Annual Report of 2007
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CYAN MAGENTA YELLOW BLACK BOARD OF DIRECTORS Mr. Subhash Ghai, Chairman & Managing Director Mr. Parvez A. Farooqui, Executive Director Mrs. Meghna Ghai Puri Mr. Anil Harish Mr. Vijay Choraria Mr. Pradeep Guha Company Secretary & Compliance Officer Mr. Ravi B Poplai Auditors M/s Shamit Majmudar Associates Chartered Accountants Bankers Punjab National Bank Limited HDFC Bank Limited Standard Chartered Bank Registrar & Transfer Agents Intime Spectrum Registry Limited C-13, Pannalal Silk Mills Compound L.B.S. Marg, Bhandup (W) Mumbai – 400 078 Registered Office 6, Bashiron, 28th Road TPS – III, Bandra (W) Mumbai – 400 050 CONTENTS Financial Highlights 2 Chairman’s Statement 3 Management Discussion & Analysis 5 Notice 7 Directors’ Report 9 Corporate Governance 13 FINANCIALS Mukta Arts Limited 21 Consolidated Financial of Mukta Arts Limited & 39 it’s Subsidiaries Whistling Woods International Limited 52 Connect.1 Limited (Formerly known as Mukta Art International Limited) 72 Mukta Tele Media Limited 81 1 1 CYAN MAGENTA YELLOW BLACK CYAN MAGENTA YELLOW BLACK PERFORMANCE Performance at a glance Rupees in millions Year Year Year Year Period ended ended ended ended ended 31st March 31st March 31st March 31st March 31st March 2007 2006 2005 2004 2003 15 months Realisation from productions, 965.21 374.80 451.44 187.00 286.02 distribution & exhibition Equipment Hire Income 2.22 25.09 28.60 29.84 39.74 Other Income 49.12 36.12 31.59 96.89 101.74 TOTAL INCOME 1,016.55 436.01 511.63 313.72 427.49 Profit/(Loss) before Interest, Depreciation and Tax 167.04 (27.15) (134.86) 88.36 112.80 Depreciation 22.64 29.98 32.14 29.61 40.19 Interest 0.63 0.60 0.56 0.30 0.50 Profit/Loss) before Tax 143.77 (57.73) (167.56) 58.45 72.11 Profit/(Loss) after Tax 137.16 (56.46) (169.67) 33.93 71.32 Dividend 45.16 - - 22.58 45.16 Dividend Rate 40% - - 20% 40% Gross Fixed Assets 313.31 369.84 361.98 343.82 308.74 Net Fixed Assets 157.09 184.06 204.73 216.14 198.68 Total Assets 1,279.66 1,195.53 1,144.66 1,314.89 1,305.22 Equity Share Capital 112.92 112.92 112.92 112.92 112.92 Reserves and Surplus 1,060.92 975.25 1,029.60 1,199.55 1,191.10 Net Worth 1,173.83 1,088.17 1,142.52 1,312.47 1,304.02 Earnings per Share (EPS) In Rupees EPS Basic 6.07 - - 1.50 3.16 EPS Adjusted to Rs. 5 6.07 - - 1.50 3.16 2 2 CYAN MAGENTA YELLOW BLACK CYAN MAGENTA YELLOW BLACK CHAIRMAN’S STATEMENT In my statement last year I had indicated that the Company had begun its upward march and I assured you that the outlook for the Company would only get better hereafter. I am pleased to inform you that in the year under review, the Company has delivered the promise with its best ever performance to date, a top line growth of over 130% which is twice the highest turnover ever before and one of the highest post tax profit that the Company has ever shown. Some cynics and analysts may conclude that this performance was largely due to a one-off revenue earning owing to the Satellite re-issue rights deal done with a TV channel. Let me dispel this mistaken notion. Anyone who understands financial statements would be aware that the Company has been consistently following a policy of amortizing 100% of the costs of a film in the year of release of the film, despite the fact that a film by its nature has a commercial longevity and shelf life that runs into decades if not perpetuity. This policy pushes forward profits to future years while booking all costs immediately. If one were to normalize the revenues from library sales and pursue amortization policies followed by most other film production houses, the Company would show far larger profits currently instead of in years to come. Many of the film production companies tend to amortise only 60-65% of the production costs in the year of release of the film thereby recording higher profits immediately but pushing forward the contingent liability of the unamortized value of the film. The total earning potential of the fully amortised library of 26 movies of Mukta Arts is upward of Rs. 400 millions in every five year window. The revenue earning potential comes from re-issue rights of Satellite, DTH, cable, home video, terrestrial TV and other electronic media rights. This implies that the Company would on an average harvest about Rs. 80 millions per annum from its fully amortised library alone. Add to this the fact that the Company has been paying Rs. 40 millions as Keyman Insurance premium (which is also a current expenditure for a future gain) and if the amortization was readjusted you would have better profits than those posted. I am happy to inform you that in the year under review the Company released four movies “Shaadi Se Pehle” directed by Satish Kaushik starring Akshaye Khanna, Ayesha Takia, Mallika Sherawat, “36 China Town” directed by Abbas-Mastan, starring Akshaye Khanna, Kareena Kapoor, Shahid Kapur, “Apna Sapna Money Money” directed by Sangeeth Sivan starring Riteish Deshmukh, Shreyas Talpade, Riya Sen, Celina Jetley, Koena Mitra and “Khanna and Iyer” directed by Hemant Hegde starring Sarwar Ahuja and Aditi Sharma the winners of the “Zee Cinestar Ki Khoj”. The de-risking policy of the Company of selling some territories and distributing other territories itself ensured profits for each of these movies despite the movies being fully amortised. The Company also undertook during the period, production of several new projects to ensure a strong pipeline. Movies in the pipeline include my own film “Black & White” starring Anil Kapoor, Anurag Sinha and others. Other movies released/expected to be released during 2007-08 include “Good Boy Bad Boy” directed by Ashwini Chaudhary which has already been released, “Bombay to Bangkok” directed by Nagesh Kukunoor, starring Shreyas Talpade, “Cycle Kick” a teenage growing up angst story directed by Shashi Sudigala, and “Right Yaaa Wrong” a film by Neeraj Pathak starring Sunny Deol, Irfan Khan and others. A Marathi film, “Kaande Pohe” the first regional film under the MALPIX banner of Mukta Arts Limited is also on the floors and expected to be released in 2007-08. During the year Mukta Arts has been able to consolidate the distribution and exhibition business and take on additional theatres for booking including the Fun (E-City) and PVR theatres. We have seen significant growth in the exhibition business of the Company. Having put on track Whistling Woods International as promised, I now have more time to devote to my creative urges. I am aware the market is expecting me to direct movies. While “Black & White” will be 3 released in the coming year, I am starting “Yuvraaj” starring Anil Kapoor, Salman Khan, Katrina Kaif 3 CYAN MAGENTA YELLOW BLACK CYAN MAGENTA YELLOW BLACK and Zayed Khan with music by A. R. Rahman by September 2007 and the film will be ready for release in 2008-09. Whistling Woods International, which commenced last year, has received very good response from the student community, parents of the students, media and educationists. The Institute’s first P&L statement indicates that we are on track as proposed and the first year losses should be seen as investments by the Company. We have seen investor interest in Whistling Woods International, but we would consider offers only if it brings good strategic value to the Company. In the meanwhile we have accepted the offer made by Whistling Woods International and invested further 200 millions from Mukta Arts Limited in WWI into cumulative 8% coupon redeemable preferential shares. This includes the surrendered preferential shares of our JV partners MFSCDC Ltd. (Film City). We believe that the Company’s investments in Whistling Woods International will yield slow but rich dividends in years to come. During the period, Whistling Woods International has had key personalities visiting the Institute and/or addressing the students including Raj Kumar Hirani, Nagesh Kukunoor, Farah Khan, Shah Rukh Khan, Karan Johar, Rakeysh Omprakash Mehra, Kunal Kohli, Vishal Bhardwaj, Shabana Azmi, Syd field, Victor Tsao and many others. The Institute as of September 2007 has over 200 students. We expect to reach peak capacity of about 400 students by 2009. I am happy to inform you that the Audeus Commercial Complex project is progressing as per schedule and already the pile foundation and the dual basement blocks are completed. Work above the ground has commenced. We expect to complete the complex before the end of the calendar year 2008. This complex would contribute over 50,000 sq.ft. of FSI to the Company in the prime Andheri Link Road area located opposite Yash Raj Studios. The Company will take a decision on the use of this valuable space in a way to maximize revenues and profits for the Company. During the year, the Company had tendered for a partly constructed Communication Centre in Film City opposite Whistling Woods International. The Company saw in this building an opportunity to consolidate all the Company’s offices in a single premise. Mukta Arts Limited’s bid emerged victorious against Adlabs, the other bidder. The Company will commence work on this building soon. This building consisting of 57,000 sq.ft. FSI would house the Company’s offices. We expect the Mukta Tower in Film City to be ready by end 2008.