Annual Report - Sun TV - 2009-2010

SUN TV NETWORK LIMITED

ANNUAL REPORT 2009-2010

DIRECTOR'S REPORT

TO THE SHAREHOLDERS

Your Directors are pleased to present the Silver Jubilee Twenty Fifth
Annual Report and Audited Financial Accounts of the Company for the
financial year ended 31st March 2010.



FINANCIAL RESULTS

The financial highlights for the financial year ended 31st March 2010 are
given below:

(Rs.in Millions)
Particulars For the ear ended
31st March, 2010 31st March, 2009

Total Income 14,375.2 10,915.2
Total Expenditure (Excluding Interest &
Financial Charges) 5,699.0 4,215.3
Profit before interest and tax 8,676.2 6,699.9
Interest & Financial Charges 12.0 38.9
Profit Before Taxation 8,664.2 6,661.0
Provision for Taxation 2,990.4 2,289.9
Profit after tax 5,673.8 4,371.1
Accumulated Profit. beginning of the year 9,833.1 7,051.8
Interim Dividend (591.1) (591.1)
Tax on Interim dividend (100.5) (100.5)
Proposed dividend (2,364.5) (394.1)
Tax on Proposed dividend (392.7) (67.0)
Transfer to General Reserve (567.4) (437.1)
Profit Carried forward 11,490.7 9,833.1

Earnings Per Share (Face value Rs.5/-) 14.40 11.09

The total Income for the Silver Jubilee year ended 31st March 2010 marked a
record growth of 31.70% at Rs. 14,375.2 millions as against Rs.10,915.2
millions during the previous year ended 31st March 2009. The year on year
growth in Profit before taxes continued to grow and stood at 30.07% at
Rs.8.664.2 million as against Rs. 6,661.0 millions in the previous year.
The Profit after tax was higher by 29.80% at Rs.5,673.8 million as against
Rs.4,371.1 million in the previous year after providing for a higher
provision towards income tax, deferred tax and fringe benefits tax of
Rs.2,990.4 million for the year ended 31st March 2010 in line with higher
profits. The growth in the revenue have been largely a function of the
sustained advertising growth and subscription revenue contributed through a
well diversified mix of clients (national, regional and local) across
multiple product categories.

FINAL DIVIDEND:

For the financial year ended 31st March'2010, the Board of Directors have
recommended a Final Dividend of 120%., i.e., Rs. 6.00 per equity share of
face value of Rs.5.00 each in view of the Silver Jubilee year of the
Company. This is in addition to the Interim Dividend of 30%., i.e., Rs.1.50
per equity share of face value of Rs.5.00 each declared on January 20th
2010. This Final Dividend including the Interim Dividend would result in a
total dividend of 150%., i.e., Rs.7.50 per equity share of face value of
Rs.5.00 each for the financial year ended 31st March 2010 (Prev. Year 50%.,
i.e., Rs.2.50 per equity share of face value of Rs.5.00 each).

BUSINESS OVERVIEW

Your Company continues to hold the leadership position as one of the
largest Television Broadcasters in India, operating 20 Satellite Television
Channels across four languages of Tamil, Telugu, Kannada and Malayalam and
presently airing 43 FM radio stations across India. During the financial
year 2009-10 Company has floated a wholly owned subsidiary, 'Sun TV Network
Europe Ltd' in United Kingdom to broadcast and distribute its channels in
U.K. and Europe.

The financial year 2009-10 also saw your Company's Subsidiary South Asia FM
Limited launching 1 more station at Gangtok to complete 43 of the 44
stations across the country.

DIRECTORS' RESPONSIBILITY STATEMENT

As required by Section 217(2AA) of the Companies Act, 1956, your Directors
confirm that:

a) in the preparation of the annual accounts, the applicable Accounting
Standards have been followed along with proper explanation relating to
material departures.

b) the Directors 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 of the Company
for that period.

c) the Directors have taken proper and sufficient care for the maintenance
of adequate accounting records in accordance with the provisions of the Act
for safeguarding the assets of the Company and for preventing and detecting
fraud and other irregularities.

d) the Directors have prepared the annual accounts on a going concern

basis.

DIRECTORS

In accordance with the provisions of Articles of Association of the
Company, Mr. S. Sridharan and Mr. M. K.Harinarayan, independent directors
of the Company retire at the ensuing Annual General Meeting and being
eligible offer themselves for reappointment. Your Board recommends their
reappointment as Directors of your Company.

CORPORATE GOVERNANCE

A Report on Corporate Governance together with Auditors' Certificate on
compliance with the conditions of Corporate Governance as stipulated under
Clause 49 of the Listing Agreement is provided elsewhere in the Annual
Report.

PARTICULARS OF EMPLOYEES

Sun TV Network Limited had 1987 employees as of March 31, 2010 (previous
year 1545). In accordance with the provisions of Section 217(2A) of the
Companies Act 1956 and the rules framed there under, the required
information is annexed and forms part of this Report. However, as per the
provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the
Directors Report is being sent to all the Shareholders of the Company
excluding the said annexure. Any shareholder interested in obtaining a copy
of the said annexure may write to the Company Secretary at the Registered
Office of the Company.

AUDITORS

M/s. S.R.Batliboi &Associates, Chartered Accountants, the Auditors of the
Company retire at the conclusion of this Annual General Meeting of the
Company. Your Board propose their re-appointment as the Statutory Auditors
of the Company.

CORPORATE SOCIAL RESPONSIBILITY

Your Company has donated a sum of Rs.8.7 millions to Sun Foundation, a
Charitable trust to support the various social welfare activities carried
out by the trust.

SUBSIDIARY COMPANIES

The two subsidiaries Kal Radio Limited and South Asia FM Limited together
own 41 licenses of which 40 Radio stations were fully operational for the
year under review. The Revenues of the two subsidiaries were at Rs. 56.24
crores for the year under review as against Rs.33.17 crores for the
previous year ended 31st March 2009. After accounting for the minority
interest in South Asia FM Limited the share of loss of the two subsidiaries
(Kal Radio Limited and South Asia FM Limited) is Rs. 39.43 crores as
against Rs. 68.78 crores in the previous year.

Your subsidiaries also re-branded their 37 FM radio stations situated
outside Tamilnadu and Pondicherry to 'RED FM' to ensure uniformity of the
brand across India. South Asia FM Limited obtained necessary approvals from
the Government of India to increase the stake of M/s. South Asia Multimedia
Media Technologies Limited from 6.98% to 20%. This was achieved partly by
infusion of cash, share transfers, issue of preference shares and by
capitalization of loans into Compulsorily Convertible Preference Shares.
Consequent to this, the stake of Sun TV Network Limited in South Asia FM
Limited stands reduced to 59.15% and SouthAsia FM Limited became debt free
Company.

Ministry of Corporate Affairs, Government of India has granted approval
that the requirement to attach various documents in respect of subsidiary
companies, as specified in sub-section (1) of Section 212 of the Companies
Act, 1956, shall not apply to the Company. Accordingly, the Balance Sheet,
Profit and Loss Account and other documents of the subsidiary companies are
not being attached with the Balance Sheet of the Company. Financial
information of the subsidiary companies, as required by the said approval,
is disclosed in the Annual Report. The Company will make available the
Annual Accounts of the subsidiary companies and the related detailed
information to any member of the Company who may be interested in obtaining
the same. The annual accounts of the subsidiary companies will also be kept
open for inspection at the Registered Office of the Company and that of the
respective subsidiary companies. The Consolidated Financial Statements
presented by the Company include financial results of its subsidiary
companies.

During the current year your Company has incorporated a wholly owned
subsidiary 'Sun TV Europe Limited' in United Kingdom to Broadcast and
distribute its channels in U.K. and Europe.

CONSOLIDATED FINANCIAL STATEMENTS

As required by the listing agreement with the Stock Exchanges, the Audited
Consolidated Financial Statements prepared in accordance with Accounting
Standard 21 notified by the Companies Accounting Standard Rules, 2006 are
attached. The Audited Consolidated Financial Statements also account for
the minority interest of your Company's subsidiary South Asia FM Limited
pursuant to the strategic alliance with Red FM.

CEO/CFO CERTIFICATION

The Chairman and Managing Director and the Chief Financial Officer have
submitted a certificate to the Board regarding the financial statements and
other matters as required under clause49(v) of the listing agreement.

PUBLIC DEPOSITS

Your Company has not accepted any Deposits from the public in terms of
section 58A of the Companies Act, 1956 during the financial year ended 31
st March 2010.

INFORMATION AS REQUIRED UNDER SECTION 217(1)(e) OF THE COMPANIES ACT, 1956
READ WITH COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF
DIRECTORS) RULE, 11988

(A) CONSERVATION OF ENERGY

The Company is engaged in Satellites Television Broadcasting operations and
the information, as intended under Section 217(1)(e) does not arise.

TECHNOLOGY ABSORPTION, ADAPTATION AND INNOVATION

The Company uses the latest digital technology in broadcasting its
programs. The outdated technologies are constantly identified and updated
with latest innovations.

FOREIGN EXCHANGE EARNINGS AND OUTGO

Foreign Exchange Earnings : Rs. 560.3 Million
(Previous year Rs. 2,592.5 Million)

Foreign Exchange Outgo : Rs. 651.9 Million
(Previous year Rs. 3,059.69 Million)

ACKNOWLEDGMENT

Your Directors take this opportunity to place on record their appreciation
of the dedication and commitment of employees at all levels in maintaining
the sustained growth of your Company and remain in the forefront of media
and entertainment business. Your Directors thank and express their
gratitude for the support and co-operation received from the Central and
State Governments - mainly the Ministry of Information and Broadcasting and
the Department of Telecommunication and other stakeholders including
viewers, producers, vendors, financial institutions, banks, investors,
service providers as well as regulatory and governmental authorities.

On behalf of the Board

Place : Chennai Kalanithi Maran
Date : May 28, 2010 Chairman & Managing Director

MANAGEMENT DISCUSSION AND ANALYSIS

(Pursuant to clause 49 of the Listing Agreement with Stock Exchanges)

The figures have been stated in Rs. Millions in the MD&A for better
readability.

Investors are cautioned that this discussion contains forward looking
statements that involve risks and uncertainties including, but not limited
to, risks inherent in the Company's growth strategy, acquisition plans,
dependence on certain businesses, dependence on availability of qualified
and trained manpower and other factors. The following discussion and
analysis should be read in conjunction with the Company's financial
statements included herein and the notes thereto.

INDUSTRY

The media and entertainment industry is one of the fastest growing
industries in the world. The increasing advent of new technologies and new
and extensive uses of media by corporate provide both opportunities and
challenges to the media and entertainment industry. Indian Entertainment
Industry (M&E) post reforms has made tremendous strides. The components of
M&E industry are film, television, advertising, print media and music. The
rapid growth of the television industry has made it the most significant
component, of M&E in value terms. The Television Industry with increased
hours of mass entertainment programming during prime time and better
coverage of popular events has seen an explosive growth in consumer
mind share. Its status as the preferred mode of entertainment of the people
is obvious from the fact that it now contributes more than 60 percent of
the entertainment industry's revenues. Television the major contributor to
the overall industry revenue is estimated to grow at a stable rate over the
next five years resulting in increased viewership having wider range of
channels to select from. The television industry is now ready to advance to
the next stage of its evolution, grasp the opportunities presented by the
digital age and completely change the home entertainment landscape. Over
the next few years, cable and satellite, along with emerging delivery
platforms like DTH and IP-TV are expected to revolutionize the industry and
it is expected that digital television connectivity would reach every nook
and corner of India. Mobile TV where picture can be relayed to mobile
phones is in the early stage of development and has got a tremendous
future.

Sun TV Network Limited (Sun Network) maintains its dominant position in the
southern states of India as one of the largest television and radio
entertainment Company in India with a portfolio of 20 channels spread
across four languages and in six genres of GEC, news, music, movies, kids
and comedy. Sun Network also has a large network pan India in the FM Radio
broadcasting segment with 44 FM licenses along with its subsidiaries. Sun
Network continues to capitalize on its leadership position, built over the
years, by fortifying its hold over key aspects of pricing and access to
quality content. Sun Network has a distinct advantage in the southern
regional markets on account of its strong understanding of the flavor and
with key competitive strengths including that of a large movie library of
regional languages. Sun Network is the preferred choice for content
providers as it is the only player with maximum reach in the areas it
operates.

OPPORTUNITIES AND THREATS

Opportunities:

The ever evolving technologies in television open more opportunities and
challenges. The M&E industry is ready to zoom at a very fast pace catalyzed
by many factors like convergence of media, films, digital media and
increase in broadband penetration thus helping it to become a front runner.
The fact that significant households of India are still without television
connectivity highlights the scope of growth in the segment. The majority of
the revenue generated in the television industry is through advertisements,
followed by subscription. Strong growth projected in DTH segment would
result in substantial increase in subscription revenue over the years to
come. Increasing interest in regional content among Indian population
across the borders, results in increased overseas viewership thereby
attracting foreign investment. Radio broadcasting in India which is still
in its infancy is evolving to be a revenue spinner in the coming years.

Threats:

It is difficult to predict our revenues and expenses as they fluctuate
significantly given the nature of the markets in which we operate. This
increases the likelihood that our results could fall below the expectation
of market analysts. Certain threats are summarized below;

- Advertising income continue to be the major source of Sun Network's
revenues, which could decline due to a variety of factors.

- The commercial success of Sun Network depends on our ability to cater to
viewer performance and maintain high audience shares which could be
affected.

- The competition and increasing prices may adversely affect our ability to
acquire desired programming and artistic talent.

- Sun Network operates in an intensely competitive industry.

- Sun Network is a regional broadcaster, which may limit our opportunities
for growth as well as our attractiveness to advertising customers and
others.

- Technological failures could adversely affect our business.

- Our inability to effectively deploy and manage funds could affect our
profitability.

SEGMENT

Sun Network operations predominantly relate to a single segment
'Broadcasting'.

OUTLOOK

Sun Network with a dominant market share in the four southern states of
India (Tamil Nadu, Kerala, Karnataka and Andhra Pradesh), plays a prominent
role in the recent strong growth witnessed in the regional media markets in
India. Its presence across genres like general entertainment, movies, music
and news ensure continued and sustained viewership. A steady flow of highly
popular programs and a dominant share of audience viewership have given the
network tremendous pricing power vis-a-vis competitors.

As the largest regional television network, Sun Network would be one of the
major beneficiaries of the recent growth in the DTH space. With the entry
of new players like Reliance Big TV, Bharti and others into the DTH market,
it is expected that this new stream of revenue for the Company arising from
the increased DTH subscriber base in South India would maintain a positive
momentum in the coming years.

FINANCE AND HUMAN RESOURCE

Finance:.

The total Income for the year ended 31st March 2010 amounted to Rs.14,375.2
millions as against Rs. 10,915.2 millions during the previous year ended
31st March 2009. The Profit after tax was at Rs. 5,673.8 millions for the
year ended 31st March 2010 as against Rs.4,371.1 millions in the previous
year. The Board of Directors has recommended a Final Dividend of 120%.,
i.e., Rs.6.00 per equity share of face value of Rs.5.00 each. This Final
Dividend together with the Interim Dividend of 30%., i.e., Rs.1.50 per
equity share of face value of Rs.5.00 each declared on 20th January 2010
would result in a total dividend of 150%., i.e., Rs.7.50 per equity share
of face value of Rs.5.00 each for the financial year ended 31 st March
2010. (Prev. Year of 50.%., i.e., Rs 2.50 per equity share of face value of
Rs.5.00 each.). The Reserves and Surplus of the Company as on 31st March
2010 stood at Rs.18,179.7 millions as against Rs. 15,954.7 millions as on
31st March 2009.

Human Resources:

At Sun Network, with 1987 employees, human resources are the key asset
capital and an important business driver for the Company's sustained growth
and profitability. Hence, we at Sun Network believe that training, like all
organizational development processes cannot be a function of time, but
rather an ongoing process with the developmental needs and business
planning processes being formalized constantly. A continuous review of the
monitoring process is under way and procedures and systems are being
institutionalized across the organization.

FINANCIAL REVIEW & RISK MANAGEMENT (INCLUDING INTERNAL CONTROL)

Separate report on this is annexed

On behalf of the Board

Place : Chennai Kalanithi Maran
Date : May28, 2010 Chairman & Managing Director

FINANCIAL REVIEW 2009-10
(Pursuant to clause 49(11)(E)(1) of the Listing Agreement)

The Financial highlights during the year under review comprised: (All
amounts are in millions unless otherwise stated)

- A 31.70 percent growth in Total Income
- Increase in Profit before taxes by 30.07 per cent
- Increase in Profit after taxes by 29.80 per cent,

EARNINGS

Total Income

Total Income grew from Rs. 10,915.2 million to Rs.14,375.2 million, a 31.70
percent increase, the sustained growth and consistent higher margins are
reflective of the Company's continued dominance in broadcasting business in
the Southern states.

Profit before tax (PBT) and Profit after tax (PAT)

PBT increased from Rs.6,661 million to Rs. 8,664.2 million, with a 30.07
per cent increase and PAT increased from Rs.4,371.1 million to Rs.5,673.8
million, a 29.80 per cent increase, despite the difficult economic
scenario.

Dividend

The outgo on account of interim and final dividend including dividend tax
is Rs. 3,448.8 million (previous year Rs.1,152.7 million).

FINANCIAL POSITION

Shareholder's Funds

Shareholders' Fund as on 31st March 2010 was Rs. 20,150.1 million.
(previous year Rs. 17,925.1 million).

Loan funds

The Company is debt free and had no loan funds-secured or unsecured, as on
31st March 2010 (previous year Rs. Nil)

Assets

Net block of fixed assets were at Rs. 5,072.4 million. The net addition to
fixed assets for the year was Rs. 1,408.8 million. The capital expenditure
was funded through internal accruals and deployment of IPO proceeds. Net
block of intangible assets and capital work in progress (including capital
advances and intangible assets under development) as on 31st March, 2010
were at Rs. 1,477.4 and 3,113.9 million respectively.

RATIOS

Earnings per share;

The Earnings per share of face value of Rs. 5.00 for the year ended 31st
March 2010 is Rs.14.40 (previous year Rs 11.09).

RISK ANALYSIS AND MANAGEMENT

Risk is an inherent feature of any business activity, more so when the
dependence is on the consistency on the deliverables of the Company and
linked to the sustained support from the viewers and advertisers community
at large. Like every organization, Sun TV Network Ltd's (Sun Network)
business is also impacted by a number of factors. Given below is an
overview of some of the major risks affecting any business and Sun's
position vis-A-vis these risks.

PRINCIPAL RISKS AND THEIR MITIGATION

STRATEGIC RISK

The performance and growth of media industry are dependent on the health of
the Indian economy and in particular the economies of the regional markets
it serves. These economies could be adversely affected by various factors,
such as political and regulatory action including adverse changes in
liberalization policies, social disturbances, terrorist attacks and other
acts of violence or war, natural calamities, interest rates, commodity and
energy prices and various other factors.

The media industry in India has been continuously fraught with regulatory
issues including those of license, investment caps and ownership limits.
Regulation such as ban on multi frequency ownership in the same city for
Radio, FDI Cap of 26% in broadcasting, no dubbing of content (Kannada
Market) are some of the regulations holding this industry back. Although
Sun Network has performed well in spite of these adversities, further
regulatory changes always remain a concern.

Sun Network has been able to capitalize on its leadership position built
over the years, by fortifying its hold over quality content. It is able to
practice its strategy of selling telecast slots under exclusive agreements
and additionally ensuring a continued supply of quality content. A steady
flow of highly popular programs and a dominant share of audience viewership
have given the network tremendous pricing power vis-a-vis competitors.
South India produces the largest number of films per year and with huge
movie following target audience, Sun Network ensures access to popular
content, by purchasing larger quantum of all South Indian movie on a
perpetual rights basis.

Risk Mitigation

Sun Network believes that it would not be disadvantaged and would manage
competition through content and a pan India spread.

OPERATIONAL RISK

Possible decline in the popularity of channels of Sun Network,such a
decline shall adversely impact its revenue, both from advertisement as well
as subscription revenue.

Risk Mitigation

Sun Network's competitive advantages stems from its high popularity,
exclusive access to high quality content and a large movie library, giving
it significant pricing power to capitalize on the fast growing
advertisement and subscription market. Sun Network will endeavor to keep
track and abreast with high quality content and library.

FINANCIAL RISK

Capital Intensity Risk

Consumption of more cash than they generate by the Company's business could
create liquidity constraints.

Risk Mitigation

The revenue streams of the Company ensures sustained cash flow that
generates sufficient cash accruals to meet the annual capex requirements
which is also supplemented by the deployment of the IPO proceeds. With its
zero debt position the company will be able to leverage any debt
requirements.

Leverage Risk:

A high debt component could result in an excessive interest drain.

Risk Mitigation

The company is a zero debt company.

Receivable Risk

A long debtor's cycle could potentially affect the Company's cash flow,
while sales to suspect customers could translate into bad debt.

Risk Mitigation

The company constantly monitors its debt collection and ensures that the
debtors are periodically reviewed and dues maintained at levels that do not
affect its cash flow.

LEGAL AND STATUTORY RISKS

Risk on contractual liabilities

The risk arising out of contracts that impose onerous responsibilities.

Risk Mitigation

The Company constantly reviews all Agreements, documents and contracts
review to ensure compliance with the accepted business procedures.

Compliance failure risk

The risk arising out of non-compliance with statutory requirements.

Risk mitigation

At Sun Network statutory compliance has been ensured through an internal
process and legal compliance is given due importance in the Company's
management process. The Company is proposing an independent audit and
review across all the operational areas to reassess the existing processes.

INTERNAL CONTROL

Weak internal control can jeopardize the Company's financial position.

Risk mitigation

The Company has in place adequate internal control systems, commensurate
with its size and nature of operations so as to ensure smoothness of
operations and compliance with applicable legislations. The Company has
implemented SAP ERP system, which ensures significant process, and system
controls are in place. Independent Internal audit is carried out to ensure
adequacy of internal control system and adherence to policies and
practices. The Audit Committee reviews the functioning of the internal
audit function.

On behalf of the Board

Place : Chennai Kalanithi Maran
Date : May 28, 2010 Chairman & Managing Director