Annual Report - Balaji Telefilms - 2008-2009

BALAJI TELEFILMS LIMITED

ANNUAL REPORT 2008-2009

DIRECTOR'S REPORT

Your Directors take pleasure in presenting the Fifteenth Annual Report
together with the audited statement of accounts of the Company for the
year ended 31st March, 2009.

FINANCIAL RESULTS:

(Rupees in lacs)
Particulars 2008-09 2007-08

Income from operations 29,491.89 32,896.85

Total expenditure 25,515.28 20,506.48

Operating profit 3,976.61 12,390.37

Interest 0.00 0.00

Depreciation 2,352.26 1,270.06

Operating profit after interest and depreciation 1,624.35 11,120.31

Other income 2,127.03 1,728.08

Profit before tax 3,751.38 12,848.39

Provision for taxation 1,084.47 4,055.08

Net profit after tax 2,666.91 8,793.31

Balance brought forward from previous year 16,154.01 10,965.09

(Short)/excess provision for tax in respect
of earlier years (34.79) (54.80)

Appropriations:

Disposable profits 18,786.13 19,703.60

Proposed dividend 195.63 2,282.37

Corporate dividend tax 33,26 387.89

Transfer to general reserve 266.69 879.33

Balance carried to Balance Sheet 18,290.55 16,154.01

RESULTS OF OPERATIONS:

For the year ended 31st March, 2009, the Company earned total revenue of
Rs.31,618.92 lacs, a decrease of 8.68% over the previous year's
Rs.34,624.93 lacs. As per the consolidated accounts, the total revenues
have decreased by 9.98% from Rs. 39,591.40 lacs to Rs. 35,641.37 lacs in
the year under review. The net profit of the Company for the year decreased
from Rs. 8,793.31 lacs to Rs. 2,666.91 lacs in the year under review, a
decrease of 69.67%.

A detailed discussion on the business performance is presented in the
Management Discussion and Analysis section of the Annual Report.



APPROPRIATIONS:

Dividend:

The Directors are pleased to recommend a final dividend of Rs. 0.30 per
share (15 per cent on a par value of Rs. 2 per share) for the approval of
the members. The final dividend, if declared as above, would involve an
outflow of Rs. 195.63 lacs towards the dividend (previous year Rs.
2,282.37 lacs) and Rs. 33.26 lacs towards dividend tax (previous year Rs.
387.89 lacs), resulting in a total outflow of Rs. 228.89 lacs as against
Rs. 2,670.26 lacs in the previous year. Dividend (including dividend tax)
as percentage of profit after tax is 8.58%, as compared to 30.37%
in the previous year.

Transfer to Reserves:

We propose to transfer Rs. 266.69 lacs to the general reserve out of the
amount available for appropriations. An amount of Rs. 18,290.55 lacs is
proposed to be retained in the profit and loss account.

Subsidiaries:

During the year the Company had two wholly owned subsidiaries: Balaji
Motion Pictures Limited (BMPL) and Balaji Telefilms FZE(BTF).

BMPL was established in March 2007 to handle the film related business of
the Company. BMPL released four movies during the year i.e. Sarkar Raj,
EMI, Company and Mission Istanbul. It has started production of one film
which is tentatively scheduled for release in the financial year 2009-10.
BMPL achieved turnover of Rs. 4,256.06 lacs compared to Rs. 3,653.22 lacs
of last year. In the current financial year BMPL has reported loss after
tax of Rs. 2,331.06 lacs (includes write off/ provision of Rs. 885.11
lacs) compared to profit after tax of Rs. 549.11 lacs for last year.

BTF was incorporated in Sharjah Airport International Free Zone in
September 2006, to provide content to the leading channels of the region.
BTF launched its first serial 'Khwaish' in June 2007 on ARY and Sony
channel successfully. The production of the serial was discontinued in
April 2008 and BTF has been liquidated effective August 2008. There was
surplus of Rs. 273.67 lacs on liquidation of BTF.

Directors:

Mr. John Lau and Mr. Paul Ailleo resigned as directors of the Company
effective 25th August, 2008. Ms Ella Wong, being Alternate Director to Mr.
John Lau also ceased to be director effective 25th August, 2008. Mr.
Tusshar Kapoor resigned as director of the Company effective 24th January,
2009.

The board places on record its sincere appreciation of the valuable
services rendered by Mr. John Lau, Mr. Paul Ailleo and Mr. Tusshar Kapoor,
during their tenure.

Mr. Akshay Chudasama and Mr. Pradeep Sarda retire by rotation at the
ensuing Annual General Meeting. Both of them, being eligible, offer
themselves for re-appointment.

The brief resume/details relating to the Directors who are to be
appointed/re-appointed are furnished alongwith the notice convening the
Annual General Meeting.

MANAGEMENT:

Mr. Puneet Kinra was appointed as Group Chief Executive Officer of the
Company effective 15th October 2008. Mr. Sunil Shahani was appointed as
Chief Financial Officer of the Company in place of Mr. Sandeep Jain, who
resigned effective 28th February 2009.

Auditors:

M/s. Deloitte Haskins and Sells, Chartered Accountants, Mumbai and M/s.
Snehal & Associates, Chartered Accountants, Mumbai, the Joint Auditors of
the Company retire at the ensuing Annual General Meeting and being
eligible, offer themselves for reappointment. They have also confirmed
their eligibility and willingness for re-appointment if made the Joint
Auditors of the Company and confirmed that, if appointed as auditors for
the year 2009-10, their appointment will be within the limits prescribed
under Section 224(1 B) of the Companies Act, 1956.

CONSOLIDATED FINANCIAL STATEMENTS:

In compliance with the Accounting Standard 21 on Consolidated Financial
Statements, this Annual Report also includes Consolidated Financial
Statements for the financial year 2008-09.

PARTICULARS UNDER SECTION 212 OF THE COMPANIES ACT, 1956:

As per Section 212 of the Companies Act, 1956, we are required to attach
certain documents of our subsidiaries. We have attached the directors'
report, auditors' report, balance sheet and profit and loss account of
Balaji Motion Pictures Limited, the wholly owned Indian subsidiary of the
Company and the statement under section 212 of the holding companys
interest in the subsidiaries. Balaji Telefilms FZE, wholly owned overseas
subsidiary of the Company got liquidated effective 28th August, 2008.
Since the said subsidiary was not in existence as on 31st March, 2009, the
provisions of Section 212 of the Companies Act, 1956 were not applicable
to the same. Besides, the Company has received the exemption from attaching
the accounts of the Balaji Telefilms FZE from the Central Government.
Accordingly, the Annual Report does not contain the financial statements of
this subsidiary. We will make available the audited accounts and related
information of this subsidiary, wherever applicable, upon request by any
of our investors. These documents will also be available for inspection
during business hours at our registered office. The Company also presents
the audited consolidated financial statements in the Annual Report. We
believe that the consolidated accounts present a full and fair picture of
the state of affairs and financial condition, and are accepted globally.

AUDITORS' REPORT:

The observations of Auditors in their report read with the relevant notes
to accounts in Schedule 15 are self-explanatory and do not require further
explanation.

CONSERVATION OF ENERGY:

Energy conservation measures taken by the Company:

Our operations are not energy intensive. However, significant measures are
taken to reduce energy consumption by using energy-efficient computers and
by purchasing energy-efficient equipment. We purchase PCs, laptops, air
conditioners etc. that meet environmental standards, wherever possible and
replace the old equipment with more energy-efficient equipment. Currently,
we use CFL fixtures to reduce the power consumption in the illumination
system.

Additional investments and proposals, if any, being implemented for
reduction of consumption of energy:

We constantly evaluate new technologies and invest into this to make our
infrastructure more energy efficient.

Impact of the measures and consequent impact on the cost of production of
goods:

As energy costs comprise a very small part of our total expenses, the
financial impact of these measures is not material.

Total energy consumption:

Since the Company does not form part of the list of industries specified in
the schedule, the same is not applicable to the Company.

TECHNOLOGY ABSORPTION:

The Company's research and development initiatives mainly consists of
ideation of new subjects for our serials which are used in the creation of
new storyline and tracks. The expenses incurred on such initiatives are not
practically quantifiable.

The Company is an integrated player in the entertainment industry and our
business is such that there is limited scope for new technology
absorption, adaptation and innovation.

However, the Company uses the latest technology, wherever possible for
better production values as a regular process.

FOREIGN EXCHANGE EARNINGS AND OUTGO:

The foreign exchange earnings is Rs. 17,735.84 lacs, including Rs. 273.67
lacs towards surplus on liquidation of subsidiary and the outgo is Rs.
23.83 lacs, as given in Point 19 in Schedule 15 (statement of significant
accounting policies and notes forming part of accounts) of the Financial
Statements.

FIXED DEPOSITS:

The Company has not accepted any fixed deposits and as such, no amount of
principal or interest was outstanding as on the balance sheet date.

CORPORATE GOVERNANCE:

A separate section on corporate governance and a certificate from Auditors
of the Company regarding compliance of the conditions of corporate
governance as stipulated under clause 49 of the listing agreement with the
stock exchanges forms part of this Annual Report.

Certificate of CEO / CFO, inter alia, confirming the correctness of the
financial statements, adequacy of the internal measures and reporting of
matters to the audit committee in terms of the clause 49 of the listing
agreements with stock exchanges, is also attached as a part of this Annual
Report.

DIRECTORS' RESPONSIBILITY STATEMENT:

Pursuant to the requirement under Section 217 (2AA) of the Companies Act,
1956 and based on the representation received from the operating
management, the Directors hereby confirm:

* That in the preparation of the annual accounts, the applicable accounting
standards have been followed and no material departures have been made
from the same;

* That they have selected such accounting policies and applied them
consistently and made judgments and estimates that are reasonable and
prudent so as to give a true and fair view of the state of affairs of the
Company at the end of the financial year and of the profit or loss of the
Company for that period;

* That they have taken proper and sufficient care for the maintenance of
adequate accounting records in accordance with the provisions of the
Companies Act, 1956, for safeguarding the assets of the Company and for
preventing and detecting fraud and other irregularities;

* That they have prepared the annual accounts on a going concern basis.

ACKNOWLEDGMENTS:

Your Directors take this opportunity to express their sincere appreciation
for the excellent support and co-operation extended by the shareholders,
bankers and other business associates. Your Directors further wish to place
on record their appreciation of the exemplary contribution made by the
employees at all levels, who, through their competence, hard work,
solidarity, cooperation and support enabled the Company to achieve
consistent growth.

On behalf of the Board of Directors,
jeetendra Kapoor
Chairman

13th May, 2009 Mumbai

MANAGEMENT DISCUSSION AND ANALYSIS

INDUSTRY OVERVIEW:

As per the FICCI report 2008, the Indian media and entertainment industry,
pegged at Rs. 548 billion in 2008, exhibited a growth of 12.5% over the
previous year. This significant growth in the market size is mainly
witnessed due to an individual's increasing propensity for discretionary
spending. Indian production houses are operating across multiple platforms
and are constantly unearthing the potential of under penetrated
geographies. Consequently, today they have built scale and are attracting
foreign media companies as well as investments. The market is flooded with
new content delivery platforms that occupy a significant position in the
distribution portfolio of players. However, in wake of the prevalent
economic slowdown that began in the last quarter of 2008, the scenario has
changed tremendously. The Indian media and entertainment industry is
facing tough times. The fragmentation of audiences across media and
distribution platforms is compounded by the greater need for accountability
and measurability demanded by advertisers today.

Strong Suits:

Before hitting the economic slowdown hurdle, the media and entertainment
industry enjoyed a reputation of the fastest growing sectors of the Indian
economy. It caters to a vast customer base across the segments of
television, films and now extending to mobile, internet and other delivery
modes.

Diversification is the key to the growth and sustenance of any industry
today. Media and entertainment is no exception. With the advent of
superior technology platforms the industry is exploring newer formats.
Online distribution channels, web-stores, multi and mega-plexes are various
platforms to showcase content and provide for sound business propositions.

In addition to these, the DTH services have opened a whole new platform for
business. With the introduction of pay per view services, DTH has enabled
the content providers to make an entry into the homes of the consumers.
TRAI's 'must carry' regulations and control on pricing are however
presently limiting the scope of this business model.

India is the largest producer of films by volume; an estimated 1000(1)
films are released annually. However, it is responsible for only 1%(2) of
the global film industry revenues. There is a huge growth potential in this
space. With the consumer buying behaviour changing there is an emergence
of a new segment between the parallel and the commercial cinema - the low
budget films. Whilst niche, this segment has exhibited tremendous growth
potential what with generation Y demanding out-of-the-box content. Several
new films in this segment like Oye Lucky Oye, Dev D and Wednesday have done
exceptionally well. There is also a surge of young directors, actors and
script writers that has led to the celluloid broadening its horizon.

Challenges:

With the good news comes the bad. Whilst there are opportunities available
for growth, there are also some hurdles on the way. Average revenue per
subscriber, both on television (Rs. 165 per month(3) per household) and
films (Rs. 35 Per ticket) remains the biggest challenge. Besides lack of
address ability and digitization, continues to be the bane of the
television industry. The fact that the sector by itself is largely
disorganized and fragmented doesn't help. Lack of integrated production
and distribution infrastructure further adds to the woes of the sector.
Tier 2 and rural markets are yet to be penetrated. Lastly the prevalent
piracy and violation of intellectual properties remains a perpetual threat.

Opportunities:

Despite challenges, the sector can pass off as the proverbial 'green
pasture'. This is due to several reasons. Launch of alternate distribution
platforms has enhanced the viewing experience for the consumer besides
focussing on issues relating to address ability. The emerging trend of
crossover movies presents an opportunity to cater to a larger audience.
The sheen covering the Indian media and entertainment has succeeded in
alluring global investors. Further, the sector also presents expansion
opportunities on account of poor media penetration among the lower socio-
economic sections.

* (1) - (3) FICCI-KPMC Report

Television:

Today, an Indian viewer is exposed to as many as 450(3) channels, as
compared to 120(4) in 2003. So much so that, the television industry has
evolved to be classified as one of the leading sectors of the Indian
economy. The television industry is estimated to have recorded a CACR of
around 13.8% between 2006-08(5). This growth stems from an upbeat TV
distribution industry that witnessed the emergence of digital mediums in
the form of DTH, Digital Cable and IPTV. Having sensed the opportunity,
several corporates have ventured into the DTH sector to get their share of
the pie. This has led to multi service operators (MSOs) investing in
digitizing their networks. Moreover, the subscriber base is also on a rise.
CAS implementation in the select cities across the country has provided an
added impetus to the digitization of cable. As a result, by September 2008
alone, as many as 717,722 set top boxes were installed across Mumbai,
Chennai and Kolkata(6). The emergence of digital platforms has been able
to counter the issue of addressability faced by the television industry to
a certain degree. Industry gurus project the DTH subscriber base to touch
28 million by 2013(7). The launch of commercial IPTV services in Mumbai and
Delhi is a step that will help the IPTV services to penetrate further and
make their presence felt.

Whilst there are opportunities galore for showcasing of content, one
segment is specifically taking a beating in these times of economic
downturn. The advertisers have slashed their budgets drastically and are
now demanding more value for money. It is a known fact that advertising
revenues furnish the requisite impetus to the domestic media and
entertainment industry.

It is time to revisit the existing business model and make space for new
and innovative business ideas. Economic slump, whilst a bane, can be
converted into a lucrative opportunity by exploring newer avenues to sell
content and modifying business propositions.

Films:

India produces approximately 1,000(8) films annually, making it the world's
largest producer by volume. The film industry accounts for over 3
billion(9) theatrical admissions per annum. The success of this industry
has been mainly driven by the audiences who have been open to accepting
national and international movies. The multiplex culture has resulted into
the audience accepting movies from various cultures and genres. The Indian
film industry has been estimated to be worth US$109.9(10) billion in 2008.
It has recorded a growth of 17.7%(11) over the last 3 years.

Today, the Indian film industry is a major source of content for the music,
radio and television sectors. Winds of change have swept past the Indian
film industry over the last few years, leaving a positive impact on the
entire value chain from producers and distributors to exhibitors. Players
in the industry now enjoy access to organized funding and increasing
overseas collections. Further, the onset of multiplexes has enhanced the
realizations for the industry. The success of films such as Jodhaa Akbar,
Singh in King, Slumdog Millionaire as well as deals between DreamWorks-
Reliance, Disney-UTV and Warner-People Tree Films has added to the global
acceptance of the Indian film industry. With the advent of technological
innovations, animation and special effects are the rapidly emerging trends
within the industry. Moser Baer's entry into the market has resulted in
the availability of DVDs and VCDs at affordable costs and hence given a
fillip to the home entertainment market. Consequently, the domestic
theatrical life of movies has plunged and with increasing movie-making
budgets as well as market spend; the breakeven point of films has upped
several notches. With the economic slowdown playing its role, satellite
revenues have also been affected. To meet this challenge and ensure better
monetization the producers are selling their films on a non-exclusive
basis to several broadcasting channels with shortened windows.

* (3) - (5), (7) - (11) FICCI-KPMG Report
* (6) TRAI Indian Telecom Services Performance Indicators (July-Sept 2008)

Corporatisation, high production costs, rising actor fees and lofty
acquisition costs for content are other realities the sector is facing.
With changing times, the sector is facing increased competition from other
media and major events such as, the Indian Premier League's T20 Cricket
Tournament are affecting the occupancy rates in theatres. Home video piracy
and illegal movie downloads are adversely impacting the revenue
collections. But these issues have been countered suitably as the industry
is improving the distribution system, keeping in mind the fact that movies
now make most of their revenues in the first 2 weeks of release.

Creation of a new niche within the film business that allows for low cost,
quality content model is being seen as a value based proposition by the
consumer. The generation Y that is willing to spend an economic amount on
watching the movie on the big screen, but is also demanding more
contemporary storylines consequently leading to the genre of bold cinema.
Several movies in the recent times have shown exceptional collections
inspite of new cast, director, producer and storyline. This value for
money wholesome entertainment has created a new avenue of business for all
movie makers. This type of business model has the potential to be a stand
alone profit centre as well as play a cash cow to the existing big budget
movie making business.

New Media:

New Media refers to new technologies and communication methods in the
context of their effects on the established mainstream media. What
distinguishes New Media from the rest is the fact that here uniquely
individualized information can simultaneously be delivered or displayed to
a potentially infinite number of people. Here, all the players involved
share equal or reciprocal control over content. New media like internet,
mobile, IPTV, etc allows content owner to connect directly with the user
and build viable communities around the content.

With shifting trends, the emerging streams of revenues such as
entertainment on internet and the mobile phones are fast growing market
opportunities. The mobile subscriber base in India has grown rapidly to
more than 400(12) million users and Internet User Base in the country is
in the region of 80(13) million users. One of the largest segments on the
internet is consumption of entertainment content. Internet advertising has
grown from Rs 200(14) Cr in 2006 to Rs 620(15) Cr to 2008. This is
projected to grow to Rs 2.140(16) Cr in 2013 at a CACR of 28%(17). Video
content consumption is one of the key trends and video advertising will
become a key part of the above. This will open up significant
opportunities for content companies.

* (12) Cellular Operators Association of India
* (13) International Telecommunication Union Statistics
* (14) - (17) FICCI-KPMC Report


With the ever booming mobile subscriber base that is growing at close to
10(18) million users a month, Value Added Services (VAS) is becoming a
significant business for content owners and content producers. The current
Mobile VAS business is estimated at Rs 5,780(19) Cr by June 08 and is
estimated to reach Rs 16,520(20) Cr by 2010. In 2008, Mobile VAS accounts
for 9%(21) revenue for service providers and is expected to grow to
12%(22) by 2010.

With 3C a step away from rooting itself in India, the possibilities of
quality content being distributed through a portable medium will soon
become a reality. In countries where 3C has got established, entertainment
content delivered on the high end mobiles has become a sizeable business
for mobile companies and content producers. Currently, Bollywood is one of
the largest providers of entertainment content for Mobile VAS. As 3C comes
in and better phones allow consumption of content, newer business models
and opportunities will emerge to provide entertainment content to users.

With the growth of the Internet bandwidth and subscriber base in India, the
market is set for an exponential growth in video and multimedia
entertainment content on the Internet. Opportunities are emerging for
content companies to look at creating entertainment content for the
digital devices and syndicate the same to various digital channels to
maximize revenue and viewership.

THE BALAJI ADVANTAGE:

Driven by an effective modus operandi, coupled with its inherent strengths,
Balaji Telefilms Limited is geared for sustainable, long-term growth. The
Company's experience and insight have enabled it to further hone its
capabilities and give itself the coveted extra edge in the marketplace.

The following characteristic strengths have enabled Balaji to surge ahead
and take an undisputable leadership position in the television area.

1. Supply chain management:

As an efficient and accomplished production house, the Company has devised
a competent supply chain management strategy that is cost efficient.

Conceptualization:

An elaborate ideation process, followed by timely feedback collection, has
resulted in delivering on audience expectations. Balaji has time and
again, produced original, high-quality content that is well-received by its
viewers.

Shoot Management:

Exhaustive shoot management procedures are the key to the rise of Balaji as
a pre-eminent production house. All the intricacies of shoots at Balaji,
ranging from responsibility allocation and equipment mobilisation to
costumes are meticulously planned. The Company has also well-negotiated
artiste rates depending on factors such as, the budget of the programme,
criticality of the role, seniority of the artiste and the extent of
assignments provided by the Company to the artiste.

Logistics Management:

As a leader in the television arena, Balaji has multiple serials on air,
simultaneously. Adequate ongoing episode inventory is therefore the need
of every hour at Balaji. Leveraging its dexterity and experience, the
Company manages the entire procedure in an efficient manner.

Every serial deploys as many as 25-30 artists. Further, every scene demands
a director, scriptwriter, cameraman, costume-designers, make-up artists,
spot boys, art directors and light men. Their collective availability is
imperative for the success of every episode. In order to ensure this, the
complete script is finalised well in advance. A detailed schedules plan is
then chalked out and responsibilities allocated. Here onwards, every team
looks into its own responsibilities. The result then is a comprehensive
blueprint that makes way for realistic scene-wise profitability estimates.

Centralized purchase:

Independence is integral to the success of Balaji. The procurement of every
consumable is done in-house to reduce its reliance on external parties.
Such measures not only ensure the timely availability of the required
materials, but also result in curtailing expenditure.

* (14) - (17) FICCI-KPMG Report
* (18) TRAI Indian Telecom Services Performance Indicators (July-Sept 2008)
* (19) - (22) FICCI-KPMG Report

Enhanced procedures,consistently:

In order to maintain its leading edge, Balaji makes judicious investments
in advanced equipment and practices. As a result, the Company enjoys the
privilege of a low episode inventory, leaving room for content flexibility
as per audience feedback. With efficacious equipment at its disposal,
Balaji is in a position to adhere to schedules and deadlines, whilst
reducing wastage. Up-to-date technology also results in ensuring
scalability.

2.A compelling content deliverer:

Balaji leads by example. The Company undertakes unsaid responsibilities
beyond the delivery of an episode to the channel. Driving the popularity
of its customer channels is one of them. Balaji has explicitly exhibited
its capability in this arena over the past decade. Consequently, its
programmes are not only revenue magnets but are increasingly becoming an
inherent part of its customers' corporate strategy. Such distinct
advantages position the Company to better negotiate its content fee.

3. Product Management:

Balaji moves beyond creating content to developing brands. Much as the
production house itself, most of its programmes are morphing into
recognisable brands. The Company's astuteness has enabled it to target a
niche genre and create distinctive family blockbusters. However, Balaji is
not resting on its laurels. The Company is sensitive to the TRPs of its
programmes, fan clubs and word-of-mouth to detect audience taste and
consistently work towards meeting their expectations.

4. Talent Management:

Scripts and artists go hand in hand, one incomplete without the other.
Quality scripts and skilled talent form the strength of Balaji as a
content house. The Company traverses an extra mile to develop and retain
talent. At Balaji, above-average remuneration is a function of individual
effort and team achievement. This motivates every individual to perform to
the best of his/her ability. Balaji also 'hand-holds' fresh talent through
the learning curve by imparting training under experienced supervisors.
Such initiatives help in boosting professional growth of the talent thus
bringing in loyalty and talent retention.

5. Stringent internal audit procedures:

Robust and disciplined accounting procedures bestow sustainability to the
business of Balaji. Today, the Company has a resilient audit process,
considered to be one of the best in the industry. The exhaustive audit
procedures at Balaji encompass as many as 20 units. These units have
helped in:

* Developing the first rung of cost control.

* Creation of a detailed log book encompassing episodes, scenes, shoot
duration, equipment utilisation, scenes per artiste, attendance report,
including reasons for time over-run or under-performance or non-utilisation
of resources.

* Review of a daily MIS report by the senior management in orderto
identify excess expenditure.

* Development of an efficient request-for-proposal quotation process from
multiple vendors resulting in transparent vendor selection.

6. An efficient management team:

In today's competitive environment, the need to be alert and proficient is
even more pronounced. With a clear growth strategy, the Company has put in
place, a leadership team of experienced professionals from diverse
backgrounds. Balaji is now equipped with a win-win combination of
creativity and corporatisation that will see it through the challenges of
the future.

BUSINESS MODEL:

During 2008-09, Balaji revisited its business model to further its
competence in the marketplace. In a bid to avoid stagnation and trigger
its growth to the next level, the Company has undertaken several pertinent
measures. As part of its model, Balaji is endeavouring to emerge as an
outward looking entity by entering into meaningful collaborations in the
industry to create compelling fiction content. Balaji is also broad-basing
its business by attempting to deepen its presence in the areas of films
and new media. It has already set up autonomous business units for each of
these new areas. Leveraging its cash rich position, the Company has hired
some of the best resources that bring their extensive experience, across
all mediums.

Films:

Balaji will continue to work with the best talent in the industry, in terms
of actors as well as directors to create first-rate content across all
genres. With the promoters well networked in the film fraternity, making
strategically big alliances do not seem to be a difficult task. While the
Company is adequately funded to materialise its plans for the near term,
going forward, it will consider alternative funding models as well as
options such as, co-production and international studio finance. Balaji
already has an ocean of creative talent at its disposal and the production
and execution capabilities are unparalleled. Moreover, it is also looking
at brand tie-ups at the start of a project to secure funding.

New Media:

Going forward, Balaji has plans to emerge as a content aggregator or a
producer for new media. The Company is evaluating macro-trends in the New
Media sphere such as, the internet, mobile phones as well as gaming to
develop efficient revenue models. However, typically, most media companies
focus on advertising as a source of revenues. Being the largest content
creator in the business, Balaji is geared up to make the most of the 3C
era. Mobile Value Added Services (MVAS) are already becoming popular
amongst the youth, Balaji will set its eyes on reaping rewards from this
sector, banking on its strength to deliver quality content.

OPERATIONAL REVIEW:

Balaji conducts periodic company-wide operational reviews to detect as well
as mend any discrepancies between its operations and objectives.

Programmes and Programming Hours:

The year 2008-09 witnessed as many as 25 Balaji Television serials on air,
adding up to 1,497 programming hours. Balaji television serials were
present on all major general entertainment channels like Colors, NDTV
Imagine, Sony, Star, Zee and 9X. New shows like Bandini, Kitani Mohabbat
Hai, Koi Aane Ko Hai, Tujh Sang Preet Lagai Sajana were launched during the
financial.

Programming Mix Sponsored:

As per the sponsored programme arrangement, Balaji purchased telecast slots
and was entitled to receive free commercial time that is marketed to
advertisers.

Commissioned:

Under this arrangement, channel owners approach Balaji for content. Unlike
the former format, there is no marketing risk associated here. Apart from
a fee that is mutually agreed upon, there is room for rate revision based
on the success of the programme.

Language mix:

Balaji has carved a sturdy presence on television as a large and multi-
lingual production house. The Company caters to a wide audience with
programmes in Hindi, Telugu, Tamil, Kannada and Malayalam. As of the end of
the financial year, Balaji had 6 shows on air in 4 regional languages.

Channel-wise revenues:

Balaji continued to have a strong presence in commissioned and sponsored
programming. Its business mix is as follows:

Programming Hours

FY FY
2007-08 % 2008-09 %

Commissioned programs 918 58.47 927 61.92
Sponsored programs 652 41.53 570 38.08
Total 1,570 100.00 1,497 100.00

Revenues (all figures in rs. crores)
FY FY
2007-08 % 2008-09 %

Commissioned programs 300 91.46 269 91.19

Sponsored programs 28 8.54 26 8.81

Total 328 100.00 295 100.00

1st April, 2008 - 31st March, 2009.

Name of Serial Channel Time Slot Days Of
Telecast
COMMISSIONED

Kis Desh Mein Hai Star Plus 20:30-21:00 5 (Mon - Fri)
Meraa Dil

Tujh Sang Preet Lagayi Star Plus 13:00-13:30 5 (Mon - Fri)
Sajna

Kyunki Saas Bhi Kabhi Star Plus 22:30-23:00 4 (Mon - Thu)
Bahu Thi

Kahaani Char Char Ki Star Plus 22:00-22:30 4 (Mon - Thu)

Karam Apnaa Apnaa Star Plus 14:00-14:30 5 (Mon - Fri)

Kasturi Star Plus 8:00-8:30 4 (Mon - Thu)
Kayamath Star Plus 23:30-24:00 4 (Mon - Thu)

Bandini NDTV Imagine 22:00-22:30 5 (Mon - Fri)

Kitani Mohabbat Hai NDTV Imagine 20:00-20:30 5 (Mon - Fri)

Koi Aane Ko Hai Colors 22:00-23:00 2 (Fri - Sat)

Kasamh Se Zee TV 21:00-21:30 5 (Mon - Fri)

Kahaani Hamaaray 9x 22:00-22:30 4 (Mon - Thu)
Mahabhaarat Ki

Kaunjeetega Bollywood 9x 20:00-22:00 1 (Sun)
Ka Ticket

Kya Dill Mein Hai 9x 20:30-21:30 4 (Mon - Thu)

Kahe Naa Kahe 9x 21:00-21:30 4 (Mon - Thu)

Khwaish Sony 20:00-20:30 4 (Mon - Thu)
Entertainment TV

KuchhlsTara Sony 21:00-21:30 4 (Mon - Thu)
Entertainment TV

Kabhi Kabhi Pyaar Kabhi Sony 20:00-21:00 2 (Wed - Thu)
Kabhi Yaar Entertainment TV

SPONSORED

Kasthuri Sun TV 18:30-19:00 5 (Mon - Fri)

Kanmaneeya Sun TV 12:00-12:30 5 (Mon - Fri)

Kalyanee Gemini TV 19:30-20:00 5 (Mon - Fri)

Kalyanee Surya TV 17:30-18:00 5 (Mon - Fri)

Kootukaari Surya TV 22:00-22:30 5 (Mon - Fri)

Kaadambari Udaya TV 18:00-18:30 5 (Mon - Fri)

Kankkana Udaya TV 13:30-14:00 5 (Mon - Fri)

EVENTS

Star Parivaar Awards-08 Star Plus 21.00-24.00 Sunday

Diwali Rishton Ki Star Plus 22.00-22.30 4 (Mon - Thu)

Rang Barse Star Plus 22.30-24.00 Sunday

As there have been changes in time slots of certain shows, the latest
timing of the shows have been taken.

FINANCIAL OVERVIEW:

2007-08 vs 2008-09

* Turnover dropped by 10% from Rs. 328.97 crores in 2007-08 to Rs.294.92
crores in 2008-09.

* Profit before tax reduced by 71% from Rs. 128.48 crores in 2007-08 to
Rs.37.51 crores in 2008-09.

* Profit after tax reduced by 70% from Rs. 87.93 crores in 2007-08 to
Rs.26.67 crores in 2008-09.

Margins:

The PAT margins of the company decreased from 27% in 2007-08 to 9% in 2008-
09. The Company's PAT has reduced due to certain extra ordinary events:

During the year, the Company constructed sets exclusively for a serial
which went off air. These sets are not expected to be of use for any other
serials. In view of this, the cost of the set (net of the estimated
residual value) has been fully depreciated which resulted in an impact of
Rs. 9.53 crores. Further, the Company also made a provision for bad and
doubtful debts of Rs. 18.30 crores due to non-recovery of receivables from
the broadcaster.

The Company has made a provision of Rs. 4.40 crores for dimunition in value
of certain investments considered to be permanent in nature.

(in %)
2008-09 2007-08 2006-07

EBIDTA margin 21 43 41

Cash Profit margin 14 30 29

Pre-tax profit margin 13 39 37

PAT margin 9 27 25

Surplus management:

The surplus generated during the year was invested to acquire land for a
new studio complex with the objective of strengtheningthe Company's
competitive edge.

The investments of surplus funds continue to be focused on relatively safe
financial instruments with the overall philosophy of safety and liquidity.

Capital employed:

The average capital employed by the Company grew by 13% in the absolute
terms over 2007-08 to Rs. 376.86 crores largely on account of the
increased surplus. The ROCE decreased from 42% in 2007-08 to 16% in 2008-
09.

The capital-output ratio decreased from 1.04 in 2007-08 to 0.84 in 2008-09.
Working capital as a proportion of turnover decreased from 17% in 2007-08
to 16% in 2008-09.

Average Capital employed:

(Rs. in crores)
2008-09 2007-08 2006-07 2 Year CAGR

376.86 334.51 277.32 17%

Revenues: The Company's operational income decreased 10% from Rs. 328.97
crores in 2007-08 to Rs. 294.92 crores in 2008-09, on account of a drop in
programming hours accompanied by a drop in the average realisations.

Split: The revenue-wise distribution between commissioned and sponsored
programming in 2008-09 was as follows:

Programming 2008-09 2007-08 % Increase /
(Decrease)

Commissioned 268.44 300.82 (11%)

Sponsored 26.48 28.15 (6%)

Total 294.92 328.97 (10%)

Balaji continued to focus on the commissioned category, deriving 92% of
turnover in 2008-09 from this segment. In the sponsored program category,
the Company is present in all four states across South India, with
programmes running across Tamil Nadu (Sun TV), Andhra Pradesh (Gemini TV),
Karnataka (Udaya TV) and Kerala (Surya TV).

The sponsored category consisting of regional content, generated a revenue
of Rs. 26.48 crores in 2008-09 as against Rs. 28.15 crores in 2007-08, a
nominal decline, given the effect of the slowdown on advertising revenue.

Overheads:

In the production of entertainment software, a budgeting discipline at the
Company was responsible for a strict control on costs. The Company's
budgeting discipline comprised the following priorities:

Profit centre:

Taking into account costs comprising of artists fees, technicians,
equipment hire, locations and property hire, each programme was appraised
as a profit centre to enable the Company to take holistic and specific
perspectives.

Project life cycle management:

The Company adopted macro perspective to develop a detailed budgetary
discipline. Consequently, all the shooting schedules, scene-wise artiste
requirement, ongoing shooting progress and final delivery are chalked out
well before the commencement of the shooting.

Checks and Balances:

Non-budgeted expenses need verification prior to sanction and disbursement,
an effective check and balance measure.

Audit:

Besides independent internal auditors, the Company also has internal
supervisory audit function that maintains control on the shoot process.
Each critical element of the shoot cost is are evaluated from a competitive
bidding perspective before procurement.

In addition to the above, Company undergoes statutory and tax audit.

Cross block:

As a progressive organization, the Company continued to invest in state of
the art equipment and infrastructure facilities.

Gross block increased from Rs. 94.77 crores in 2007-08 to Rs. 98.14 crores
in 2008-09. The capital work in progress increased from Rs. 17.62 crores
in 2007-08 to Rs. 51.39 crores in 2008-09 mainly due to investment in land
to build a state-of-the-art studio in the city of Mumbai. The Company's
depreciation for the year showed a marked increase from Rs. 12.70 crores in
2007-08 to Rs. 23.52 crores in 2008-09 mainly due to accelerated
depreciation to the tune of Rs. 9.53 crores for one of its sets built for
a show which has been discontinued.

Over the years, the Company has made the following capital investments to
supplement its business related infrastructure requirements.

Sets:

This enabled the Company to produce sets in-house and save the cost of
hire; it enabled the Company to enhance the quality of sets in line with
varied episode and scene requirement. The Company re-uses sets whenever
required with marginal alterations, resulting in a progressive decline in
production costs.

Land:

The Company has invested in purchase of over ten acres of land in Mumbai to
construct a state-of-the-art studio which is expected to give it
competitive advantage in terms of costs and turnaround period.

Equipment:

The Company de-risked itself from dependency on equipment vendors by
investing in sophisticated digital cameras, lights, sound equipment and
post production facilities.

Investments:

The Company's investments had a nominal decline from Rs. 249.89 crores as
on 31st March 2008 to Rs. 245.67 crores as on 31st March 2009. The Company
invested its surplus funds mainly in debt funds to preserve capital,
liquidate at will and generate a fair return on investments. The Company,
as a matter of policy, invests a major component of its surplus in high
credit quality funds and has only a small proportion in equity funds. The
Company's income from investment reduced from Rs. 16.05 crores in 2007-08
to Rs. 14.39 crores in 2008-09. Further, the Company has provided for
dimunition in value of certain equity investments to the tune of Rs. 4.40
crores. 'Other income' as a proportion of the Company's revenues stood at
7%.

Debtors:

The Company's terms of trade strengthened during the year under review.
Average receivable realization period improved from 75 days in 2007-08
(equivalent to days of income) to 74 days in 2008-09. During the year the
Company has made a provision for bad debts of Rs 18.30 crores for amount
receivable from a broadcaster for shows that have since gone off air.

Inventories:

The Company's inventory of programmes declined from 11 days in 2007-08 to 1
day in 2008-09. As a proportion of the working capital, it decreased from
17% in 2007-08 to 2% in 2008-09.

Loans and advances:

Loans and advances decreased from Rs. 40.47 crores in 2007-08 to Rs. 23.01
crores in 2008-09, comprising lease deposits for offices and studios,
advance tax, subsidiary advances and trade advances. These loans and
advances were considered good and related to the company's business.

RISK MANAGEMENT:

Balaji's exhaustive risk management procedures are suitably developed to
identify, analyse and mitigate operational as well as business risks. The
varying nature of risks the Company faces include:

Audience Attrition Risk:

An increase in the programmes and channels flocking Indian television has
resulted in the sharing of viewership. Balaji takes corrective steps based
on timely and accurate programme feedback to adapt its shows to the
audience tastes, as required. As a result, the Company is experiencing the
loyalty of its viewers towards its programmes.

Stagnation Risk:

In a bid to avoid stagnancy, the Company is constantly scouting for
business opportunities and is harnessing the untapped potential of the
afternoon as well as weekend slots for its programmes. Balaji has also
drawn out plans to hedge its creative risks better between the fiction and
non-fiction space.

Channel-based Risk:

In wake of a plunging popularity of any channel, the negotiating ability of
the content provider takes a beating. As a precautionary measure, Balaji
chooses leading multiple broadcasters to partner with.

Technology Risk:

It is not long before any innovative technology is labeled obsolete. Often
times, companies are compelled to replace high-cost equipment, accruing
extra expenses. Balaji's investments in digital and state-of-the-art
technology as well as its production and post-production equipment, are a
result of thorough discernment as well as consultation.

Artiste and People Attrition Risk:

Artiste attrition has a direct impact on the TRPs of Balaji's programmes.
The Company has entered into contracts with its team members and artists
to counter this risk. Further, it also provides one of the best
compensation systems in the industry.

INTERNAL CONTROLS:

The Company continues to have a strong Internal Audit Process, one of its
kind in the entertainment industry. The Audit Team functions independent
from the Operations team and is the first cost control tier, though the
Docket Management System. Further management control is exercised through
a daily MIS and also periodic MIS on qualitative parameters. It is also
proposed to computerize the Docket Management System this year.

Furthermore, to streamline operations and to strengthen controls on hiring
and requisitions of materials, an independent commercial team has been set
up, which also allows the Production team to focus more on operational
efficiencies.

HUMAN RESOURCES:

Balaji houses an active Human Resource function that is completely aligned
with the growth objectives of the Company. It fosters a performance
oriented work culture and offers amongst the best opportunities in the
industry for professional as well as personal growth of its employees.
Balaji aims at maintaining a regular inflow of new talent at a balanced
market cost and adequately train its workforce to deliver as per the
performance standards of the organization. It identifies the right talent
for precise jobs, leading to job satisfaction. Balaji nurtures its
technically skilled personnel to deliver quality in a competitive
marketplace. The HR function is also responsible in right sizing the
organization. It consistently creates a talent pool by hiring from mass-
media colleges and MBA campuses. The Company also provides adequate
international exposure to its people through participation in relevant
exhibitions globally.

Today, Balaji is adopting a fresh perspective towards enhancing efficiency
of its workforce. It plans to set up a meticulous performance appraisal
system that clearly defines parameters for assessment and increment. It is
also involved in the process of designing and implementing a transparent
reward and recognition policy. It is further enhancing the internal
communications within the organization by launching the Intranet.

OUTLOOK:

A leadership position in the Indian television fiction space does not mean
that Balaji can afford to be complacent. In addition to moving ahead and
bolstering its presence in the areas of films and new media, it is critical
to solidify the foundations of the fiction business.

Gauging the changing audience preferences, it is essential for Balaji to
broadbase the type of offerings and to experiment with new styles / types
of content going beyond the traditional successful formats. Further, given
the effect of the economic downturn on the television industry, reduction
in realizations and increased competition would be a reality. Focus on
volumes and attempt to increase the breadth of clients in the CEC space
would be the priority areas for this year.

Films:

Balaji has already extended its horizons to capitalize on the opportunities
offered by the movie production segment. Having tasted success through
movies such as Bhul Bhulaiya, Shootout at Lokhandwala and Sarkar Raj, the
Company is working towards the objective of turning its modest beginnings
into an established presence in this arena. With this vision, Balaji has
unveiled plans to adapt a fully integrated studio model, producing world-
class content. With scale and budget as part of its core strategy, Balaji
will continue to produce high-quality entertainment content for popular
mainstream as well as niche cinema. Armed with the right team and rigorous
production capabilities, the Company will conduct meticulous commercial
feasibility of every undertaken project. Balaji has already identified as
many as 3-4 films for the next fiscal and is looking at hiring the best
available talent to emerge successful.

New Media:

Balaji is consistently scouting for opportunities that enable it to deliver
greater shareholder value. Today, the market is witnessing shifting trends
from the traditional mediums to new media such as, the internet and
handheld platforms as areas of significant content consumption. Having
identified the new media segments as a lucrative business option, the
Company has firmed up plans for foray into this promising sector as a move
up the value chain. As a content-rich production house, Balaji has a
repertoire to leverage and make the most of the available opportunity to
interact directly with its consumers. The creation of fresh cutting edge
content, whilst adapting the existing content to the new format, is also on
the anvil. Currently, the Company is evaluating the dynamics of operating
within the new media sector in terms of the latest trends, available
capacities and size of the market for music, fiction and non-fiction.