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MUKTA ARTS LIMITED Annual Report

For the Period ended March 31st 2004 www.reportjunction.com SANSCO SERVICES - Annual Reports Library Services - www.sansco.net

Mukta Movies the post edge Distribution

Tele Media

Mukta Adlabs Digital Exhibition Pvt. Ltd

www.reportjunction.com CONTENTS

03 Financial Highlights

04 Chairman's Statement

06 Management Discussion & Analysis

13 Notice

17 Directors' Report

23 Corporate Governance

FINANCIALS 33 Mukta Arts Limited

57 Consolidated Financial of Mukta Arts Limited & it's Subsidiaries

75 Whistling Woods International Private Limited

87 Mukta Arts International Private Limited

95 Mukta Tete Media Private Limited

TPP^"" www.reportjunction.com BOARD OF DIRECTORS

Mr. , Chairman & Managing Director

Mr. Parvez Farooqui, Executive Director

Mrs. Meghna Ghai Puri, Director- Business Development

Mr. Manmohan Shetty

Mr. Vijay Choraria

Mr. Vashdev Bajaj

Mrs. Mukta Ghai

Mr. Anil Harish

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) - 400 078

Registered Office 6, Bashiron, 28* Road IPS - III, Bandra (W) Mumbai - 400 050

T^PPr^

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FINANCIAL HIGHLIGHTS

Rupees in lakhs Performance at a glance Year Period ended ended 31st March 31 st March Year Ending 31st December 2004 2003 2001 2000 idfl 15 months 9 months Realisation and Overflows 1869.97 2860.15 3393.33 581.13 2281 .20 Equipment Hire Income 298.43 397.39 440.26 426.99 84.42 Other Income 968.85 1017.38 1198.56 244.57 18.80 TOTAL INCOME 3137.25 4274.92 5032.15 1252.69 2384.42 Profit Before Interest, Depreciation and Tax 883.58 1127.98 1786.52 911.70 975.36 Depreciation 296.08 401 .89 290.65 136.46 61.72 Interest 3.02 5.04 6.16 3.99 6.20 Profit Before Tax 584.48 721.05 1489.70 771.25 907.44 Profit After Tax 339.25 712.24 1389.70 601 .25 657.44 Dividend 225.81 451.62 338.72 - Dividend Rate 20% 40% 30% - - Gross Fixed Assets 3438.16 3087.44 2526.46 1802.81 700.71 Net Fixed Assets 2161.42 1986.83 1827.59 1376.12 403.03 Total Assets 13148.88 13052.22 12924.32 11837,72 1240.95 Equity Share Capital 1129.17 1129.17 1129.17 1128.51 0.50 Reserves and Surplus 11995.50 11910.99 11774.78 10702.60 1213.52 Net Worth 13124.67 13040.16 12903.95 11831.11 1214.02 „ . , Rupees i £l,,,r NJ,, j,^.,,w .j, i. «j.wii>ii «i i i ;» an™ «»^,",v-"«,a'^",w^i Earnings per Share (EPS) EPS Basic 1.50 3.16 6.15 2.66 131488.00 EPS Adjusted to Rs. 5 1.50 3.16 6.15 2.66 8874jM

www.reportjunction.com CHAIRMAN'S STATEMENT

Dear Shareholders, "In the business world, the rearview mirror is always clearer than the windshield", prophetic words of Warren Buffet, the truth of which all those at the helm of the affairs of a company confront while facing decisions. If you have placed confidence in me it is because you expect me to steer your company in the right direction even when the windshield is unclear. I would like to assure you that the company has during the year moved in a direction that when viewed in the long term perspective will prove to have added significantly to the intrinsic value of the company. Unfortunately stock markets often reflect a short term perspective. During the year we undertook several major initiatives, the fruits of which you will see in the years to come. These included undertaking major productions including "KISNA" being directed by me, streamlining the process of identifying new proposals and taking them to fruition, consolidating film distribution and venturing into digital cinema. The overall industry outlook during the year has been positive but far from the expected growth rate. The new major industry initiatives in have been the multiplexes and the advent of digital cinema. Your company has been the prime mover in the advent of digital cinema through a joint venture with Adlabs, a public listed company. During the year 2003, 246 films were released with 22 hits and 224 flops, i.e. 91 % of films failing to recover their investments. The new major industry initiative in television and broadcasting was direct viewer addressability through legislation on CAS (Conditional Access System) and the emergence of DTH (Direct To Home). CAS has unfortunately been a non-starter for several reasons, putting a brake on expected revenues to broadcasters, and DTH has been a slow starter owing to major broadcasters refusing to join a common platform. Given the external business environment, your company has done well by treading carefully in an environment full of land mines. Mukta Arts has recovered its investments on both its Films 'EKAUR EK GYARAH' and 'JOGGERS PARK'. The company also received wide acclaim on its venture into a new genre of film with 'JOGGERS PARK'. The film was selected and screened in festivals around the world including The Reel World Festival in Toronto and The Cairo International Film Festival. With the IPR of these two films vesting with Mukta there has been significant value addition to the assets of the company. We believe that emphasis has to be on films that qualitatively enhance your Company's brand while ensuring good returns at acceptable risks. We do not believe in quantitative productions compromising on returns or quality. The company has followed closely the growth of multiplexes and has moved aggressively to tie up deals with multiplexes such as PVR in Delhi, Fun Republic in Chandigarh and others to programme for these cinemas, thereby strengthening the distribution network of the company. By moving into and taking leadership position in the digital cinema space through MADEL its JV with Adlabs, Mukta is positioning itself to create and control the equivalence of a theatre chain. The low margins in television content creation, clubbed with the fact that the IPR on TV soaps and serials mostly vests with the broadcasters, have slowed down your company's move into television. True, that the company top line can look better doing a job work for broadcasters but the same may not do much for the company's bottom line. The management continues its discussions with broadcasters to find solutions that will provide better margins and make the company's foray into television fruitful.

www.reportjunction.com I am happy to inform you that Whistling Woods International, the Film and Television Institute in which your company has invested is progressing well and is poised to commence its full time diploma courses in July 2005. We aim to create a learning and skill-transfer environment where the mind experiences, experiments and accesses unknown and untested frontiers, allowing new perspectives to be seen by the creator and the world he reaches out to. We have this thought as our vision statement and we are working to achieve this vision. I believe that the institute will be a fountain head for moulding and identifying new talent that would add significant intrinsic value to your company having a first-sight-of-talent advantage. In previous Chairman's Statements, I have spoken numerous times about piracy. Piracy continues to plague our industry in many forms. In May of this year I was given a wonderful opportunity to highlight the effects of this menace in on a truly global stage when I became the first Indian film maker invited to join the round table conference held at Cannes Film Festival which was chaired by the French Minister of Culture and Communication Renaud Vabres. The panel included all the major studios from Hollywood and from other countries around the world. Other invitees included Jeff Blake of Sony Pictures, Anti Piracy Panel at the Cannes Film Festival 2004 Richard Fox of Warner Brothers, Jeffrey Katzenberg of Dreamworks SKG, Ron Meyer of Universal Studios, Mark Zoradi of Walt Disney, Jack Velenti of MPAA, James Gianopulos of 20th Century Fox, Buting Yang of China Film Group and Luc Besson - the President Director General of European Corporation. One recommendation I suggested which was approved by the panel was that an international film forum for anti piracy be formed by this group which must educate the policy makers of various governments to make them realize this sensitive issue and its grave effects on cinema industry as a whole. This forum would insist with the governments to frame a stern law against the theft of intellectual property and also against those who run illegitimate businesses of piracy through online and offline trading. I hope this effort will aid our fight against the growing pirate networks around the world. The year has been one of consolidation and we have focused on improving and building upon our systems and investing in people. Much of this effort does not get readily reflected in the accounts but let me assure you that we have been cautious when it was so necessary and we shall be aggressive when we spot appropriate opportunities. The sapling that was planted in the form of a listed company has been well nurtured and has now grown into a healthy tree. Soon we can expect it to reach blossom and then would be harvesting time when you will enjoy the fruits of vision, hard work and patience. I thank you for your commitment and the confidence placed in me and shall ensure that my team and I strive to achieve your aspirations and grow the wealth of your company while being a model corporate citizen.

Thanking you,

Subhash Ghai Chairman

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www.reportjunction.com MANAGEMENT DISCUSSION & ANALYSIS

(On Operations and Select Financial Data)

he accounting statements have been prepared in compliance with the Companies Act, 1956 (as amended up to date) and in conformity with the generally accepted accounting standards and practices in India. The review of annual operations and discussions on select financial data have been made on a prudent and reasonable basis in order that the financial statements reflect in a true and fair manner the company's state of affairs for the period.

Industry Performance

The Indian industry has had a mixed year in 2003. Certain initiatives and trends have been very positive, but a general failing to move fully through with them has caused a growth rate which has been far from expected.

Akey driver of future growth is seen as a fundamental change in the distribution landscape. In television we have seen steps to this effect in the form of the steps taken towards conditional access in the cable market and the introduction of Direct-to-home (DTH) services; in film we have seen the experimentation with digital exhibition in 'B' and 'C1 class centres to try to combat piracy and in radio we have seen a continued development since its privatisation.

But the failure of the CAS scheme and the repeated delays in the roll-out of DTH has meant that even though these changes are likely to boost growth in the long-run, as yet, their effects have not been felt on the industry in general. The derailment of CAS will have a large detrimental effect on the revenues of cable companies that have invested heavily into CAS, and on the broadcasters who were dependant on the increase in subscription revenues via CAS. Also the freeze on rates imposed through a TRAI notification will affect growth of broadcasters and cable operators revenues. This gyarah is likely to reduce profitability and hence the growth rates in ^^ bWy» hooknjtlk* AorM fe %WkyJ crooOVMtMk the TV industry and impact in turn the margins of producers WpP^ and content suppliers to television. - Released March 2003

www.reportjunction.com The Indian film industry has also had a mixed year. Though sixteen films grossed more than Rs 10 crores from the domestic market in 2003, 91 % of Hindi films (224 out of 246) still have not recovered their investment.

The key drivers of future growth in the segment will be; the burgeoning multiplex phenomenon which has caused audiences to come to the cinema in greater numbers whilst parting with more disposable income at places like the concessions counter; the advent of digital cinema which is reducing the time to market of films in the 'B' and 'C' class centres and reducing the threat of piracy; increased branding of films through corporate sponsorships and merchandising and a more structured approach to film- making being adopted by the industry as a practice which is reducing costs and delays.

The critical issues facing the film industry remain though. Piracy is still cannibalising over 60% of the film industry's revenues. Strong action is required to stem this revenue loss. Entertainment tax in India is still amongst the highest in the world. These rates do need>to be lowered to attract new players in to the market and provide relief to existing producers. Finally, there is still only a small percentage of total industry funding coming from institutions and organised funding sources. The industry needs to attract more institutional funding to help propel long term growth in the sector.

Review of Operations Film Software Division During the last year the company has seen much of the business of 'Ek Aur Ek Gyarah' flow in through its own national distribution network and has released a second film 'Joggers Park' in September of 2003. It can be appreciated that the company has successfully recovered its investment in both films. The company received world-wide critical acclaim for its venture into a new genre of film-making with 'Joggers Park'. The film was selected and successfully screened in a number of film festivals around the world including The Reel World Festival in Toronto and The Cairo International Film Festival. Joggers Park - Released September 2003

In October 2003, the company announced two new films. 'Kisna' to be directed by Mr Subhash Ghai and starring Vivek Oberoi and two newcomers Antonia Bernath and Isha Sharvani and '' directed by Abbas-Mustaan and starring Akshay Kumar, Kareena Kapoor and Priyanka Chopra. 'Kisna' represents the company's first attempt at making a film for a wider international audience. Much of the star cast is from the UK and many of the technicians are also from the west. The film is being shot simultaneously in Hindi and in English. Both films are expected to retease in 2004, 'Aitraaz' around Diwali and 'Kisna' later in the winter. HPP^"

www.reportjunction.com October 24th, 2003 - Kisna Team at Mahurat; Maharashtra CM Shri Sushil Kumar Shinde giving the clap; Aitraaz Team at Mahurat

Equipment Division

The income from equipment division, Audeus' for the current period is Rs. 298 lacs and has been lower as compared to Rs 397 lacs for the previous year. The lower revenues are due to a change from a 15 month period last year to a 12 month period this year. On the business front, a slight slowdown in billing has been mainly on account of the fall in hire rates due to the-proliferation of new entrants in certain post-production segments, especially in telecine and the impact of the intense competition that an over- crowded market brings.

Distribution and Exhibition

The company successfully distributed both 'Ek Aur Ek Gyarah' and 'Joggers Park' through its 9-centre national distribution network, Mukta Movies Distributors. Mukta Movies has also looked at taking on other production houses' films to fuel our network with mixed success initially but has now struck on a process based model which limits risk to a minimum through a combination of commission, advance and minimum guarantee terms.

In terms of exhibition, Mukta Movies has continued to grow its chain of theatres. The Division now programmes for over 30 screens across Delhi, UP and Punjab including those of the PVR Chain in Delhi and Fun Republic in Chandigardh.

Other Income

Income/dividend from prudent management of investments in units of mutual funds amounting to Rs. 859 lacs forms the major component of other income for the period which is at Rs. 969 lacs. Internal accruals and monies pending utilisation for projects are invested in units of mutual funds.

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