Kohinoor Broadcasting Corporation Ltd Management Discussions

1. BUSINESS OVERVIEW

KBCL is currently having two phases to development, beginning, with our TV satellite channel broadcasting and commercial up-linking facility to other satellite channels.

KBC NEWS, the Companys first Free-to-air channel has been aired and is available at Satellite- INSAT 4A, 83 Degrees East, Symbol Rate 3000, FEC %, Downlink Frequency-3868, Pole- Vertical. The channel is a news channel with focus on Northern India and can be viewed by dish set-up. The channel could not be made available on DTH and Cable Network due to working capital crunch.

Up-linking Facility could be our another source of income, as we know that a number of TV channels already exist in the market and many more new channels are trying to enter, however due to scarcity of bandwidth on INSAT 4A, the same is becoming difficult. At present, we have the capacity to uplink eight channels, these numbers can be increased by adding more equipment in future, however the bandwidth is a limiting factor.

Mission

The mission of KBC News is to set up few channels in a phased manner. This will be achieved by understanding the need of viewers and by giving them the local content in best possible manner and of course with fresh capital induction.

2. INDUSTRY STRUCTURE & DEVELOPMENTS WORLD ECONOMY (Source: UN Report)

The world economy reached only a subdued growth, unable to meet even the modest projections many institutional forecasters made earlier. The world economy is estimated to have grown by 2. 1 percent in 2013, lower than the baseline forecast of 2. 4 percent published in WESP 2013. While most developed economies continued to grapple with the challenge of taking appropriate fiscal and monetary policy actions in the aftermath of the financial crisis; a number of emerging economies, which had already experienced a notable slowdown in the past two years, encountered new domestic and international headwinds during 2013.

Some signs of improvement have emerged more recently. The Euro area has finally come out of a protracted recession, with gross domestic product (GDP) for the region as a whole starting to grow again; the economy of the US continues to recover and a few large emerging economies, including China, seen to have at least stopped a further slowdown or will see accelerating growth. World Gross Product (WGP) is forecast to grow at a pace of

3. 0 and 3. 3 percent in 2014 and 2015 respectively.

There are four major weaknesses that continue to conspire against any robust economic recovery.

First, deleveraging by banks, firms and households continues to restrain normal credit flows and consumer and investment demand.

Second, unemployment remains high, a condition that is both cause and effect in preventing economic recovery. Except Brazil, China and Germany, employment-to-population ratios remain below their 2007 levels in all major economies. In the United States, despite recent improvements, the unemployment rate remains high, well above pre-crisis levels.

Third, the fiscal austerity responses to rising public debts not only deter economic growth, but also make a return to debt sustainability more difficult.

And fourth, bank exposures to sovereign debts, along with the weak economy, perpetuate financial sector fragility and, in turn, spur continued deleveraging.

US is estimated to grow at a meagre pace of 1. 6 percent in 2013, significantly lower than the previous year 2. 8 percent. Fiscal tightening and a series of political gridlocks over budgetary issues during the year have weighed heavily on growth. Monetary policy has been extremely accommodative, but it has had greater effect on boosting equity prices than on simulating the real economy. Expectations arising in mid-2013 about the possible tapering of the quantitative easing programme caused some jitters in financial markets, pushing up long-term interest rates. A moderate improvement earlier in 2013 in such areas as housing and employment lost momentum towards the end of the year. In the outlook, assuming that the future unwinding of the monetary easing will be smooth, GDP is expected to increase 2. 5 and 3. 2 per cent for 2014 and 2015, respectively. Risks remain on the downside, however, particularly because political wrangling over the budget may linger for several years.

Western Europe emerged from recession in the second quarter of 2013, led by net exports and, to a lesser extent, private and public consumption, but investment remained weak and unemployment stood elevated. GDP is expected to grow by 1. 5 and 1. 9 per cent in 2014 and 2015, respectively. Growth remains weak due to a number of factors: fiscal austerity programme, while reduced in intensity, remain a drag; intraregional demand is still exceptionally low; and extra-regional demand has slowed. Lending conditions remain tight for some countries, particularly for small- and medium-sized enterprises (SMEs). Considerable diversity is found across countries, with the United Kingdom of Great Britain and Northern Ireland showing relatively strong growth, followed by Germany, while the crisis countries remain in very weak positions, with Cyprus, Greece and Portugal expected to stay in recession in 2014.

The aggregate GDP growth for the Eastern European region is estimated to be 0. 5 percent in 2013, and is forecast to strengthen moderately to 2. 1 per cent in 2014 and further to 2. 7 per cent in 2015.

Japan is estimated to grow by 1. 9 per cent in 2013, boosted by a set of expansionary policy packages, including fiscal stimulus and large-scale purchases of assets by the central bank.

Among developing countries, growth prospects in Africa remain relatively robust. After an estimated growth of

4. 0 per cent in 2013, GDP is projected to accelerate to 4. 7 per cent in 2014.

International prices for primary commodities remain elevated by historical standards, but face downward pressure in the outlook period. With global demand expected to pick up moderately in 2014-2015, commodity prices are expected to stabilize, although they are still subject to changes in supply-side factors, such as weather conditions (for agricultural commodities) and geopolitical tensions (for oil). Oil prices were on a downward trend in the first half of 2013, as global demand for oil weakened along with the deceleration in world economic growth overall. Geopolitical tensions can entail a large risk premium on oil prices, particular when oil supply is also tight. By assuming no further significant eruptions in geopolitical tensions, the Brent oil price is expected to be about $108 per barrel (pb) for 2014-2015, compared with an estimated average of $108. 1pb for 2013 and $111. 6 pb in 2012.

In addition, speculation amplified many commodity prices. Food prices will remain vulnerable to supply shocks and speculative responses in commodity derivatives markets.

INDIAN SCENARIO (Source: FICCI and Various)

The Indian economy will grow 5 per cent in 2014 and record a slightly higher expansion of 5. 5 per cent next year on stronger consumption and investment, a UN report said today.

The UN World Economic Situation and Prospects (WESP) 2014 mid-year update said India’s economy would grow by 5 per cent in 2014 and 5. 5 per cent in 2015, only slightly up from 4. 8 per cent in 2013 and 4. 7 per cent in 2012.

The FICCI Report may have revised the growth projections from 6. 5% to 6. 7% for 2013-14 but it is a far-fetched dream due to poor performance of agriculture, manufacturing and service sectors and hence, pessimistic sentiments in Stock Market.

The World Bank has projected an economic growth rate of 5. 7 per cent in fiscal year 2014 for India, while IMF has pegged the growth forecast at 5. 4 per cent in 2014 for the country.

Media and Entertainment Industry (M&E)

In calendar year 2013, the Indian Media & Entertainment (M&E) industry registered a growth of 11. 8 per cent over 2012 and touched INR 918 billon. The overall growth rate remained muted, with a slow GDP growth and a weak rupee. Lower GDP meant lower demand from the consumer and this impacted advertising. At the same time, the industry began to see some benefits from the digitization of media products and services, and growth in regional media. Gaming and digital advertising were the two prominent industry sub-sectors which recorded a strong growth in 2013 compared to the previous year, albeit on a smaller base.

The gloom in the economy and among consumers and advertisers has been accentuated by a stream of negative news, including warnings about a downgrade of Indias sovereign ratings by international credit assessors Standard and Poors and Fitch. A 25% slide in the value of the rupee against the dollar over the past year has made imports more expensive while Wholesale Price Inflation remained high at 9%.

Indian publishers and broadcasters—both television and radio networks — are staring at tougher times as advertisers cut back on budgets for brand marketing and promotions in the face of deepening economic gloom. The print media, television and radio have not been able to perform as per the projections. This is evident from the fact that a Turner Broadcasting System owned, Indian Channel, NDTV Imagine had to be shut down due to its declining performance.

Industry Size and projections

For projections till 2018, digital advertising is expected to have the highest CAGR of 27. 7 per cent while all other sub-sectors are expected to grow at a CAGR in the range of 9 to 18 per cent. Overall, the industry is expected to register a CAGR of 14. 2 percent to touch INR 1785. 8 billion by 2018.

Broadcasting

Traditionally, broadcasters have been relying on advertisement revenues, which account for 70-90 percent of their total revenues. Globally, pay TV market dominates ’Free to Air’ and hence the subscription revenues form a leading revenue stream for networks. Since broadcasters are more dependent on subscribers for their business viability, the onus is on them to provide better quality content to meet consumers’ rising demands for quality. There are two possible sources of revenue for broadcasters apart from advertising income - subscription fees and monetizing of content on other platforms, both of which will see a gradual increase in share of total revenues.

The share of broadcasters in the total subscription pie has dipped from the current levels of 21 percent of the overall subscription revenues in 2010 on an average across platforms to 30 percent in 2015.

Television

The over-all television industry touched Rs. 417. 2 Billion in 2013 growing at 12%, much lower than 15 per cent in 2010. The consumer tastes play a major role in determining the success of a channel. The success of show is marked by high Television Rating Points and in turn more advertisers ready to expend more for the interval slots.

As the advertisers are shifting to social media, news channels have been hit hard. Even leading news channels are finding it hard to fill their advertisement inventory. Due to fierce competition, news channels are facing tough times to maintain their popularity levels among the masses.

Advertising

The advertising spends across all media accounted for Rs. 327. 4 billion in 2012, contributing to 46 percent of the overall M&E industry revenues. Advertising revenues dipped to 9 percent in 2012 from 13 percent in 2011 and 17 percent in 2010. Profit margins for the companies have squeezed. As the consumer sentiments continue to run low, advertisers are targeting social media rather than traditional media. Advertising spends were expected to grow at a CAGR of 15 percent to reach Rs. 541 billion in 2015, but the projection now seems way over-bullish.

Indian print media

The print industry grew by 7. 3 % from Rs. 209 billion in 2011 to Rs. 224 billion in 2012. The growth has been lower than the previous projection of 10 % last year. This is mainly due to the challenging macro-economic environment and reduced ad spends.

Leading newspapers have been forced to increase the prices of the newspaper as the newspapers scrap value has gone up. As the value of rupee has diminished the newsprint imports have become costlier. To add to the miseries, the advertisers have squeezed their budgets for the print media. Even the traditional print advertisers such as automobiles, telecom, real estate and education have taken to social media such as Facebook for reaching the masses.

Regulation to trigger growth

TRAI has submitted recommendations to the government to increase the FDI limits across several broadcast and distribution platforms including Radio, TV, DTH and cable. The government is also evaluating the industrys suggestion to allow radio companies to own multiple frequencies in an area, air news and current affairs and permit networking of content across categories of cities. This has been touted to act as a catalyst to the growth of the sector.

Social media as an influencer

In India, social media reaches 87 percent of the online user base. With expanding global reach of social media, companies are increasingly experimenting with various online marketing strategies. Given the interactive ability of the medium to provide direct access to consumers, media companies and advertisers are expected to leverage this platform to understand consumer behavior and influences. These insights could help them build a more consumer oriented product and exploit the opportunity and promise of targeted advertising.

HD growth wave

Another trend witnessed in 2013 was the entry of HD channels. Dish TV has come out with an offering of 30 HD channels on its platform while at the same time making it more affordable to consumers by lowering the price for new HD connections.

3. OUTLOOK

The Company is a beginner in Media and Entertainment industry. The slowdown in economy has hit the advertising sector and there is no positive growth in the revenues. Due to the economic gloom the consumer demands have remained stagnant and hence do not provide an optimistic view for the Company to grow its revenue and market share. The company proposes to strengthen its presence in Broadcasting by moving strategically. Advertising expenditure is the most important indicator of the performance of the Indian entertainment industry. Domestic entertainment Companies are hoping to find better earnings potential in the overseas markets. With the availability of the channel on DTH and Cable network, it will find its takers and generate advertisement revenues.

At the same time, corporatization is also emerging in this highly unorganized industry. This is likely to instill a greater discipline in the functioning of the industry and lead to greater consolidation in the future. The domestic consumer will opt for more sophisticated technology in the near future. Consequently, domestic Companies will have to redefine their product offerings.

With literacy levels forecasted to increase in India in the future, the publishing industry will continue to witness growth. Advent of new technologies such as e-book etc. will take a longer time to have an impact on the domestic market as compared to the global markets. While piracy levels are declining slowly, better copyright laws and the rapid implementation of the same are imperative to preserve the creative talent and facilitate the high growth in this industry.

4. FINANCIAL PERFORMANCE

The year in review had remained dull for the company. Though the company aired its first Free-to-air channel "KBC NEWS" yet it has failed to evoke any response from public. The channel is available on Special Dish Setup, which becomes expensive for the user as the company is having only one channel. The company is proposing to distribute the channel on DTH and Cable Network; however the working capital is a constraint for the same. The investments of the company are not generating desired revenues due to the Global Slowdown. The company is piling up buffer stock for its channel and has reduced outright sale. The Company achieved a gross turnover of Rs. 0. 8 million during the year ended 31 March 2015 same as Rs. 0. 8 Million during the previous year. The Company has faced a liquidity crunch throughout the financial year ended 31 March 2015. The business turnover of the Company has been achieved from the single business activity only i. e. Sale of media Content.

KBCL is fairly positioned to succeed in this new environment by having space on INSAT-4A. We are committed to achieving and maintaining world-class levels of governing, operating and capital discipline. We are focused on creating operating efficiencies in the near term and developing promising new revenue sources for the long term.

5. RISKS AND CONCERNS

The Media business, like all other businesses is prone to risks and concerns. The programmes is prepared and at quite high cost and there is not mechanism to check its acceptability in public. If the programme is not liked by the public the entire investment will go haywire. The business and the results of the Companys operations may, be negatively affected by the following factors identified by the management.

Piracy in the Indian Entertainment Industry- A threat

Piracy continues to be a key challenge and has been one of the primary reasons for the decline of the home video market. The piracy market in India is estimated to account for 800 - 950 million unit sales for DVD each year. The distribution platform for the illegitimate market is estimated to be spread over 15000 vendors across India. Online piracy is another huge challenge for the industry.

Increased Competition

The Company operates in a competitive business environment. The number of new entrants to the media and entertainment industry is increasing. Growing competition may force the Company to reduce the prices of its services, which may reduce its revenues and profit margins and/or decrease its market share, either of which could have a materially adverse effect on its business, financial condition and results of operations.

Sustained growth depends upon its ability to attract and retain skilled employees.

The Companys sustained growth depends upon its ability to attract and retain skilled employees, including the employment of highly skilled artists in the media and entertainment sector and management. Inability on the part of the Company to employ and retain skilled personnel on a long-term basis, may affect the success of the Company and eventually the business and profits of the Company.

Ability to control project costs.

Programmes are prepared at a reasonably high cost. The project costs of the Company may fluctuate in the future depending on a number of factors, including the size, timing and profitability of significant programmes, the time required to train and productively utilize employees and unanticipated increases in salaries.

The Companys programmes may not be compatible with industry standards developed in the future.Failure to keep up-to-date with the latest innovations and trends in the media and entertainment industry may adversely affect the competitiveness and ability of the Company to develop new programmes. There is no mechanism to check the popularity of programmes amongst the public. If programmes prove less popular than expected, the Companys business, financial condition and results of operations will be adversely affected.

Change in the law or regulatory environment.

Any change in the law and/or in the regulatory environment in relation to the Companys business within or outside India may significantly impact the business of the Company.

6. INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY

The Company maintains adequate internal control systems, which provide, among other things, reasonable assurance of recording the transaction of its operations in all material respects and of providing protection against significant misuse or loss of Companys assets. The Company has an independent Internal Audit Function with professionally qualified financial personnel, which conduct periodic audits of all businesses to maintain the internal control systems.

Some significant features of the internal control systems are:

- Clear delegation of power with authority limits for incurring capital and revenue expenditure;

- Corporate policies on accounting and capital acquisition;

- Well-defined processes for formulating and reviewing annual and long term business plans;

- Preparation and monitoring of annual budgets for all operating and service functions;

- Frequent meetings of the management committee at apex level to review operations and plans in key business areas;

- A well-established multidisciplinary Internal Audit team which reviews and reports to the Management and to the Audit Committee regularly on the adequacy of and compliance with internal controls across the organization, follows up the progress of implementation of various recommendations and helps in identifying opportunities for cost reduction and better use of resources; and

- An Audit committee of the Board of Directors with a majority of independent directors, which reviews regularly the audit plans, significant audit findings, adequacy of internal controls as well as compliance with Accounting Standards.

In order to adhere to high standards of business ethics and corporate governance, the Company administers an ongoing program for re-enforcement of business ethics guided by its core values. All employees of the Company including senior management are regularly exposed to such programs to facilitate compliance with business principles contained in the code of conduct.

7. CAUTIONARY STATEMENT

Statement in this Management Discussion of Analysis describing the Companys objective, projections, estimates, expectations or predictions may be forward-looking statement with the meaning of applicable securities laws and regulations. Actual result could differ materially from those expressed or implied. Important factors that could make a difference to the Companys operations include cyclical demand and pricing in the Companys principal market change in Government regulations, tax regimes, economics developments within India and the markets in which the Company conducts business and other incidental factors. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information future events, or otherwise. Readers are cautioned not to place undue reliance on these forward looking statements that speak only as of their dates.