Ortel Communications Ltd Management Discussions.

Economic overview

The global economy has been sluggish with a very poor growth hampered by slow pick up in US economy and slowdown in the growth rate in China. In this uncertain global economic scenario, the Indian economy has been one of the brightest spots with an expected growth of 7.4 percent in FY 2018 despite the impact on account of demonetisation and GST. Further domestic consumptions have remained strong accounting for around 73 percent of gross domestic product (GDP) in FY 2018. In FY 2018, the GDP is expected to continue to grow above 7 percent while in the long term both demonetisation and Goods and Service Tax are likely to provide a further boost to the Countrys GDP.

Against the backdrop of robust macro-economic stability, the year was marked by two major domestic policy developments, implementation of Goods and Services Tax (GST) and demonetisation of the two highest denomination notes. The GST is expected to create a uniform common Indian market, improve tax compliance and governance and boost investment and growth in long term paving way for brighter GDP and stronger economy. Further as a reform measure, it was also a bold new experiment in the governance of Indias cooperative federalism by way of demonetisation of Specified Bank Notes. Demonetisation has had short-term costs and inconvenience but holds the potential for long term benefits. Besides, follow-up actions and measures have been put in place to minimize the costs and maximise the benefits including; fast and demand-driven, remonetisation, further tax reforms including bringing land and real estate into the GST, reducing tax rates and stamp duties and acting to allay anxieties about over-zealous tax administration. These actions would definitely allow growth to return to trend in 2018-19 following a temporary decline in 2017-18.

In the aftermath of demonetisation and at a time of gathering gloom about globalisation, articulating and embracing those ideational shifts will be critical to ensuring that Indias sweet spot is enduring not evanescent.

Industry overview

Media and Entertainment Industry

The year FY 2018 was a mixed bag for the Indian Media and Entertainment (M&E) industry. The digital ecosystem penetrated further into the citizens day-to-day lives and opened up new avenues of consumption by customers and revenue generation by the service provider. It was time for introspection for many players of the industry.

In FY 2018, the Indian M&E industry grew at 9.1 per cent on the back of advertising growth of 11.2 per cent. This was aided by strong fundamentals and a steady growth in consumption, although demonetisation shaved off 150 to 250 basis points in terms of growth across all sub segments at the end of the year.

Television experienced slower growth due to a lacklustre year for subscription revenues, which have faced headwinds owing to continued challenges around digitisation and its intended benefits flowing through the value chain. Television advertising saw sunrise sectors, such as e-commerce, scaling back spend significantly and the event of demonetisation leading to an adverse impact across categories. However, strong long-term fundamentals driven by domestic consumption augur well for the future. Growing access to rural audiences through digitisation, coupled with content availability through increase in Free-to-Air (FTA) channels and deeper audience measurement will be a key catalyst to long-term growth, though this may have an adverse impact on distribution revenues. A solution to the tariff and interconnect orders by the Telecom Regulatory Authority of India (TRAI), which is acceptable to all stakeholders will be critical for the successful completion of the digitisation exercise.

Looking ahead, the future of M&E industry indeed revolves around digital. The mobile phone, which today has reached every nook and corner of the country, manifests itself as a powerful medium to bridge the content consumption divide across socio-economic classes and categories. With the continued push by the government around digital consumption and payments, mass adoption of technology is a foregone conclusion. However, this brings with itself challenges for every sub-segment of M&E industry to innovate, to align with this change, and evolve in terms of building sustainable business models. Whether existing industry stakeholders are able to harness this potential dividend, or find them at the wrong end of this divide, will be the big answer to watch out for in the future.

Strong economic fundamentals coupled with growth in domestic consumption have also aided the Indian M&E industry to maintain a growth of 11.6 per cent over the last five years. Though demonetisation adversely impacted the Media and Entertainment sectors performance in 2018, especially advertising revenue, the impact is likely to be short lived and normalcy is expected to return in 2019. The longterm factors driving the future growth are expected to remain positive, with growing rural demand, increasing digital access and consumption, and the expected culmination of the digitisation process of television distribution over the next two to three years.

Indias Television Industry: The Indian M&E industry - Projections

The Indian M&E industry is projected to grow at a faster pace of 14 per cent over the period 2016-21, with advertising revenue expected to increase at a Compound Annual Growth Rate (CAGR) of 15.3 percent during the same period. However, in 2018, advertising revenues are expected to grow at a marginally slower rate of 12.8 per cent due to the prolonged effects of demonetisation and initial volatilities arising from GST implementation. Television is expected to grow at a CAGR of 14.7 per cent over the next five years as both advertisement and subscription revenues are projected to exhibit strong growth at 14.4 per cent and 14.8 per cent, respectively. The long term forecast for the television segment remains robust due to strong economic fundamentals and rising domestic consumption coupled with the delayed, but inevitable, completion of digitisation. The rising share of FTA channels may, however, partially pull down the long-term subscription revenue forecasts.

Key Policy changes driving the Changes:

Government policies and initiatives are creating a significant and lasting impact on M&E industry, both directly and indirectly. However, implementation across the various measures has been a challenge, resulting in heart burn in the short-to-medium term.

Demonetisation - a bolt out of the blue:

The Government of Indias de-legalisation of high denomination currency notes led to a decline in consumption across sectors, such as Fast Moving Consumer Goods (FMCG), Auto, Banking, Financial Services and Insurance (BFSI) and Real Estate. This led to a pull back on discretionary spends on marketing and advertising, the repercussions of which were felt across M&E industry. Advertising revenues across television print and radio suffered while the attendance at cinema halls, particularly single screens, and live events, was also impacted. It is estimated that the annual advertising growth rates for television, print and radio were adversely impacted by about 1.5 to 2.5 per cent.

However, the impact is expected to be short lived, because from Q1 2018 onwards, there has been an upswing in consumption and advertising demand, although spend levels continue to remain lower than the same period in the previous year.

GST to rationalise taxation across M&E industry:

The GST, which is implemented by the central government in FY18, has streamlined the multiple incidences of taxes currently being levied by both the central and state governments. While the introduction of GST has varied levels of impact across the various media segments on an overall basis, M&E industry is a net beneficiary. This is primarily due

to availability of input credits across the board and inclusion of entertainment tax within the ambit of GST. However, in the long term, with the formalisation of the economy and widening of tax base, there could be a positive impact on the countrys GDP and consequently on advertising spends.

Cable digitisation - a game changer:

The ongoing cable digitisation has brought a paradigm shift in the overall operations of the television sector; however, delays in Set-Top-Box (STBs) supply, seeding and challenges pertaining to addressability, gross billing, per subscriber billing, and roll out of packaging remain a major concern amongst the stakeholders. The Telecom Regulatory Authoritys (TRAIs) guidelines on Tariff and Interconnect are expected to alter the operating dynamics between various stakeholders of the industry. The implementation of these guidelines, in a form acceptable to all stakeholders, would be key to Average Revenue per User (ARPU) uptick and to improve industry profitability. However, implementation in phase-IV markets has paved a challenge considering the low scale of economies.

Further, Digitisation of the cable distribution sector to attract greater institutional funding, improve profitability & help players improve their value chain.

ARPU Post - digitisation

• Presence of analog cable & higher contribution had led to lower Average Revenue Per User (ARPU) level, which is around USD3.4 for a digital pay television However, with higher scope of introduction of new and niche channels with digitisation, ARPU levels are expected to increase in the coming years.

• ARPU for DTH subscribers has seen an increase over years. The more promising trend is that DTH operators are able to increase collections from customers by providing additional services such as HD channels, premium channels & other value added services.

• HD adoptions continues to drive ARPU growth for DTH players with the average ARPU of a HD subscribers at 1.5 to 2 times more the ARPU of non HD subscribers.

• Digital cable on the other hand, has not seen any significant ARPU increases as compared to the DTH ARPU. For digital cable, deployment of different channel packages will be the key driver to increase ARPUs

Surge in digital consumption compelling existing players to take a hard look at their business models:

Consolidation gaining momentum across the value chain

Consumer analytics has become indispensable

Strong demand and policy support driving investments

The carriage fees to be capped at 20 paisa per SD channel per subscriber/month, and 40 paisa per HD channel per subscriber per month. Further, the carriage fees of a particular channel shall decrease with the increase in subscribers for that channel, becoming nil if the subscriber base of that channel equals or exceeds 20 per cent of the average subscriber base of the DPO in that month in that target market.

India Cable TV Market

India Cable TV market has grown considerably over the past eight years. Demand for cable TV services in the country has escalated over the past eight years due to increased prevalence of digitization drive, increasing household expenditure on entertainment, improving quality of television display, lower costs of service provision and stable user base. Majority of people in India have preferred cable TV due to convenience and lower cost of subscriptions.

Digitisation:

Indian TV industry is going through a rapid and historic transformation. To accelerate the slow growth of analog regime and to help consolidate and organise the industry and at the same time to make it more transparent, Government of India has framed a road map for conversion of analog customers to digital platform in four phases and completed the deadline by March 2017.

Advantages of Digitisation

• Higher consumer preference, which lacked in the former Conditional Access System (CAS)

• Consumers will be able to select content of their choice as well as indefinitely store and access digital content

• The digital platform in films also includes the ‘video- on-demand feature on television

• Higher transparency; subscriber declaration level is expected to increase to 100 per cent under postdigitisation regime as compared to 15-20 per cent as declared by Local Cable Operators (LCOs) to Multiple System Operators (MSOs).

• The digital segment in Indias media & entertainment industry is set to cross USD 3208.07 million by 2020. This offers a huge opportunity for expansion of digital sector in Indias media & entertainment industry.

Mandatory digitization results in consolidation of the last mile cable industry. Larger operators are keen to acquire the last mile as valuations for LCOs drop and operators successfully develop skill sets and necessary infrastructure as they are in transition to a B2C model.

Digital Cable is poised to gain significantly from DAS Phase-lll and IV incremental additions. We envisage Digital Cable to take a sizable share in the C&S market space and in the long run, with the deep customer connect; Digital Cable has a definite edge over DTH. However, the major challenge for MSOs presently remains the ARPU realisations, which are not even 30 per cent of what the customer pays, and a share of that goes to the broadcasters as well. We believe that the TRAI draft tariff orders are a step in the right direction toward ensuring better revenue realisation across the TV value chain, provided litigations around the orders are addressed.

DTH and digital cable ARPUs:

The ARPU growth for the Industry remained largely subdued in 2016. While the pack price increases effected by most players, along with efforts to drive HD adoption were Pull up factors, the majority of the incremental subscriber additions were from DAS III and IV, which came in at lower ARPUs than average, resulting in muted ARPU growth.

• ARPUs to be driven by packaging, package wise collections, improved monetization from LCOs, Premium Contents, HD Channels, and Broadband etc.

• Digitization will lead to increased transparency in subs declaration and improved ARPUs.

In conclusion, while strong economic fundamentals would continue to drive growth, the Indian M&E industry is on the cusp of rapid transformation with digital media taking centre stage across all the sub-sectors. Digital media, which was earlier being viewed as just an additional distribution platform and just another touch point, is rapidly emerging as a core revenue engine. While M&E organisations are looking to build out digital strategies, the economic and business models required to succeed in the digital landscape are challenging and would require a significant shift in mind set and approach. Further, dramatic changes in the regulatory environment are also impacting business models. In this changing paradigm, M&E organisations would need to be nimble and flexible and operate with a long term integrated strategy to build out sustainable businesses.

BROADBAND INDUSTRY

India is currently the worlds second-largest telecommunications market and has registered strong growth in the past decade and half. The Indian mobile economy is growing rapidly and will contribute substantially to Indias Gross Domestic Product (GDP), according to report prepared by GSM Association (GSMA) in collaboration with the Boston Consulting Group (BCG).

The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector. The government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured availability of telecom services to consumer at affordable prices. The deregulation of Foreign Direct Investment (FDI) norms has made the sector one of the fastest growing and a top five employment opportunity generator in the country.

The Indian telecom sector is expected to generate four million direct and indirect jobs over the next five years according to estimates by Randstad India. The employment opportunities are expected to be created due to combination of governments efforts to increase penetration in rural areas and the rapid increase in smartphone sales and rising internet usage.

International Data Corporation (IDC) predicts India to overtake US as the second-largest smartphone market globally by 2017 and to maintain high growth rate over the next few years as people switch to smartphones and gradually upgrade to 4G.

Indias Internet economy expected to double to become $250 billion by 2020

The Internet economy in India is becoming a major contributor to GDP, and is expected to grow to about 7.5% of the countrys GDP by 2020 from 5% now. E-commerce and financial services are projected to lead the growth. For instance, share of digital payment transactions could increase to 30-40% of all transactions by 2020 from 13% in 2015. Data consumption is set to expand to around 7-10 GB per month per user by 2020 from the current 700 MB per month per user.

Digital adoption in India has been growing rapidly

Recent disruptions in the telecom space have given a strong impetus to digital adoption in India, accelerating the rate by at least a few years. While the total number of mobile Internet users is expected to grow to almost 650 million by 2020, users with high-speed Internet access is expected to be around 550 million. This can prove to be a huge boost for the Internet economy. Data consumption is set to expand to around 7-10 GB per month per user by 2020 from the current 700 MB per month per user.

Three key forces are coming together to unlock the latent digital demand

By 2020, 4G-enabled devices are expected to grow six-fold to 550 million devices, constituting about 70% of devices in use. At the same time, reliable high-speed data is becoming both ubiquitous as well as affordable (data rates have reduced to less than one-third in just 4-5 months). The proliferation of digital content is also driving consumption. Mobile Internet users are expected to nearly double from 391 million today to 650 million by 2020 while data consumption per user is estimated to grow 10-14 times to reach 7-10 GB/month.

Broadband speeds are an essential component for consumers to have a rich experience over the internet. The average broadband speed in India is 4.1 Mbps (3Q 2016), which has marked a 62 per cent increase Year on Year (y-o-y). The broadband (4 Mbps) adoption (IPv4) in India is at 30 per cent representing a 116 per cent y-o-y change. Although the broadband speed and adoption are improving at a swift pace, South Korea leads the space with 26.3 Mbps and an adoption of 97 per cent (IPv4); on the other hand, India still has some headroom for growth.

In parallel, the adoption of IPv6 internet protocol is improving in India, which creates the infrastructure to connect more devices, supports higher speeds, increases security of communication and reduces latency.

As of 2016, IPv6 adoption in India stood at 16.4 per cent Flow fast the telcos are able to transition to this new protocol will lay the foundation of how the adoption of new age technology, such as Internet of Things (loT), matures in India.

As per TRAI report, the total number of users has increased to 350.48 million at the end of June 2016, as compared to 342.65 million users at the end of the previous quarter ending on March 2016. There were 319.42 Internet users at the end of June 2016, which shows a 9.72 percent increase in Internet usage over the past year and 2.28 percent over the quarter. Broadband subscription rates have surged, showing a growth of 8.22 percent over the previous quarter. Narrowband internet subscribers have declined by 2.32 percent as compared to the previous quarter.

Further, total number of Broadband subscribers in 2016 was 411.56 million consisting of wired broadband subscribers and wireless broadband subscribers at 21.95 million and 389.61 million respectively.

Cable Internet Broadband

The cable broadband sector in India remains nascent with limited investments made in network rollout and upgrades, aside from a few well-capitalized national MSOs. According to industry resource, the total wireless broadband penetration by India is 7% whereas fixed broadband penetration is 1% of total household. So there is huge broadband potential due to penetration.

The advantage to cable operators will come in the form of large-scale fiber backhaul availability, which could reduce capital expenditure as well as time required to expand to new territories. Additionally, it also allows operators to focus on last mile upgrades to coaxial networks.

Broadband is a key driver of the Last Mile Cable Business

In particular, broadband cable service entails the highest return for distribution platforms in the United States. In

Pay-TV, satellite generates superior return to cable in general due to (i) lower operating costs from leveraging wireless infrastructure and lower churn levels due to national footprint and (ii) higher ARPUs vis-a-vis cable. However, cable broadband is the strongest solution in maximizing ARPU and margins and helps cable maintain superior returns to satellite.

The increasing proliferation of technology-enabled devices, policy driven push through programmes such as the digital India campaign and high speed broadband highways will lead to a dramatic increase in the internet subscriber base and penetration level. (Source: TRAI).

With DOCSIS 3.0 technology which provides speeds of 50-100 Mbps, a better ARPU margin for the broadband business is expected to increase in the coming years.

Also the Broadband business offers multiple synergies to MSOs by allowing them to leverage their existing infrastructure and consumer base. In the normal scenario, Subscriber will always prefer wired internet connectivity compared to wireless as it is faster, cheaper and reliable. The Broadband offers higher ARPU and margins than digital cable and is in line with the changing consumer preference for high speed connectivity. Due to low penetration of broadband in India, there is scope for substantial growth opportunity in broadband.

About Ortel

Ortel Communications Limited ("the Company") is a regional cable television and high speed broadband services provider focused in the Indian states of Odisha, Andhra Pradesh ,Telangana, Chhattisgarh, West Bengal and Madhya Pradesh. As part of major expansion process, in the current year the Company has taken further geographical progress by expanding its operation to the States of Madhya Pradesh and Telangana. It has always been the Companys vision to provide Cable TV, Data Service and Internet Telephony on a single cable platform to households. Company has built a State-of-Art two-way communication network for ‘Triple Play services (video, data and voice capabilities) having HFC network (combination of optic fibre in the backbone and coaxial cable in the distribution network) with control over the ‘Last Mile. It pioneered the primary point cable business model in India by offering digital cable television, broadband and VAS services. It currently holds a dominant position in Odisha, with a fast-growing presence in five other markets, covering an addressable market of approximately five million homes with direct to consumer business model, popularly known as "Last Mile" business model in the Cable TV universe having 90% of the subscriber base under own network. Currently, business of the Company is broadly divided into (i) cable television services comprising of digital cable television services including other value added services such as HD services, NVoD, gaming and local content; (ii) broadband services; (iii) leasing of fibre infrastructure; and (iv) signal up linking services. It has legal ‘Rights of Way for laying network cable and capable of providing broadband at speed of up to 100 mbps through use of cable modem with DOCSIS 3.0 technology. It has grown both organically and inorganically through buyout of network equipment, infrastructure and subscribers of other MSOs and LCOs. Ortel is a pioneer in providing Convergence Communication Services in the Country. It has revolutionized the Entertainment and Broadband Technology in the Eastern India.

Ortel is the first MSO to offer upto 100 Mbps Broadband in the state of Odisha using the DOCSIS 3.0 technology. DOCSIS 3.0 allows for a much higher throughput compared to the earlier versions by using multi-channel bonding simultaneously for download/upload. Ortel has withdrawn all schemes of Broadband services where the speed is less than 1Mbps.

FY2018 performance overview:

• Total Income decreased to Rs.1,862 million against Rs.2,072 million of FY 2017

• Profit Before Tax is Rs.(952.72) million against Rs.14.30 million in the FY 2017

• Profit After Tax came in at Rs.(952.72) million compared to Rs. 14.30 million in FY 2017

Operational Review

The FY 2018 was a challenging year for your Company. The operational performance has been affected due to both external and internal factors resulting in slower growth both in terms of revenue and profitability. On external side, slow pace of digitisation and lower Average Revenue per User ("ARPU") realisations from the addressable C&S base has impacted the performance. Increased competition has impacted industry in general affecting broadband performance of the company.

The companys performance has also been affected due to delay in collections, higher competitive intensity in the market place as well as issues pertaining to debt repayment. The collection percentage has been slower due to transition from analog to digital platform affecting collection from old subscribers. Delay in debt funding has also affected the performance during the period under review. Apart, the performance was further impacted due to lower IFL income during the period under review.

Notwithstanding above, your company has achieved a healthy growth in revenue both for cable TV and broadband business year on year basis. Members will be happy to know that, all Non Odisha states have been EBITDA positive. Full digitisation of subscribers will also help improving the collection controlling the debtors days. The Company has already started acquiring subscriber base aggressive organic plan with various schemes and members will be glad to know that, your company has registered a growth in the subscriber base through organic route. Company has achieved an overall RGU of 8,17,066 over 8,23,405 of pervious period, a reduction of only 0.77%. Further, the Broadband business has started a turnaround after being impacted post Jio lunch which particularly affected our younger subscriber genre. Members may also note that, the Company has demonstrated a strong B2C last mile business model in its core market which is profitable and expects to replicate the same in the new markets also. Having the unique ‘Last Mile model and with adequate steps being taken for aggressive digitisation and various other business plan, the Company is very hopeful of improved performance in the coming FY.

Current Business Trends and Future Outlook

Cable TV

After consolidating its business at various locations in Odisha, your Company has taken further steps to consolidate its market base in other States that have been entered into since 2008. The Company has done significant buyout of LCOs in Andhra Pradesh and Telangana. We take the opportunity to communicate that your company is making steady progress in all other States beyond Odisha.

The company is hopeful of achieving a substantial growth in its Subscriber Base both through Organic as well as inorganic acquisition of LCOs. The Company has achieved a better growth in terms of organic acquisition. Company has also plans to expand into other new markets through a combination of competitive pricing, multiple service offering, extensive marketing and acquiring network equipment, infrastructure and subscribers from LCOs/ MSOs in those new areas.

Digitization

With mandatory digitization under phase III and Phase-IV, the Company aggressively worked to maximise digitization and has made a significant growth in its digital subscriber base.

Further, in addition to SD (Standard Definition) series, your Company is also providing high quality HD (High Definition) and has also plan to invest more in an HD Head end and Set Top Boxes to provide high quality HD services to its customers.

The Company also holds registration certificate as prescribed in the amended Act to operate as MSO in DAS areas from Ministry of Information & Broadcasting.

Data Services:

Ortel continues to be the one of the dominating player in the Data Services market in Odisha by providing high speed services at competitive prices. The Company presently provides both retail and corporate broadband services in 19 towns including 13 towns in the state of Odisha.

While the competition for data services has intensified especially from wireless operators who offer the advantage of mobility, high speed service still remains the unique selling proposition for Ortel Broadband. Your company has taken various steps for improving network uptime by providing for power backups at nodes, expanding to new locations and deeper penetration in existing locations and improving customer service delivery infrastructure so as to increase the subscriber base. Your Company also intends to improve network penetration by cross selling our broadband services to the existing cable television customers and attracting new customers through competitive pricing, better customer support service.

Your Company has successfully implemented DOCSIS 3.0 high speed broadband service and is currently offering data service upto a speed of 100 Mbps. The Company has also identified new markets as a part of expanding the Data operation and have planned out to expand further in the coming financial year. Your company is also using HFC architecture, which can easily be converted or upgraded to provide FTTH service at very nominal incremental capital expenditure. With the implementation of new technology, high speed data service and aggressive marketing strategy, the Company will manage to increase its subscriber base.

In order to partly counter the mobility feature of the competitors, we are focusing on providing home wireless options to customers by installing wireless modems to interested consumers. We are also creating public hot spots for both existing customers and prospective customers inside the city in different crowd public points.

Your Company is also leveraging the existing infrastructure to provide bulk bandwidth as well as leasing out the fiber network to various Corporates.

Your company is well equipped with its upgraded Network Operating Center (NOC) with inbuilt redundancy of key elements in the system to support and sustain the higher level of customer base and service. Your Company provides data services through MEN in West Bengal, which engages different network topology capable of broadband and IP television services. The company is also upgrading its Bandwidth purchases from multiple vendors at competitive prices which will bring in substantial cost reduction of Bandwidth charges.

Your company has set up a state of the art integrated Call Center to address customer queries and complaints. At present, 18 local customer help centers are integrated to the centralized Call Center with 24X7 help line. Company has also a network monitoring system through which major network failures are monitored and steps taken to restore the services early. Your company also has a grievance redressal system in place to resolve the complaints.

Key Developments

• Robust RGU Additions:

During the year, the total RGU stands at 8,17,066

• Healthy Traction in States outside Odisha:

The Companys Local Cable Operator (LCO) buy-out strategy receiving strong response in states of Andhra Pradesh, Telangana, Chhattisgarh and Madhya Pradesh

Robust growth outside Odisha to continue in FY19

• Digitization:

Hold over 40k STBs in inventory with digital signals in place - sufficient stock for implementation of organic growth customers.

• Steady momentum in Broadband Business:

Expect significant growth in broadband subscribers in FY19 on the back of new network rollout, a strong team, solid back-end operations, attractive broadband packages and various other value-added services & initiatives.

Other Value Added Service

The Company also provides choice of other value added services over the same cable leading to customer convenience and satisfaction with a range of services HD services, NVoD and other interactive video content. Currently Company provides 14+ HD channels on its network. The Company also offers bundled services such as Cable TV + Broadband + HD to its customers. All these services are expected to drive revenue in future.

Key strategies which will accelerate overall growth of the Company

• LCO Buyout: The aggressive LCO buyout plan which is already being carried out shall enable the Company to substantially increase its subscriber base.

• HD Launch: Offering Channels in HD platform in its core markets which has already been launched, the Company will able to provide quality service to its customers and hence will increase both revenue and customer demand.

• High Speed Broadband Packs: with already launched high Speed Broadband packs with data speed of up to 100 Mbps in the market, the Company is expecting to increase customer base and revenue in the coming years.

• Digitisation: With digitisation mandate and Company having ready to provide digital cable TV service, it will benefit in terms of lesser revenue leakage, more accurate subscriber base information, high transparency and higher subscription revenue.

Principal factors affecting our results of operations and financial condition

i. Primary subscriber base

Companys business model is focussed on the control over ‘the last mile connection. Primary subscriber numbers allows benefit from higher revenues per subscriber as it controls the service and collection directly without involving any intermediary and reduces large scale customer churn.

ii. Number and mix of subscribers

The revenue of the Company is significantly impacted by the ability to increase the number of cable television subscribers. The subscriber numbers are affected by the following factors, among others:

• Our geographic reach

• Competition

iii. The other factors affecting operation performance are as follows:

• Buyout of network equipment, infrastructure and subscribers

• Channel carriage fees

• Broadband spread and density

• Programming cost

• Regulations

Internal Control Systems and their Adequacy

The Company has developed and maintained with an adequate internal control system commensurate to its size and business. The company has appointed M/s SCM & Associates a firm of Chartered Accountants, as its Internal Auditors, who conduct internal audit for various activities. The reports of Internal Auditors are submitted to Audit Committee of the Board, which further reviews the adequacy of internal Control system periodically.

In addition to this the company has its own Internal Audit Department to implement and monitor proper and adequate internal control procedures. Further, the company has maintained adequate system to ensure effective operation of the internal financial control with reference to financial statement of the Company.

Human Resources

Human Resources are of paramount importance for the sustenance and growth of any organization and it is specifically true for the technically sensitive broadband sector. Your company has initiated steps to recruit and retain talented personal at key levels and believes in involving young executives in its decision-making processes. Your company continues to give maximum thrust to its Human Resources Development.

Employee relations remained cordial at all your companys locations. Your Directors take this opportunity to record their appreciation for the outstanding contribution of all employees of your company.

During the year, the Company maintained harmonious and cordial industrial relations. No man-days were lost due to strike, lock out etc. As on 31st March 2018 there were 1589 permanent employees on the rolls of the company.

Disclosure by Senior Management Personnel i.e. one level below the Board including all HODs.

Potential Risk and measures to mitigate

None of the Senior Management personnel has Financial and Commercial transactions with the Company, where they have personal interest that would have a potential conflict with the interest of the Company at large.

Risk Management

The Company takes proactive risk management initiatives to identify and mitigate the relative risk associated by various risk measures. The company has taken comprehensive and adequate insurance policies for its electronic equipment, vehicles, network assets and buildings etc to cover different types of potential risk that may affect the operational performance of the Company. The risk management Committee of the Board reviews various areas from time to time.

Nature of Risk Definition and impact Measures for mitigation
Regulatory Risk Increased regulations or change in existing regulations could potentially impact the operation of the Company. Keep updation of the changed legislation and compliance on top priority by close monitoring regularly.
Industry Risk Competition from competitors may adversely affect the operating performance of the company. Adding new technology and better customer service while keeping close watch on competitors activity.
Finance Risk As at March 31,2018, the company has outstanding loans of Rs. 179.96 Crs. In addition to the outstanding payable to creditors, Rs.55.78 Crs. is subject to fluctuations in foreign currency rates. Company is coordinating with major financiers for suitable restructuring of the outstanding loans for making it easy to repay both principal & interest on due dates. The Company has put into place necessary system to constantly review its repayment capabilities. The Company has not done any hedging of foreign currency liabilities.

Health, Safety and environment

The company has taken adequate measures for health and safety of its employees through Group Insurance covering life, accident and disablement, Employee Deposit Link Insurance and ESI.

Your Company also gives utmost priority on health and safety of its employees and is committed to ensure high standard work practice in compliance with applicable laws and regulations.

Your Company also conducts training programmes for its staff and employees, and carries out regular safety audits in relation to the operations. All field employees are provided with safety equipment. Regular safety audits are conducted at each location to monitor the implementation of the safety guidelines issued by the Company, and a compliance report is also prepared every month. The company also believes in environmental safety and zero hazards.

CAUTIONARY STATEMENT

Statements in the Management Discussion and Analysis describing the Companys objectives, projections, estimates and expectation may be "forward-looking" within the meaning of applicable laws and regulations. Actual results might differ materially from those expressed or implied.