KSS Ltd Management Discussions.

MACRO ECONOMIC ENVIRONMENT IN INDIA

Media and Entertainment Industry

The Indian Media and Entertainment (M&E) industry is a sunrise sector for the economy and is making high growth strides. Proving its resilience to the world, the Indian M&E industry is on the cusp of a strong phase of growth, backed by rising consumer demand and improving advertising revenues. The industry has been largely driven by increasing digitization and higher internet usage over the last decade. Internet has almost become a mainstream media for entertainment for most of the people.

The Indian advertising industry is projected to be the second fastest growing advertising market in Asia after China. At present, advertising revenue accounts for around 0.38 per cent of Indias gross domestic product.

Recent development/Investments

The media and entertainment industry in India is on the fast track to growth, according to a report by EY and FICCI (Federation of Indian Chambers of Commerce and Industry) released on Tuesday March 12th, 2020.

The report, ‘A billion screens of opportunity, says the sector is poised to cross $33.6 billion by 2021 at a compounded annual growth rate of 11.6%. The sector was worth $23.9 billion in 2018, growing 13.4% from 2017.

The report said growth in the industry will be driven by digital media, which will overtake filmed entertainment in 2019 and print by 2021.

"India has the second highest number of Internet users after China with 570 million Internet subscribers growing at 13% annually. The report estimates that approximately 2.5 million consumers in India today are digital only and would not normally use traditional media. It is expected that this customer base will to grow to 5 million by 2021".

Growth in digital consumption will spur media companies to innovate new monetisation avenues and service new customer segments. "Telco bundling will drive consumption for a majority of Indian OTT audience. Advertising growth outpaced subscription growth and is expected to comprise 52% of the total pie by 2021,".

Indias TV industry grew from $9.47 billion (^66,000 crore) in 2017 to $10.62 billion (^74,000 crore) in 2018, registering a growth of 12%. TV advertising grew 14% to touch ^30,500 crore while subscription grew 11% to ^43,500 crore. There was a 7.5% rise in TV viewing households.

Government Initiatives

The Telecom Regulatory Authority of India (TRAI) is set to approach the Ministry of Information and Broadcasting, Government of India, with a request to fast track the recommendations on broadcasting, in an attempt to boost reforms in the broadcasting sector. The Government of India has agreed to set up the National Centre of Excellence for Animation, Gaming, Visual Effects and Comics industry in Mumbai. The Indian and Canadian Government have signed an audio visual co-production deal to enable producers from both the countries exchange and explore their culture and creativity, respectively.

The Government of India has supported Media and Entertainment industrys growth by taking various initiatives such as digitising the cable distribution sector to attract greater institutional funding, increasing FDI limit from 74 per cent to 100 per cent in cable and DTH satellite platforms, and granting industry status to the film industry for easy access to institutional finance.

Road Ahead

The Indian Media and Entertainment industry is on an impressive growth path. The industry is expected to grow at a much faster rate than the global average rate.

Telecom Regulatory Authority of India (TRAI) plans to introduce a policy for broadcasting sector with a vision of 2020. The policy aims to usher a new era in the broadcasting sector where MRP of the TV channel will be declared by broadcasters directly to the consumers, and will bring more transparency and choices to the consumers.

Animation and VFX industry in India reached Rs 73.90 billion (US$ 1.15 billion) in FY-18 from Rs 62.30 billion (US$ 928.60 million) in FY-17, growing at a CAGR of 18.60 per cent.

During 2018-2023, the segment is expected to grow at a higher CAGR of 15.50 per cent, largely led by the continued growth in outsourced services and the swelling use of animation and VFX services in the domestic television and film space, respectively.

Digitalisation has played the major role in the growth of Indian film industry. The Indian film industry is expected to grow at a rate of 11.9 per cent by 2020.

By 2019, cinema exhibition industry in India is expected to have over 3,000 multiplex screens.

Total subscriber base for Indian television industry is expected to increase to 195 million by 2019 from 183 million in 2017.

References: Media Reports, Press Releases, Press Information Bureau, Department of Industrial Policy and promotion (DIP), KPMG - FICCI Report 2019, IBEF Report-2019

Gems and Jewellery Sector

Indias gems and jewellery sector is one of the largest in the world contributing 29 per cent to the global jewellery consumption. The market size of the sector is about US$ 75 billion as of 2018 and is estimated to reach US$ 100 billion by 2025. The sector is home to more than 300,000 gems and jewellery players, contributes about 7 per cent to Indias Gross Domestic Product (GDP) and employs over 4.64 million employees.

Indias gems and jewellery sector contributes about 15 per cent to Indias total merchandise exports. The overall net exports of gems and jewellery stood at US$ 32.71 billion during FY18 registering a compound annual growth rate (CAGR) of 5.83 per cent over FY 05; whereas gems and jewellery imports increased at a CAGR of 7.97 per cent from US$ 11.63 billion in FY05 to US$ 31.52 billion in FY18.

India is the worlds largest centre for cut and polished diamonds in the world and exports 75 per cent of the worlds polished diamonds. Today, 14 out of 15 diamonds sold in the world are either polished or cut in India. India exported US$ 3.52 billion worth of cut and polished diamonds in FY20P (As of May 19 Provisional). It contributed 73.42 per cent of the total gems and jewellery exports.

Company Overview:

Your Company is engaged in the business of content distribution and exhibition of feature films and other activities through its subsidiaries viz., K Sera Sera Digital Cinema Limited- handling the Digital Cinema Roll Out and K Sera Sera Miniplex Limited- specializing in the Exhibition Business building Cinema Halls across India. The Company has also diversified in the jewellery business by acquiring two new subsidiaries namely, Birla Gold and Precious Metals Limited and Birla Jewels Limited. Both the companies are the wholly owned subsidiaries of KSS Limited.

State of Art Theatres- "K Sera Sera Miniplex Limited"

K Sera Sera Miniplex Limited is continuing its growth adding new partners and new screens to its portfolio. We continue to provide top quality entertainment to our audience. The Company has started making Multiplexes with four screens.

It has also started its own Food and beverages Cafe in the name of CINE CAFE. The Company plans to extend the catering services in to cinema which are owned or operated by the Company. With this expansion plan the Company is also expecting a quantum jump in its revenue.

K Sera Sera Miniplex Limited is also in the process of launching ticketing application so that the patrons can book tickets from the comfort of their home without paying any internet handling charges.

The Company has installed its first 2K format projector in Nagpur and the Company expects a good jump in the revenue with this investment.

Our Miniplex will be located across India in approximately 527 districts. KSSML has already finalised over 120 plus locations, which are at various stages.

K Sera Sera Digital Cinema Limited:

K Sera Sera has launched high definition Cinema Projection Technology, under Sky Cinex Prime. The revised technology enables to download high quality "Digitally Mastered Content" via various electronic medium. The company has heavily invested in Research and Development of this technology. K Sera Sera Digital Cinema currently has now approx. 700 Screens under its umbrella and has grown its presence in the Hindi film market with growing reach in Delhi, UP, Punjab, Uttarakhand, Gujarat, Maharashtra, Himachal Pradesh, Chattisgarh, Madhya Pradesh, Andhra Pradesh, Karnataka, West Bengal, Tamil Nadu, Bihar, Assam.

KSSDCL released all Hindi (Bollywood) films as well as Bhojpuri, Gujarati, Telugu, Kannada, Bengali and other regional language to a huge success. KSS Digital Cinema provides state-of-the- art Projection Technology to E-Cinema across India and is known for its Service and Efficiency and therefore obtained the ISO 9001:2008 Certificate.

KSSDCL has established "State of the Art" Digital Lab and Mastering Unit at Hyderabad, as part of expansion plan for the State of Andhra Pradesh and Telangana. The Company had signed an MOU with Tamil Nadu Film Chamber for establishing Mastering Unit & Digital Lab for the State of Tamil Nadu, Karnataka and Kerala and same has been implemented and more than 100 screens have been added to these states.

In Order to bring in Technological Upgradation the Company through its high tech Mastering facilities, we have Mastered 2K movies at our Hitech Labs at Hyderabad, Chennai and Mumbai. More than 1000 screens overseas have used our 2K Mastered KDMs for 2K Movies. The Company has also invested in acquisition of 2k Equipments and have provided to theatres. The Company has been delivering 2K Mastered Content at cities like, Batala, Patiala, Surat, Kolkata, Ahmedabad, Veerabal, Beed, Champa, Raipur and Nagpur, where we have our own Miniplex under brand name of KSS Miniplex.

Skycinex Prime Technology Upgradation

• Remote Access Management of our entire network of server widely spread in India.

• Support and Trouble shooting is managed electronically with our Prime Technology.

• Exceptional feature of One Time Password (OTP) for critical & sensitive situations

• Online download of movies content and advertisement content.

• Online download of Govt directed advertisement of mass education and information.

• Playlist acknowledgements on the KDMST from the playback server

• Enhanced the Push feature from the playback server

• Enhancement on the watermark

• Added stop feature on the download dialog

• Added additional meta data on the content encrypted on the EMT

• Created mono audio solution for the DOME

• Faster processing for the PINK content on EMT

• Interface enhancements on the KDMST

K Sera Sera Box Office Private Limited

K Sera Sera Box Office Pvt Ltd. Has its two brands under its name: CHHOTU MAHARAJ - Cine Restaurant

i) CHHOTU MAHARAJ - Cine Restaurant & Cine Cafe

ChhotuMaharaj - Cine Restaurant is a very unique concept, which offers a combination of 7 Course dining with theatrical entertainment. ChhotuMaharaj is worlds First ever "Dine in Theater". This innovative idea evolved considering the current Indian scope of family entertainment.

Where an Indian consumer mostly prefers to spend their leisure time and weekends or any special occasion like anniversarys and birthdays at restaurant and watch a movie . This generally becomes a very costly affair for most as they end up spending huge cost on dining and purchasing costly movie tickets at various multiplexes.

A New revolutionary service from ChhotuMaharaj - Cine Restaurant shall offer world class 7- course dining with latest cinema entertainment where you have to only pay for what you eat and latest cinema viewing shall be combined along with cost by bringing in the Best of the Two Worlds - A Restaurant and Cine Screening - rolled into one.

Now our customers can book a table or entire ChhotuMaharaj - Cine Restaurant at their door step for any events or special occasion. Be it the last-minute concept plan, or any romantic dinner date, along with any special movie screening.

ChhotuMaharaj - Cine Cafe offers 3 course meal with theatrical entertainment at very affordable price, we want viewers to enjoy latest cinema complementary while enjoying their meal along with their family and friends in a luxurious environment. ChhotuMaharaj - Cine Cafe aims to reach at actual grass root level of Tier 2, Tier 3 Cities, Tehsils & Gram Panchayats across the country.

ii) Filmy Carvan

Filmy carvan is concept of movable theatre and aims to showcase latest bollywood and regional movies every month at Grampanchayat and village level.

Filmy carvan showcases movies along with added benefits like food, clothing and exhibitions at village grampanchyat level.

In a month one filmy carvan vehicle will cover 30 grampanchayat and nearly 400 plus villages. We have 2 filmy carvan vehicles operational at Rajasthan (Nagaur District) and we aim at opening 300 plus vehicles in upcoming years.

Birla Gold and Precious Metals Limited

Birla Gold and Precious Metals Limited is a service provider and retailer for all kinds of goods and merchandise including precious and semi-precious metals, stones, gold, silver, diamonds, Jewellery and all such other commodities.

Birla Gold and Precious Metals Limited has launched a Jewellery Purchase Product named "Cherish Gold Plan-CGP" - A Smart Savings Plan through which it aims to present to end customers the flexibility to purchase and accumulate fractional amount of 22 karat gold, rather than spending large sums of money to purchase it in one go. Participation of Individuals under this product is voluntary and individuals are free to purchase as much as jewellery at any time. "Cherish gold" is a product and brand/trade name owned by BGPML.

Cherishgold.com is an e-commerce portal/virtual Jewellery Mall wherein the largest collection of Gold, Diamond and Gemstone Jewellery, in the country, is made available. Cherish Gold would help customers to shop from anywhere, any time and offers door-step delivery. The products meet the stringent quality standards of purity, weight, shape, size and aesthetic look.

Birla Jewels Limited

Birla Jewels carries on business as Service provider for all kinds of goods and merchandise including gold, diamonds, jewellery and such other products. It is engaged in distribution and retail of branded jewellery, jewellery products and life style products from its current set of retail outlets, and through their franchisee model under the brand name "BJewelz". It provides services to equip a jewellery retail outlet through franchisees to successfully run exclusive jewellery retail business under the banner of "BJewelz, a brand owned by Birla Jewels Limited.

The Company is currently focussing on the launching of "BJewelz" retail outlet through franchisee model in various states and down the year is planning to open the Company owned and Company operated retail store of its own.

Financial Overview

Revenue of the group stood at Rs. 4,767.63 Lacs and profit/ (loss) after tax and exceptional item stood at Rs. (4,500.58) Lacs. Reduction in revenue is mainly on account of paradigm shift in Companys focus and diversification. The diversifications of the business are yet to bear fruit.

Outlook, Opportunities and Threats Outlook:

The Company envisages a huge potential in motion picture production, distribution and television content production activities. The Company also proposes to expand its activities into overseas market. The Company is working towards diversification on and intends to de risk the business.

Exhibition Miniplex:

The Company aims at opening Miniplex as compared to multiplexes as not many are block buster and facility of 4-5 screens with the capacity of 200-250 may not be viable for tier 2 and tier 3 cities as the population is not much. Hence a miniplex format theatre serves better. Hence a Miniplex format theatre serves better. The Company has also started building multiplexes whenever the space and opportunity arises. Miniplexes should have a positive impact on the profitability of the group.

Exhibition Digital Cinema:

As briefed earlier that digitisation has seen good progress in digital cinema as they are going to play a crucial role in the future of film industry and there is huge potential for conversion of earlier movies in analogue to digital format with its State Of Art Technology, "Skycinex Prime" which should provide greater returns in the future. As a long term vision, the company is focusing on development of DCI approved technology so that it can release the Hollywood movies. In the interim, the company has progressed in developing its proprietary Server, in order to deliver 2 K DCP to theatre, which would be rolled out shortly.

Jewellery Market- Retailer

• With a market size of almost INR 4,54,100 crore, the sector has a sizeable share of the GDP at 5.9 percent, apart from large-scale employment generation and foreign exchange earnings.

• A share of wallet analysis reveals that jewellery accounts for more than a fourth of the discretionary spending by consumers in India. This coupled with rising income levels in India is a major growth driver

• India has an estimated 229 million women aged 20-49. The number of women, the key customer category for jewellery, who are employed in professional sectors is rising very fast

• With more than 300 million people in the 25-29 age group in the period 2011-21, 150 million weddings are expected to take place in this period

• Tier-III inclusion. With landlords and money lenders being the primary source of financial credit in such areas, jewellers have emerged as an alternative, providing investment options through gold jewellery.

Threats:

Market competition, regulatory approvals and fast technological advancement remain a major threat. Piracy continues to dampen the growth, measures taken by the Company to go digital is helping reduce its extent. High Entertainment tax affects revenue to some extent. Film distribution is relatively risky business due to issue of under reporting by exhibitors.

RISK MANAGEMENT:

Some of the key strategic risks the Company faces, their impact and corresponding risk mitigation actions undertaken by the Company are discussed in the table:

KEY RISKS IMPACT ON THE COMPANY MITIGATION
Technology Inability to cope with swift technological developments can impact business The company has expertise technical support staff who update the management regarding new impact business
Liquidity Non availability of timely funds may affect our ability to operate and also delay our implementation plans for growth and expansion. The Company has good Financial support of Banks and Financial Institutions helps the company to reduce its risks.
Regulatory Unprecedented changes in government policies may impact business operations. The company is suitably positioned to counter risks, posed by change in government policies.
Delay, cost overruns cancellation abandonment Such risks can significantly impact completion and release of films. Enhanced industry corporatization enables the company to mitigate this risk. This is carried out by entering into specific agreements, fixing the responsibilities of the co-producers, better planning and execution.

Internal Control System and their Adequacy:

Adequate systems of internal controls that commensurate with the size of operation and the nature of business of the Company have been implemented. The Internal control systems are implemented to safeguard companys assets from unauthorized use or disposition, to provide constant check on cost structure, to provide adequate financial and accounting controls and implement accounting standards.

Human Resource Management:

The Company places major emphasis on providing a safe & a healthy working environment to all its employees. We encourage our employees to balance their work and personal relation. The field being one which requires absolute creativity, the performance of its employees is reviewed so as to provide them job enrichment opportunities.

The Directors recognize that continued and sustained improvement in the performance of the Company depends on its ability to attract, motivate and retain employees of the highest calibre. We are committed to the principle of equal employment opportunities.

Further we endeavor to create an environment where employee can use their capabilities in support of the business.

Cautionary Statement: Statement in this Management Discussion and Analysis Report, describing the Companys Objectives, projections, estimates, expectation may be forward looking statements with the meaning of applicable laws and regulations, Actual results could diuer materially from those expressed or implied.