% 9.1%

Source : FICCI KPMG reports on M&E sectors 2016,2017

Television grew at 8.5% primarily due to a lackluster year for subscription revenues and speed bumps in advertisement revenue growth primarily due to slower domestic consumption and the Broadcast Association Research Council (BARC) data recalibration. Print revenue grew at 7% as English language newspapers continued to be under stress. However Regional languages sustained their strong growth levels. Films had a disappointing year with mere 3% growth on the back of poor box office performance of Bollywood & Tamil films. Digital advertising continued its momentum with a 28% growth to reach 15% share in the overall ad-pie. OOH segment registered a slowdown in growth rate at 7% on the back of demonetisation. Although billboards continue to account for the largest revenue pie, new metro lines, malls, corporate parks and leading airports are providing a much needed boost to the overall sector. Radio registered a 14.6% growth led by volume enhancements in smaller cities, partial roll out of batch 1 of phase III stations and marginal increase in effective rates.

In India, the percentage of advertising expenditure to GDP has continued to be less than 0.50% for several years. This is substantially lower in comparison to the developed economies as well as other developing economies. We believe that the long term growth trajectory of this industry is clearly visible and the future is very sanguine. This growth however can happen only on the back of balanced distribution of per capita income through creation of employment opportunities commensurate with Indias increasing employable work force.

Print Industry:

Print continues to be the second largest industry in Indian media & entertainment segment. As far as its share in advertisement pie is concerned, it is at par with television.

There was no fundamental or structural change in the industry except that certain markets were flooded with low cover priced variants of main editions. This has resulted in a steep growth in circulation. However, on the other hand, even this year industry continued to witness increase in cover prices in many of the other locations without having any adverse impact on circulation which augurs well for the business model.

India has witnessed a remarkable growth in circulation of newspaper in past one decade and continues to witness the same, which clearly demonstrates the potential and allays the fears that the newspaper is nearing its death. In fact, the table given in above section would show that print was least affected media platform when the times are difficult and the intent is to cut their advertisement spend, the advertisers prefer to first use the medium which makes maximum impact. However, the expansion of advertisement market size is not commensurate with the circulation growth. This creates pressure on advertisement rates and does not allow publishers to penetrate further. Expansion in advertisement market size is possible only with the increase in and a balanced distribution of per capita income.

Whereas credibility, low cover price, delivery at door step and lack of penetration will continue driving the growth, it is high time that authentic readership survey is completed and advertisers are provided with an effective tool of measurement. The circulation figures certified by the Audit Bureau of Circulation are available to the advertisers but the most effective measurement tool is readership survey in the context of India where readership per copy varies significantly from location to location and in various strata of society. We hope and trust that reliable readership survey findings will be available before the end of this fiscal.

The year 2016-17 had two significant events which impacted the industry. The first was demonetisation which derailed the momentum of growth. The industry which was expected to benefit from implementation of 7th Pay Commission and good monsoon and register higher growth in H2, slipped to a low single digit growth post demonetisation. We expect that it will take at least two more quarters before industry experiences 10% growth. The second event is roll out of GST from July 2017, the impact of which is uncertain. Newspaper industry which was exempted till now from indirect taxation has been brought under the GST regime and it is yet to be seen how and to what extent it will impact the print industrys business model although we believe that the industry will be able to pass on this additional tax to burden of its advertisers, who will be able to adjust it from the tax payable by them.

Radio Industry:

The radio industry has grown by 14.5% in 2016, which is faster than other traditional mediums like Print & TV on the back of offering localised reach at an affordable price. Radios share in the overall advertising pie is currently at 4% which is far lower than that in many other developed countries. Globally, the share of radio in overall ad spends is between 7-10%, which clearly demonstrates headroom for growth.

The completion of the first batch of Phase III auctions provided strong tail winds to the radio industry. Though expensive, it was considered successful with 96 channels out of 135 channels getting allocated. The I&B Ministry was quick to announce the second batch of Phase III, which was a positive step to not only deepen the reach of Radio to tier II and tier III cities across the country, but would also lead to infrastructure development and job creation. However because of higher reserve prices, many operators decided not to participate in the Phase III second batch, resulting in a dull response. The Ministry is yet to firm up the dates for the next batch of auctions and the industry is hopeful that the reserve prices and other regulations will be rationalised in the interest of expansion of the industry. With an expected CAGR of 16 %, the radio industry is looking to double its size by the end of 2021. We believe that Radio is likely to become a much more effective medium to advertisers, providing a deeper region-wise range of channels and increased penetration and will strongly supplement to print and regional TV both for national & local advertisers.

Digital media:

Digital Advertising is the fastest growing vertical in the Indian M&E industry at 28%. It holds a lot of promise for the future as it is expected to grow at 30.8% CAGR by 2021. Government of India through its umbrella ‘Digital India initiative continues to invest and drive several digital initiatives to improve the digital infrastructure and digital eco system of the country. The number of Internet users is likely to grow by 20% CAGR by 2021 and a large part of growth will come from regional markets where the current internet penetration is low. Digital consumers are currently enjoying a two fold benefit in terms of falling bandwidth cost and high speed internet leading to higher digital consumption. The growth in digital is largely being led by mobile penetration and it is estimated that internet based mobile phones will grow by 133% and touch 700 million mobile handsets by 2021.Mobile advertisement is expected to grow at

50.93% CAGR from Rs16.92 billion in 2016 to Rs 132 billion in 2021. On the back of higher internet speed and low cost of bandwidth, Video consumption has emerged as one of the growing segments in digital content. In 2016, video contributed 18% in terms of revenues and is expected to grow at 40% CAGR by 2021. Quality and rich content which is segmented, accurate and quickly served will be key to success for any Digital publisher brand.

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

The Group comprises Company, its two operating subsidiaries, two operating associates and one other subsidiary which does not have any business operation and is in process of being wound up. Subsidiary Midday Infomedia Limited (MIL) is a publisher of English daily Midday, Gujrati daily Midday Gujrati and Indias 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/Radio Mantra from 39 stations across 13 states to its bouquet through phase III and acquisition of Radio Mantra business. The two operating associates are in the outdoor business and are not significant.

Operationally, structurally and financially, the year 2016-17 has been remarkable. All the businesses (print as well as non-print) were progressing till 8th November 2016 as we had expected in the beginning of the year. The festive season was very encouraging and it appeared that the consumption would only improve as the year progresses as the effect of good monsoon and implementation of 7th Pay Commission was becoming visible. We were confident that we would surpass our revenue and profit targets but unfortunately with the sudden announcement of demonetisation not only the growth disappeared but even sustaining the revenues of the corresponding period of the previous year started looking difficult. As discussed in the section titled "Indian Economy", it is not the Group alone but the entire economy suffered on account of demonetisation.

On the one hand the growth in revenues came under pressure and on the other hand the plan for expansion and scaling up operations which had already been rolled out from the beginning of the year was in full swing. The Group decided not to disturb momentum because discontinuing or deferring the same was not strategically desirable. These plans also included plans for investment in strengthening and expanding the digital business (including Digital Radio) in accordance with the strategy, which was formulated in consultation with the experts of international repute as reported in the previous year.

However, our ability to adjust to the prevailing market conditions and to adapt to the change in external environment enabled us to achieve a growth of 9.8% in revenues, 8.3% growth in operating profit and 13.8% growth in PBT at the Group level inspite of investments in expansion and scaling up operations. In digital business alone, an additional investment of about Rs 7 crores was made in accordance with the strategy, which was formulated in consultation with the experts of international repute as reported in the previous year. The growth achieved includes some inorganic growth as well which has come from acquisition of Radio Mantra but it is insignificant and is therefore not being discussed.

This was made possible by controlling the cost, outstanding performance of Radio, other non-print businesses and brand Dainik Jagran-I next, besides Dainik Jagran which continued to maintain its operating margins of the previous year despite low growth which incidentally once again was higher than the growth reported by many peers. The performance of Naidunia was satisfactory as it increased the circulation by over 7% and also improved the per copy realisation besides registering the growth of nearly 6.5% in advertisement revenue from the local market.

The growth in revenues of Radio and Digital was 20% and 52% respectively which makes them industry out performer. Inspite of launch of 11 stations and increase in certain expenses caused by IPO, Radio reported growth of over 17% in operating profit and 33% in PAT.

The Group has undergone restructuring during the year, as a result of which all subsidiaries which were not having operations were merged into the Company. This has not only cleaned up the ownership structure of the Company but has also cleaned up the Balance sheet. In addition, the Companys subsidiary Music Broadcast Limited has been listed in March 2017 with market capitalisation of over Rs2000 crores. The Group entered into radio business in the year 2015-16 by acquiring the business from third party. The business was scaled up by acquiring new 11 stations through the process of bidding and acquiring 8 stations of Radio Mantra through court approved scheme of demerger from the promoters.

As per Comscore, Jagran continues to be No.1 Hindi website in news and communication category and No.1

90 JAGRAN PRAKASHAN LIMITED overall mobile website in education category and is first newspaper group to have over 22 million Facebook fans in March 2017. Jagran is also the fastest growing news network in India on mobile with over 32 million unique users in March 2017 (Source Comscore: Mobile March 2017).

X-pert Publicity Private Limited (X-pert), Leet OOH Media Private Limited (Leet) are associates of the Company and are in outdoor business. Leet reported net profit of Rs2.41 lakhs and operating profit of Rs53.40 lakhs for the year. The Company has consistent cash generation from business and has Rs375 lakhs lying invested in mutual funds as at 31.03.2017. X-pert has made net profit of Rs12.32 lakhs and operating profit of Rs 21.65 lakhs for the year.

In line with the Groups commitment to reward the shareholders, the scheme of buy-back involving pay out of Rs302 crores has since been completed and the Board has also recommended a dividend payout of Rs 3 per share for the financial year 2016-17.

The balance sheet of the Group continues to be strong due to robust cash accruals from print as well as radio businesses. CRISIL has reaffirmed 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:

Recognising Groups leadership position in different fields of operations, various distinguished bodies like INMA, WAN IFRA, Abbys, ACEF, Golden Mikes, Grand Prix etc. have bestowed 97 Awards upon the Group during the year as follows:

i) Group Awards 3 Awards
ii) Dainik Jagran 60 Awards
iii) Radio City 31 Awards
iv) Jagran Solutions 2 Awards
v) Jagran New Media 1 Award
Total 97 Awards

 

Awards Total
Group Awards
CFO of the Year Award 1
IDC Insights Award 2016 for ‘creating transformational business value through technology, for the third consecutive year 1
Express Computers (Indian Express group) Intelligent Enterprise Award, 2016 1

 

Awards Total
Dainik Jagran _
Abbys 10
ACEF 18
Echo Awards DMA India 5
Golden Awards of Montreux 2
IBC Brand & Marketing Awards 9
Indian Content Marketing Awards 2
Indias No.1 Brand 1
INK Awards 2
INMA 1
WOW 5
Indian Marketing Awards 4
WAN IFRA 1
Radio City _
IRF Awards - Excellence in radio awards 8
Emvies - Band Baaja competition 3
Golden Mikes 9
Asia Pacific Consumer Awards 4
New York Festival Radio Awards 3
WOW Awards 2
Grand Prix 1
Limca Book of Records 1_
Jagran Solutions _
WOW Awards 2
_ _
Digital _
Best Local Language website at IAMAI 1
TOTAL 97

MAJOR RISKS AND CONCERNS:

The management regularly reviews various businesses operational and functional risks. It has instituted appropriate control procedures to mitigate those risks. The Groups 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:-

1) Adverse change in macro-economic conditions:

Low economic growth, high inflation, high interest rate and certain policy decision of the government may hurt the overall consumer sentiment which will negatively impact the consumption and thus media industry.

Management Perception

Macro economic conditions such as those detailed in the section titled "Indian Economy" adversely impact the ability to generate revenue but the management endeavours to minimise the impact by controlling the cost and changing its sale strategies.

2) Over dependence on advertisement revenue:

The Company derives 70% 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:

Indias print market is highly fragmented. There is stiff 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 medium. 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 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 successfully met the competition and continued to hold its numero-uno position in the industry and its key market since 2003 uninterruptedly.

4) Newsprint price fluctuation:

Newsprint as the primary raw material represents a significant portion of overall expenses. It was 31.8% in 2017 and 32% in 2016 of total operating revenue of print and digital business of the Group. Any significant movement in newsprint prices will adversely impact the 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

Please refer to section titled "Print Industry".

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 courts 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 officials have categorically confirmed the compliances by the Company.

The Supreme Court has now decided to first examine the maintainability of the petition before going into the merit. The arguments on maintainability have since been completed and the order is reserved.

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 lions share in digital pie.

Management Perception

The Group has rolled out its digital strategy keeping in view these challenges and expects that it will continue to succeed as hitherto. In the very first year, the results obtained (operational as well as financial) are pretty satisfactory. Further, the Group believes that digital complements print and will be driven by those like JPL who are rich with regional content.

Internal control systems and their adequacy:

Adequate internal control has been put in place in all areas of operations. 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.

The Group has implemented during the year one of the most robust software purchased from a vendor of international repute for various pre-printing processes which aim at improving the efficiency 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 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, efficiency and accuracy in reporting, monitoring and decision making and has done so during the year as well as part of an ongoing exercise.

Segment performance:

The Company did not have any reportable segment other than print under Accounting Standard 17 on Segment Reporting as notified under the Companies Act.

Financial performance:

The financials discussed herein below should be evaluated in the light of the fact that the financial statements have been prepared for the first time applying Ind AS and accordingly even the previous years figures have been regrouped/recast to make them comparable with the current years figures. Additionally, the previous years figures have also been changed on account of giving effect to the schemes of arrangement viz. composite scheme of arrangement between the Company, Crystal Sound & Music Private Limited, Spectrum Broadcast Holdings Private Limited, Shri Puran Multimedia Limited and Music Broadcast

Limited and the scheme of arrangement between the Company and Suvi Info-Management (Indore) Private Limited. These schemes have become effective from the appointed date of 1st January 2016 as approved by the jurisdictional high courts.

The reconciliation between the figures of profit reported in the previous year under Indian GAAP and those now being reported for the previous year applying Ind AS forms part of the accounts for the year and may be referred to.

Further, the figures have been rounded off to nearest lakh of rupees.

(A) The Company (Standalone) (i) Profit and Loss: REVENUE ANALYSIS

(Rs in lakhs- rounded off to nearest lakh)

2016-17 Percentage (In relation to Revenue from Operations) 2015-16 Percentage (In relation to Revenue from Operations)
Revenue from Operations 190008 100.00 177887 100.00

SALES AND OTHER OPERATING INCOME:

Advertisement revenue accounts for 74.6% (previous year 74.5%) and Circulation revenue accounts for 22.8% (previous year 22.7%) of the total print and digital revenue, digital being an integral part of the print business.

The growth in advertisement revenue was muted due to demonetisation but it was still higher than the growth recorded by many of the peers. In Q4 FY17 as well, the Company had a growth as against degrowth recorded by the closest competitor. The most outstanding performance came from Dainik Jagran-I next which grew its advertisement revenue by 23% in continuation of the previous year in which the growth was 18.5%. Digital stepped up its growth further in the current year to 57% from nearly 49% in the previous year. Looking at post demonetisation environment and the performance of peers, Jagrans performance was remarkable. Its revenue grew by 5.2%.

The growth in circulation revenue mainly came from planned increase in circulation in case of all three major brands viz. Dainik Jagran, Naidunia and Dainik Jagran-I next. Circulation of Dainik Jagran-I next grew by over 22% whereas Naidunia recorded a growth of over 7% in its circulation. The circulation was increased to protect the market share and strengthen market position of brand. However, per copy realisation remained same in case of Dainik Jagran-I next whereas it improved by nearly 5% in case of Naidunia and by about 1.6% in case of Dainik Jagran. The increased competitive intensity caused drop in cover prices in certain markets but still on overall basis Dainik Jagran as stated above grew its per copy realisation.

Revenues from job work, event management, outdoor advertising and other remaining streams constitute 8.7% (previous year 7.7%) of total operating revenue. The year witnessed stabilisation in operations of Outdoor and Event businesses. As a result, both the businesses recorded steep growth inspite of demonetisation. Revenues from Outdoor grew by 27.9% whereas revenue from Event & Activation business grew by 42.7%. The current state of these businesses gives the confidence that they can be profitably grown even though the margins remain low as compared to high margin print and radio businesses.

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

EXPENDITURE AND PROFIT ANALYSIS:

( Rs in lakhs- rounded off to nearest lakh)

Percentage (In relation to Percentage (In relation to
2016-17 2015-16
Revenue from Operations) Revenue from Operations)
Cost of Raw Materials consumed* 62444 32.86% 60194 33.84%
Employee Benefits 27198 14.31% 24785 13.93%
Other Expenses 47729 25.12% 42981 24.16%
Total 137371 72.30% 127960 71.93%
Operating Profit 52637 27.70% 49927 28.07%
Depreciation and Amortisation 8166 4.30% 8406 4.73%
Net Finance Costs (2006) -1.06% 814 0.46%
Finance Costs 1978 1.04% 5735 3.22%
Less: Other Income 3984 2.10% 4921 2.77%
Profit Before Tax (PBT) 46477 24.46% 40707 22.88%
Taxation 14871 7.83% 13552 7.62%
Profit After Tax (PAT) 31606 16.63% 27155 15.26%

* Includes increase/decrease in stock, which is insignificant.

Cost of Raw Materials consumed:

Raw Material comprises news print and ink. Newsprint consumption has increased primarily due to increase in price but it was partially offset by saving in ink consumption partly due to lower ink prices and more importantly due to improved efficiency in consumption. The Company worked with the major ink supplier to improve the input:output ratio which was also instrumental in saving the ink consumption.

Employee Benefits:

Employee cost increased by less than 10%. Increase was primarily due to annual increments, increase in ESI liability due to the legislative change and increase in gratuity liability due to lowering of the rate of return on plan assets in view of falling interest rates.

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/ digital businesses 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 has hardly any bearing on these expenses. These fixed expenses include expenses such as publicity which are discretionary in nature and are controllable.

Out of total increase of Rs 47.48 crores in these expenses over the previous year, amount of Rs34.04 crores is increase in direct expenses of outdoor, event and digital businesses. This increase is on account of increase in volume of these businesses and strengthening of digital platform of the Company. Increase in remaining expenses is primarily due to increase in promotion expenses due to increased intensity of competition and increasing the circulation.

The Company efficiently managed its overheads and ensured that the expenses do not increase even to the extent of inflation and this is what has helped Company record the growth in operating profits inspite of low growth in revenues caused by external factors not in the control of the Company.

Operating profit margin is slightly lower than the previous year primarily because of higher share of low margin businesses mainly outdoor and event in total revenue and Companys investment in digital business as per its plan.

Depreciation and Amortisation and Depreiation 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 lower due to lesser addition to the fixed assets.

Income tax expense has increased lower than the increase in PBT due to revision in deferred tax liability on account of reclassification of certain investments from short term to long term as the Company does not need the funds in short term.

Finance cost is negative for the year primarily on account of lower interest outgo as a result of repayments of various borrowings.

Other Income:

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

After adoption of Ind AS, income accrued on FMPs is accounted for as against the earlier practice of recognising such income only on realisation. This change has caused major recasting of the previous years figures as Ind AS had to be applied from 1st April 2015, to make the previous year as well as the current year comparable.

Profit before tax increased by 14.2% and profit after tax increased by 16.4% as a result of the above.

(II) BALANCE SHEET:

(Rs in lakhs- rounded off to nearest lakh)
2016-17 2015-16
Total Equity 167023 135759
Total Non-current Liabilities 13927 22185
Total Current Liabilities 40347 44566
Total Equity and Liabilities: 221297 202510
Total Non-current Assets 157347 116646
Total Current Assets 63950 85864
Total Assets: 221297 202510

Total Equity comprises of Equity Capital, Reserves and surplus and Equity component which has been recognised for the first time in consequence of adoption of Ind AS. The Equity component represents the contribution from the promoter company in form of interest rate concession on the non-convertible debentures subscribed by it. The Equity Capital has remained unchanged during the year whereas Reserves and Surplus has increased primarily by the amount of the profit for the year. The Companys buy-back plan as approved by the Board of Directors and shareholders during the year has since been completed and the Company has paid an amount of Rs302 crores approx. @ Rs195 per share.

Total Non-current Liabilities represent long term borrowings and leave encashment obligations and deferred tax liabilities. These liabilities have significantly decreased primarily due to repayment of listed secured NCDs and the unlisted unsecured NCDs held by the holding company. Also, part of these liabilities has been transferred to Current Borrowings as the repayment of the same is falling due within one year.

There is a decrease in the Total Current Liabilities primarily because of reduction in utilisation of working capital and repayment of borrowings which fell due for repayment during the year. However, trade payables increased significantly primarily due to liability relating to the imported goods in transit as at the end of the year. Increase in other financial liabilities is attributed to the listed secured NCDs which are falling due for payment within one year from the close of the year. This amount has been transferred from long term borrowing as stated above.

Total Non-current Assets have increased significantly due to reclassification of investments in debt mutual funds from current to non-current as the Company does not intend to encash it in immediate future. These investments were held as current in the previous year primarily because the Company expected to complete the buy-back plan much earlier.

Total Non-current Assets include goodwill of Rs230 crores arisen on giving effect to the composite scheme of arrangement as approved by the jurisdictional high courts. This is part of the acquisition price paid to the erstwhile owner of the radio business and is tested for impairment at the end of each financial year. There is no impairment in value till date as the subsidiary Music Broadcast Limited owning the radio business is a listed entity and the market value of companys equity stake at the price prevailing as at the close of the year was nearly Rs1500 crores.

Total Current Assets have decreased primarily because of reclassification of investments in debt mutual funds to non-current assets as discussed above. Increase in debtors is disproportionately higher than the increase in turnover partly because the year end collections could not be banked due to bank holidays and increase in the scale of operations of Outdoor and Event businesses which have higher credit period, besides the fact that in a deficient economic environment too much push on collection was avoided.

(B) CONSOLIDATED:

(i) Profit and Loss:

( Rs in lakhs- rounded off to nearest lakh)

2016-17 Percentage (In relation to Revenue from Operations) 2015-16 Percentage (In relation to Revenue from Operations)
Revenue from Operations 228295 100.00% 207924 100.00%
Operating Cost 164340 71.99% 148876 71.60%
Operating Profit 63955 28.01% 59048 28.40%
Less: Depreciation 12889 5.65% 12190 5.86%
Net Finance Costs (614) -0.27% 465 0.22%
Finance Costs 3504 1.53% 5451 2.62%
Less: Other Income 4118 1.80% 4986 2.40%
Add: Share of net profit of associates accounted for using
_6 _0.00% 7 0.00%
the equity method
Profit Before Tax 51686 22.64% 46400 22.32%
Taxation 16754 7.34% 15,715 7.56%
Profit After Tax (PAT) 34932 15.30% 30685 14.76%
Add: Exceptional items (deferred tax) _- -_ 4397 2.11%_
PAT after Exceptional items 34932 15.30% 35082 16.87%
Less/(Add): Share of Minority Interests in Profits/(Losses) 171 0.07% 103 0.05%
Add: Other comprehensive income (357) -0.16% 22 0.01%
Profit for the Year 34404 15.07% 35001 16.83%

(ii) Balance Sheet:

(Rs in lakhs- rounded off to nearest lakh)
2016-17 2015-16
Total Equity 239121 166437
Total Non-current Liabilities 26430 45332
Total Current Liabilities 58307 58088
Total Equity and Liabilities: 323858 269857
Total Non-current Assets 215423 169199
Total Current Assets 108435 100658
Total Assets: 323858 269857

(iii) Consolidated Cash Flow Statement:

The summary of cash flows is as follows:

2016-17 2015-16
(Rs in lakhs rounded off to nearest lakhs) (Rs in lakhs rounded off to nearest lakhs)
(A) Net Cash Surplus/(Deficit) from operating activities 47738 42452
(B) Net Cash Surplus/(Deficit) from investing activities (41930) 15553
(C) Net Cash Surplus/(Deficit) from financing activities 6307 (57280)
Net Surplus/(Deficit) (other than surplus generated from operating
(D) (35623) (41727)
activities) (B) + (C)
(E) Net Increase/(Decrease) in cash and cash equivalent (A) + (D) 12115 725

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

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

Consolidated Profit and Loss:

1. The contribution of subsidiaries Music Broadcast Limited and Midday Infomedia Limited in revenue, operating profit, profit before tax and profit after tax of the Group was as follows:-

Music Broadcast Ltd. Midday Infomedia Ltd.
(%) (%)
(i) Revenue 12 5
(ii) Operating profit 14 3
(iii) Profit before tax 11 3
(iv) Profit after tax 10 3

Note: The above figures are without eliminating intra group transaction which is insignificant and will not materially change the same.

2. There is no concept of extraordinary item under Ind AS and therefore the extraordinary income of Rs11630 lakhs (net of tax) reported in the previous year has been transferred to other Equity while recasting and reporting the figures for the year 2015-16. As a result, the net profit reported in the previous year is reduced by the said amount. Please refer to the Consolidated Statement of Changes in Equity.

3. In the Consolidated Accounts, deferred tax assets of Rs 43.97 crores has been created by credit to exceptional item in the Consolidated Profit & Loss Account for the year 2015-16. This amount relates to goodwill arising on acquisition of Music Broadcast Limited and has been accounted for in accordance with the transitional provisions of Ind AS. This is one time adjustment but has reduced the tax rate to nearly 24% which is well below the normal tax rate and has had following effects:-

a. The net profit for the year 2015-16 is inflated by this amount.

b. The financial statements are showing drop in profit after tax of the Group as compared to 2015-16 instead of growth which is over 11% at profit before tax level.

Had this credit been not given, the reported PAT for the year 2015-16 would have been lower at Rs306.85 crores and the growth in PAT would have been 14% as against a marginal degrowth which financial statements are currently showing.

4. As reported in the section titled "the Company, its Subsidiaries and Associates", contribution of the associates in the Groups profit was insignificant.

Consolidated Balance Sheet:

1. Total Equity has significantly increased primarily because of induction of funds of Rs400 crores raised by the subsidiary of the Company through Initial Public Offering and the profits for the year. Total Equity has two components viz. equity attributable to owners of the Group and the value of non-controlling interest (minority interest). Increase in non-controlling interest is primarily due to their share of profit for the years and their share in the increase in value of the acquired assets of Music Broadcast Limited on account of taking fair value of these assets as per valuation report of one of the big 4 chartered accountant firms. Non-controlling interest represents nearly 30% of economic interest in radio business owned by the Companys subsidiary Music Broadcast Limited.

2. Total Non-Current Liabilities have decreased primarily due to payment of long term borrowings and transfer to the Current Liabilities of such part of these borrowings as are repayable within one year.

These liabilities represent listed secured non-convertible debentures issued by the Company and its subsidiary Music Broadcast Limited.

3. Total Current Liabilities have increased primarily due to transfer of the amounts from Total Non-Current Liabilities and increase in the liabilities relating to foreign goods in transit as at close of the year. The increase has been partly set off due to lower utilisation of working capital limit and repayment of temporary loan by the Company.

4. Total Non-Current Assets have increased primarily on account of reclassification of investments in debt mutual funds and fresh investments therein of the surplus funds available with the Group. Reclassification is based on the

Groups assessment of requirement of funds in immediate future.

Total Non-Current Assets also include goodwill of Rs337.72 crores which has arisen mainly on consolidation and relates to the acquisition of Naidunia print business in the year 2011-12 and radio business in the year 2015-16. The goodwill is tested for impairment at the end of every financial year and no such impairment has yet been observed. In addition to goodwill, there are intangible assets aggregating to Rs573.99 crores. These intangible assets are computer software, brand, migration fees relating to radio business and part of consideration paid for acquisition of radio business that has been allocated to radio licences while consolidating the accounts. These intangible assets are being amortised on the basis of their useful lives.

5. Total Current Assets has increased due to increase in trade receivables and cash and bank balances. The increase has been partly set off due to decrease in current investments which is primarily due to reclassification of investments from current to non-current as aforesaid. Increase in debtors is disproportionately higher than the increase in turnover partly because the year end collections could not be banked due to bank holidays and increase in the scale of operations of Outdoor and Event Businesses which have higher credit period, besides the fact that in a deficient economic environment too much push on collection was avoided.

Consolidated Cash Flow Statement:

In continuation of the previous year, cash generation from operations continues to be robust. The Company, its Subsidiaries and Associates all are generating cash from operations and are in position to pursue organic as well as inorganic growth opportunities on their own.

The Groups liquidity position remains strong with nearly an amount of Rs860 crores held in form of cash and bank balances and liquid mutual fund units. Since close of the year, the Company has paid Rs302 crores to its shareholders for buying back its shares.

MATERIAL DEVELOPMENT IN HUMAN RESOURCES:

During the year, HR function has been professionalised further and HR department has been expanded to cover all important locations and functional areas. Various HR policies are being manualised and more systematic approach with high degree of transparency is being adopted in the processes of recruitment, appraisal, increment and other HR related matters. Some of the Companys business units have also started getting rated under Great Place to Work Survey in line with the Companys subsidiary Music Broadcast Limited which enjoys high ranking in the country.

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