Vels Film International Ltd Management Discussions

A. Industry Overview

The Media and Entertainment (M&E) sector in India registered an expansion in Financial Year 2025 26, growing 9.1% year-on-year to reach Rs. 2.78 trillion (gross of taxes), outpacing Indias nominal GDP per capita growth. Growth across the broader ecosystem was primarily driven by digital media, live experiential events, and out-of-home media.

Concurrently, the sector has entered a buyers market characterized by platform consolidation, recalibrated content budgets, and a transition from speculative commissioning to return-on-investment (ROI)-driven monetization models.

INDIAN MEDIA & ENTERTAINMENT (M&E ) INDUSTRY SEGMENT VALUES (FICCI-EY 2026)

(Rs. in Crores)

Segment	CY 2024	CY 2025	CY 2028E	Projected CAGR (2025 28)
Digital Media	85,100	1,11,000	1,64,000	14.0%
Television	67,900	61,700	53,500	-5.0%
Filmed Entertainment	18,700	20,500	25,300	7.0%
Print	25,700	25,900	26,400	1.0%
Online Gaming & Video Games	23,600	19,500	9,200	-22.0%
Live Events	10,100	14,500	19,600	10.0%
Animation and VFX	10,300	10,500	13,800	10.0%
Out-of-Home Media	5,900	6,700	8,500	8.0%
Music	5,300	5,900	7,500	9.0%
Radio	2,500	2,300	2,200	-2.0%
Total M&E Industry	2,55,300	2,78,500	3,30,100	6.0%

Source: FICCI-EY 2026. CY 2028E represents estimates;

CAGR refers to projected CAGR for CY 2025 CY 2028.

B. Indian Media & Entertainment Industry:

Digital Overtaking Linear Mediums: Digital media crossed the Rs. 1 trillion threshold in 2025 to reach Rs. 1.11 trillion, comprising 39.8% of aggregate M&E revenues. Digital video subscription revenues grew by 60% to Rs. 163 billion, supported by 21.6 Crore paid subscriptions across 14.3 Crore households.

Shift towards Hybrid Distribution: Linear television households faced subscription churn (Rs. 1.1 Crore pay TV homes migrated to Free-to-Air DD Free Dish or Connected TV), leading to a 9% contraction in linear television revenues. However, the addressable AND consumer base viewers engaging concurrently with linear broadcast and digital streaming reached 47% of all video consumers.

C. Film Industry and Regional Cinema

Theatrical Resurgence: The Indian filmed entertainment segment surpassed Rs. 200 billion for the first time, reaching Rs. 205 billion in 2025. Domestic gross box office collections expanded by 14% to Rs. 130 billion across 1,972 theatrical releases (including 270 dubbed titles).

Dominance of South Indian Regional Cinema: Regional-language content accounted for 56% of digital video content produced in India and represented over 65% of all theatrical film releases. Tamil cinema led the volume of releases with 325 titles, followed by Telugu (313), Kannada (267), Hindi (226), and Malayalam (203).

Mid-Scale Content Viability: Mid-budget films grossing Rs. 100 200 crore grew their share of aggregate box office revenues from 12% to 20%, signaling an audience preference for narrative strength over star-driven budgets.

D. Industry Trends

Rationalisation of Digital / OTT Rights Values: Digital licensing values fell by 8% to 10% as OTT platforms prioritized bottom-line profitability and curtailed direct-to-digital acquisitions (halving from 60 in 2024 to 30 in 2025). Rights valuation models have transitioned to tiered pricing pegged to actual theatrical performance.

Escalation in Talent and Production Costs: As highlighted across studio peer filings, disproportionately high artist compensation has exerted margin pressures on production companies. Studios are restructuring contracts toward performance-linked incentives and co-production risk-sharing. Ancillary Rights Monetisation: Music and digital syndication rights have become essential revenue-hedging components. Music segment revenues grew 10% to 1 59 billion, with digital licensing contributing 58% of the mix.

E. Business Environment and Competitive Landscape

VFIL operates primarily in the production, acquisition, and distribution of Tamil feature films and digital content.

Peer Group Comparative Summary: FY 2025 26

(Rs. in Crores)

Company	Primary Focus	Total Revenue	Profit / (Loss) After Tax
Zee Entertainment Enterprises Limited	Broadcast, Digital & Films	8,098.90	271.30
Saregama India Limited*	Film Production, Music, Video & Events	1,171.30	204.30
Sun TV Network Limited*	Broadcast, Digital & Films	454.40	165.45
Tips Films Limited	Film Production & Distribution	159.56	(15.85)

* Relates to Financial Year 2024 25

F. Competitive Pressures

Scale Disparity: National players viz., Zee Studios, Jio Studios and established regional studios such as Sun Pictures, Lyca Productions, AGS Entertainment possess balance sheet strength that enables them to bid aggressively for marquee talent and lock in theatrical distribution networks.

Independent Producer Squeeze: Independent film banners face elongated monetization cycles and working-capital constraints when digital buyers delay pre-release commitments.

G. Financial Performance

Standalone Operating Statement

Overview

During Financial Year 2025 26, VFIL reported a standalone revenue from operations of Rs. 1.58 crores, compared to Rs. 34.27 crores in Financial Year 2024 25.

Total standalone income in FY 2024 25 of Rs. 59.77 Crores included a one-time non-operating gain of Rs. 23.01 Crores arising from the divestment of Vels Studio and Entertainment Private Limited (VSEPL / Jollywood) .

The reduction in consolidated operating revenue during FY 2025 26 was a result of: Extended production schedules and release deferrals of tentpole projects into FY 2026 27. Deconsolidation of the studio/theme park operating revenues following the divestment of majority control in Vels Studios and Entertainment Private Limited (VSEPL) in late FY 2024 25.

Expenditure Profile

Direct Production Expenses: Direct film production expenses stood at Rs. 69.9 Crores in Financial Year 2025. In FY26, operational expenses remained tied to carrying capitalized Work-In-Progress (WIP) on the balance sheet rather than immediate P&L charging, as principal photography on major slates continued.

Finance Costs: Finance charges continued to represent an operational expense (Rs. 54.12 million in FY25) due to outstanding promoter and related-party loans utilized to fund film production work-in-progress.

Profitability: Reflecting lower operational revenue recognition and ongoing finance costs, the Company recorded a standalone net loss for FY 2025 26, compared to a net profit after tax of Rs. 136.02 million in FY 2024 25 (which had been boosted by the Rs. 23.01 crore investment sale).

Balance Sheet and Capital Structure

Share Capital: Issued, subscribed, and paid-up capital remained unchanged at Rs. 12.90 crores (12,908,000 equity shares of Rs. 10 each).

Borrowing Profile: The Companys debt structure consists primarily of unsecured borrowings from promoters and promoter-group entities ( Dr. Ishari K. Ganesh, Arthi Associates Pvt Ltd, VG

Park Beach Resorts Pvt Ltd, Kushmitha Foundations Pvt Ltd ) totaling over Rs. 567.74 million across long-term and short-term categories.

Film Inventories (Work-in-Progress): Work-in-progress inventories representing capitalized production costs for unreleased films stood at Rs. 104.05 crores as of March 31, 2025 and remained above Rs. 100 crores through FY 2025 26, reflecting capital deployed in upcoming tentpoles.

H. Operational Performance

During FY 2025 26, VFIL focused resources on advancing production milestones across its pipeline, navigating the changing dynamics of the post-theatrical windowing ecosystem: Theatrical exploitation schedules for major projects were realigned to optimize release windows and prevent crowded holiday-weekend clashes.

The Company continued to execute its core single-segment business model: creation, marketing, and monetization of Tamil feature film IP and associated rights (theatrical, satellite broadcast, digital streaming, music, and overseas distribution).

. Key Business Developments during FY 2025 26

Deconsolidation of Non-Core Studio Asset: Following the disinvestment of 4,500,000 equity shares in Vels Studios and Entertainment Private Limited (VSEPL) at Rs. 61.14 per share (aggregating Rs. 27.51 crore) and non-participation in its rights issue, VFILs holding reduced to 19.01%.

Consequently, VSEPL ceased to be a subsidiary/associate under the Companies Act, 2013, allowing VFIL to streamline operations into a pure-play film production business.

Releases: During the FY 2025-26, VFIL released Sumo movie and after the financial till the date of this report, Kara and Gatta Kushthi 2.

Project Portfolio on the Floor: Production and post-production workflows progressed on several projects, including Dayangaram, Genie, Mookuthi Amman 2, Unkill and a Untitled project with Premkumar.

J. Opportunities and Growth Prospects

Expansion of Pan-India & Dubbed Content: As evidenced by national box-office trends, dubbed South Indian films are capturing growing viewership shares in North Indian and overseas circuits. Ancillary Rights Pre-Sales: Structuring multi-territory pre-licensing arrangements for satellite, music, and digital rights allows independent producers to recover a baseline of capital prior to theatrical release.

Co-Production Frameworks: Partnering with national media conglomerates enables risk-mitigated co-financing models while retaining regional creative control.

OTT Release Window: All production houses and theatrical owners have decided for a 08 (eight) weeks OTT release period from the date of release of movie. Hence, the ticket sales in theatre would increase.

K. Risks and Challenges

Revenue Lumpiness and Box-Office Volatility: Financial performance is dependent on the commercial outcome and theatrical timing of individual projects.

Working-Capital & Finance Cost Drag: Carrying large work-in-progress inventories funded through unsecured borrowings creates fixed interest obligations that impact margins during periods between major releases.

Digital Buyer Caution: Tighter OTT acquisition budgets require films to prove theatrical traction before securing premium digital licensing values.

Digital Piracy: Unauthorised distribution remains a risk across the theatrical window and early streaming release dates.

RISK MATRIX & MITIGATION STRATEGY

Risk Category	Impact on VFIL	Mitigation Approach
Box-Office & Content Performance	Box-office volatility impacting revenue realisations.	Focus on concept-driven scripts, genre diversity, and disciplined mid-budget production control.
Digital Licensing Realisation	Lower OTT pre-sale valuations and extended payment terms.	Adopt multi-platform windowing across satellite, digital, music and dubbing rights.
Financial Leverage & Working Capital	Interest cost drag on the balance sheet and pressure on working capital.	Monetise completed WIP/ content inventories and utilise operating cash flows to reduce debt.
Content Piracy	Loss of theatrical and digital streaming revenues.	Deploy technological anti-piracy measures, geo-blocking and timely legal enforcement.

L. Outlook

The outlook for VFIL in FY 2026 27 is tied to the monetization of its Work-in-Progress content slate. With the non-core studio business deconsolidated, management is focused on completing and releasing its queued pipeline, realizing theatrical and non-theatrical revenues and deleveraging its balance sheet.

M. Management Perspective

The Management of VFIL remains confident in the long-term value of original storytelling in the South Indian market. While FY 2025 26 was a transitional year characterized by pipeline investment and operational rationalization, the upcoming release slate positions the Company to rebuild revenues, convert WIP assets into operational cash flows and generate overall value for all the stakeholders. For and behalf of the Board

Vels Film International Limited

Sd/-	Sd/-
Dr. Ishari K Ganesh	Arthi
Managing Director	Director
DIN: 00269445	DIN: 00568101
Place: Chennai
Date: August 27, 2026