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mUKTA ARTS LIIT1ITED
M. F. Husain's tribute to 1QBAL
ANNUAL REPORT For the Year Ended March 31" 2006
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CONTENTS
Financial Highlights 3
Chairman's Statement 4
Management Discussion & Analysis 6
Notice 9
Directors' Report 11
Corporate Governance 15
FINANCIALS
Mukta Arts Limited 23
Consolidated Financial of Mukta Arts Limited & it's Subsidiaries 41
Whistling Woods International Limited 54
Mukta Arts International Limited 66
Mukta Tele Media Limited 74
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BOARD OF DIRECTORS Mr. Subhash Ghai, Chairman & Managing Director Mr. Parvez 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
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PERFORMANCE
Performance at a glance Rupees in millions
Year Year Period Period Year ended ended ended ended ended 31st 31st March, 31st March 31st March 31st March December 2006 2005 2004 2003 2001 15 months
Realisation from productions 374.80 451.44 187.00 286.02 339.33 distribution & exhibition
Equipment Hire Income 25.09 28.60 29.84 39.74 44.03
Other Income 36.12 31.59 96.89 101.74 119.86
TOTAL INCOME 436.01 511.63 313.72 427.49 503.22
ProfiV(Loss) before Interest,
Depreciation and Tax (27.15) (134.86) 88.36 112.80 178.65
Depreciation 29.98 32.14 29.61 40.19 29.06
Interest 0.60 0.56 0.30 0.50 0.62
Profit/Loss) before Tax (57.73) (167.56) 58.45 72.11 148.97
ProfiV(Loss) after Tax (56.46) (169.67) 33.93 71.32 138.97
Dividend - - 22.58 45.16 33.87
Dividend Rate - - 20% 40% 30%
Gross Fixed Assets 369.84 361.98 343.82 308.74 252.65
Net Fixed Assets 184.06 204.73 216.14 198.68 182.76
Total Assets 1,195.53 1,144.66 1,314.89 1,305.22 1,292.43
Equity Share Capital 112.92 112.92 112.92 112.92 112.92
Reserves and Surplus 975.25 1,029.60 1,199.55 1,191.10 1,177.48
Net Worth 1,088.17 1,142.52 1,312.47 1,304.02 1,290.40
Earnings per Share (EPS)
In Rupees
EPS Basic - - 1.50 3.16 6.15
EPS Adjusted to Rs. 5 - - 1.50 3.16 6.15
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CHAIRMAN'S STATEMENT
They say it's always darkest before dawn. We are today facing the new dawn of the Company. I am fully aware that you, the shareholders, have not been too happy with the company's performance in 2004-2005 despite the top line in the year being the highest ever for the Company. We now see the light at the end of the tunnel, or the first light of dawn. Not only has the current year been a major improvement over the previous year but the upward trend has begun and I assure you that it will only keep getting better from here on. The year under review was one during which we worked towards getting out of the bad patch we had hit and managed to consolidate our operations, increased bandwidth of human resources to handle larger volumes of production and distribution and put on stream five new films. The Company is now poised to produce and distribute at least four films every year. The challenge will lie in sustaining and further increasing this bandwidth. The Company's film library has now grown to a respectable 22 films which adds significant intellectual property and value to the Company. This includes our most recent movie '36 China Town' in May 2006 which was an instant hit at the box office. During the year with the focus on building long term strengths of the Company to put in place the much needed bandwidth of creative and management personnel and resources, we could only release one film "Iqbal". "Iqbal" won several prestigious awards and received five star ratings from critics across the board, a very rare occurrence in Indian cinema. "Iqbal" inspired institutions, NGO's and opinion makers to appreciate Mukta Arts' contribution to bring into focus the problems of the underdog and kindling the spirit of 'Hum Honge Kamiyab' among the youth of the nation and the less privileged. The message was clear "No hurdle is too hard to cross, and no handicap too difficult to overcome", if there is determination and a strong will. NCERT has even decided to introduce "Iqbal" as part of the education curriculum. "Iqbal" has been screened in several film festivals around the world including Reel World Film Festival (Toronto), KARA International Film Festival 2005, South Asian Human Rights Film Festival (New York) 2006, IFFA (Dubai) 2006, Times NIE, Children's Film Festival 2006, IFFI Goa 2005, Sports Movies & TV- Mumbai International Festival and is one of the very few films from India that received a grant from the UK Film Council for distribution of the film in the UK. With Iqbal, the Company once again established its Brand as a quality film producer. The films that were under production during the year included "Shaadi Se Pehle", "36, China Town", "Apna Sapna Money Money" and "Good Boy Bad Boy". "Shaadi Se Pehle" was completed during the year but since the film was ready only in January 2006 we did not deem it appropriate to release it in February/March the student examination period. The financial results consequently indicate a lower top line and bottom line as the revenues and profits of "Shaadi se Pehle" were pushed to the next Financial Year. During the year, we also made a major breakthrough in signing up with Zee TV to produce a film for them wherein the Company is able to retain IPR of the film except for television and satellite rights. The Company has in the past introduced a lot of new talent to the industry and is now introducing '™$f? www.reportjunction.com - Anmi.il Ropni-fg T ihi-tiry Soii/Wc - WKU™ gang™ not Zee's 'India's Best' winners of last year in the film being produced for Zee tentatively titled "Raasta Pyaar Ka". The film will be ready for release in October 2006. During the year the Company managed to step up its distribution and exhibition activity which now accounts for over 50% of its revenues. Among the major films released by the Company in some territories apart from its own produced films are "Paheli", "Harry Potter", "Family", "Waqf, 'Garam Masala", "Iqbal", 'Ek Ajnabi', 'Barsaaf, "Taj Mahal" and others. During the Year the Company shows a deficit of about Rs. 56.46 millions which needs to be viewed keeping in mind the payment of the installment of Rs. 39.20 millions on the Keyman Insurance, which is booked as expenditure. Also with depreciation of Rs 29.98 millions, there has been no cash loss this financial year, but we realize this is not good enough. By increasing our bandwidth of production and taking steps to de-risk distribution by judiciously combining part-distribution part-sales of territories for all our forthcoming films we have ensured that results of the Company's top line and bottom line would be much healthier in the years ahead. Among the major decisions during the year were closing down the Audeus Studio that was showing recurring losses and entering into an agreement for development of the Audeus property into a commercial complex. This will ensure that unlocked value of this property will be released and losses of Audeus will cease. The Company also decided to exit Mukta Adlabs Digital Exhibition Pvt. Ltd. the loss making joint venture with Adlabs, so to deploy the capital more productively. During the year our focus was also on completing the Whistling Woods International project. I am happy and proud to let you know that we have successfully completed this project despite many hurdles and as the pool of talent from this Institute emerges we would both quantitatively and qualitatively enhance our output accomplishing the vision and goal set for ourselves. The Institute has commenced and has received very good response from the student community, media and educationists. The Institute is expected to show profits by year two. The Institute would be a landmark Institute in Film, Television, Animation and Media Arts studies in Asia and would be comparable to the best anywhere in the world. We have tied up with global technology players and other partners to introduce the best technologies. These include Nvidia, Sony, AMD, Sennheiser, Mackie. We have also introduced, ahead of plan, the Animation Programme, as we expect animation skill needs to grow rapidly in India, and have affiliated with SENECA, the internationally renowned Canadian college that is highly respected for its animation programmes worldwide. In fact, its film 'Ryan' won the Oscar for best animated short film in 2005. In the years to come its alumni would be a force to reckon with and the goodwill enjoyed by Mukta Arts and Whistling Woods International could then be cashed. Many investors have had doubts on the financial success and business model of Whistling Woods. Let me assure you that Whistling Woods will emerge in the years to come as a significant global brand in Media education and be able to emulate the kind of success seen by the NT's or IIM's. I would like to assure all shareholders that a new dawn has begun and we are on the threshold of seeing all round growth of the company in the years ahead. You have believed in our vision and stood by us through thick and thin. The pay back time is in sight. Thank You. Subhash Ghai www.reportjunction.com SANSPO SFRVTPFS - Annual Rpnnrtg T.ihrarv - www npt MANAGEMENT DISCUSSION AND ANALYSIS (On Operations and Select Financial Data) The accounting statements have been prepared to be the News channels. CAS (Conditional Access in compliance with the Companies Act, 1956 (as System) after being given an unceremonious burial amended up to date) and in conformity with the may be revived thanks to the Court ruling directing generally accepted accounting standards and the Government to implement the law on CAS. DTH practices in India. The review of annual operations (Direct to Home) has taken off with two active and discussions on select financial data have been operators despite several issues mainly relating made on a prudent and reasonable basis in order to the must carry directions of TRAI (Telecom that the financial statements reflect in a true and Regulatory Authority of India). More players are fair manner the Company's state of affairs for the expected to get operational soon, key among them period. being TATA Sky in which Star has a stake and SUN. Pay Per view has also made an entry through the Industry Performance: The film and television DTH route. industry continued to be upbeat outpacing the GDP (Gross Domestic Product) growth of the total Indian Piracy continues to be a major factor affecting the production and service sectors. The entertainment music and movie industry and will continue to affect industry has certainly benefited from the rapid the growth of VCD's, DVD's and other physical and Indian economic growth. A paradigm shift is seen non physical formats. The Physical formats are in the way content is distributed which in turn will increasingly likely to be replaced by the non affect the way content is created. For the big screen physical formats including downloads via the net content has to have high production values, and the mobile phone. involving all the senses. For the family screen (TV) A REVIEW OF OPERATIONS: content has to get interactive and have a hook that keeps the viewer wanting to see the next episode, The Company has increased its activity levels for the personal screen (lap top and mobile) content significantly during the has to be compelling, relevant and compressed. year in production, distribution and exhibition. The growth in the multiplexes continued at a However the Company significant pace with about 100 multiplexes already was unable to distribute its operational in India and another 100 in the pipeline. film "Shaadi Se Pehle" Owing to the high ARPU (Average Realisation Per which was ready towards Unit) in the multiplexes, the larger number of the end of the year as a shows, lower tax structures they are already release during the contributing well over 50% of the theatrical examination period would collections for big releases and over the next few have been commercially years may account for over 75% of the gate unwise. Music release of collections for big releases. "36, China Town" and "Shaadi Se Pehle" though The other area where significant growth was seen was possible during the year. The revenues and during the year is downloads on mobile phones, of profits of this film therefore move into the next ringtones, singtones, polyphonic tones, video financial year impacting both the top line and clippings, MMS (Multimedia Messaging Service) bottom line during the current year. During the year etc. The downloads of ringtones provides a silver the Company made a loss of Rs.56.46 millions after lining to the otherwise faltering music industry and tax. The Company can be deemed to have made may bring significant revenues from mobile phones operational profits if we keep in mind that Rs.39.20 in years to come reviving the fate of the music millions of the administration expenses the Keyman industry and helping the film producers. Insurance premium is really an investment. Further Television: Many new channels were launched the depreciation amount is Rs.29.98 millions. Thus during the year. The biggest gainers though seem operationally the Company has made cash profits. www.reportjunction.com SANSCO SERVICES - Annual Reports Library Services - www.sansco.net The revenues during the that no new equipment was purchased during the year are largely from year and competition from equipment and service exhibition and distribution suppliers has been stiff. Management had taken a activities, accounting for decision last year to close down the Audeus Studio over 50% of revenues. which has been making losses. Accordingly the "Iqbal" was the only film Audeus complex has been demolished and plans produced by the Company have been finalized and approved for construction which was released during of a commercial complex which is being executed the year. Additionally the through an outsourced development agreement. Company acquired the The work on the complex will begin by September negative rights of the film 2007 and the building is expected to be ready in "Socha Na Tha" adding one more film to the 2009. Significant revenues are expected from the Company's growing library. sale/lease of the Company's share in the commercial complex. This will release a lot of We further need to keep unlocked value from the prime property where in mind that the costs of Audeus was housed. A part of the equipment has the film "Iqbal" and the been leased out to Whistling Woods International acquisition costs of the at Film City and a part of the equipment has been film "Socha Na Tha" relocated at the Company's other offices. have been fully expensed during the Equipment revenue from production services will year although the rights continue and be more profitable. of both these films vest with the Company in DISTRIBUTION. perpetuity and the films will continue to bring in revenues over a period of time. The Company's biggest achievement during the year has been completing the Whistling Woods project. Not only was the infrastructure component completed successfully but the Intellectual component of a committed Governing Council, an accomplished Dean and faculty, curriculum etc. has been put in place. Whistling Woods has truly shaped into a World Class Institute with tremendous promise and potential. The Company has increased its bandwidth is EQUIPMENT DIVISION: distribution and exhibition. During the year it has distributed and/or exhibited over 25 films in part territories. These included "Paheli", "Harry Potter", "Family", "Waqf, 'Garam Masala", "Iqbal", 'Ek Ajnabi', 'Barsaat", "Taj Mahal" and others. Mukta Movies Distributors (MMD) has now become a key player in the distribution business in the major territories of Punjab and Delhi-UP. The Company continued its expansion of the exhibition activity and now controls about 30 theatres for programming and booking particularly in the areas of Delhi, U. P. and Punjab. All major multiplex chains are now included for programming The income from the equipment division has been IfPlSW™^ more or less stagnant. This has to do with the fact with the addition of two Adlabs sites in UP. www.reportjunction.com SANSCO SERVICES - Annual Reports Library Services - www.sansco.net OTHER INCOME: may include franchising, resource leasing, consultancy, R&D for industry and Government. The investments of surplus funds in debt related mutual funds and permissible investments have The library of 12 films currently with Sony yielded decent returns. Amount of revenue from Entertainment Television India for the satellite rights this area remained stable inspite of increased is due for recycling in the next financial year and is capital requirement for four films. A loan of Rs.150 expected to yield significant revenues. millions has also been given to its subsidiary Whistling Woods International Limited. SWOT Analysis TELEVISION: Strengths: The Company has a long term vision, a reputed creative leader in Subhash Ghai, proven During the year the Company has undertaken the strength in content creation, distribution and production of a feature film tentatively titled "Raasta marketing, a good size library of films that is fully Pyar Ka" for Zee Network to launch Zee's winner's amortised in the books of accounts, a band width of India's Best talent hunt. in management and significant real estate. Although other offers for television programming Weakness (and action management is taking to were received by the Company, the Company did address these): Its overdependence on one not consider it adequately rewarding to produce creative individual (management is working content where it did not hold any IPR. The towards engaging independent film directors), its Company believes that just doing job work for heavy dependence on film production which television channels may add to the top line but is accounts for the bulk of revenues (management not necessarily the best use of the Company's has de-risked by stepping up distribution, exhibition creative resources. activities; in the current year over 50% revenues Company is exploring IVR deals on TV with major are on account of distribution/exhibition), failure to C&S players. enter into Television content (managements' efforts to produce TV content where Company can hold OUTLOOK: some IPR such as TeleFilms, Formatted shows During the forthcoming year the Company expects continues), heavy dependence on the success of to complete and release four films with three more films at box-office (management has de-risked by films set to go on the floors soon. judiciously selling and distributing rights so as to minimize risks and maximize profits), lock-in of "Shaadi Se Pehle" a film by Satish Kaushik and capital in unproductive areas such as Audeus, "36 China Town" a film by Abbas Mastan have been MADEL (management has closed down Audeus released in the 06-07 financial year. Both the films and exited from MADEL) have booked decent profits. Apart from that we would be releasing "Apna Sapna Money Money" a Opportunities: Management sees great film by Sangeet Sivan and "Good Boy Bad Boy" a opportunities in Animation, Special Effects, film by Ashwini Chowdhary. We also hope to Gaming, Mobile Content, Advertisement, Media release "Raasta Pyar Ka" a film made for Zee where Education, New Technologies including HD, 3D, we hold the IPR for theatrical release, Music and Digital Film Making etc and is working towards other rights. appropriate tie-ups to be able to cash in on these opportunities. Whistling Woods International has taken off very well operating over the targeted capacity for the Threats: Independent Producers, Media Corporate first semester. It will achieve full capacity by fourth Houses, International Players entering the Indian semester and may break even earlier than planned. media space, New Technologies and failure to keep WWI is expected to create a valuable talent pool pace with them, churn of key personnel. in the years to come that could augment the Management is fully aware of and takes these Company's own talent needs as well as contribute threats seriously and is continuously working to to the industry. Other potential areas of revenue keep its powders dry. www.reportjunction.com SANSCO SERVICES - Annual Reports Library Services - www.sansco.net NOTICE Notice is hereby given that the 24th Annual General Meeting of Mukta Arts Limited will be held on Saturday, the 121h of August, 2006 at 4.00 p.m. at the Whistling Woods Institute Auditorium, Dada Saheb Phalke Chitranagari, Goregaon (E), Mumbai- 400 065 to transact the following business: Ordinary Business: 1 To receive, consider, and adopt the audited Profit and Loss Account of the Company for the year ended 31st March, 2006 and the Balance Sheet as at that date together with the Director's Report and Auditor's Report thereon. 2 To appoint a Director in place of Mr. Anil Harish who retires by rotation and, being eligible, offers himself for reappointment. 3 To consider and pass with or without modifications, the following resolution as an Ordinary Resolution: "RESOLVED THAT pursuant to section 224 of the Companies Act, 1956 M/s. Shamit Majmudar Associates, Chartered Accountants, Mumbai, be and are hereby appointed as the Statutory Auditors of the Company to hold office from the conclusion of the Twenty-fourth Annual General Meeting until the conclusion of the Twenty-fifth Annual General Meeting, on such remuneration as may be approved by the Board of Directors." Special Business: 4 To consider and if thought fit to pass with or without modification(s) the following resolution as a Ordinary Resolution: "RESOLVED THAT Mr. Pradeep Guha, who was appointed as an Additional Director in the meeting of the Board of Directors of the Company held on 17th December, 2005 and who holds office upto the date of the Twenty fourth Annual General Meeting, and in respect of whom notice under Section 257 of the Companies Act, 1956 has been received from one of the members, signifying his intention to propose Mr. Pradeep Guha as a candidate for the office of the Director of the Company, be and is hereby appointed as a Director of the Company." Registered Office: By Order of the Board 6, Bashiron, 28th Road ,i TPS-III, Bandra(W) . •' , , ' • Mumbai - 400 050 " ..-'.• Ravi B. Poplai Company Secretary Place : Mumbai Date : 30th June, 2006 NOTES: 1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY / PROXIES INSTEAD OF HIMSELF AND THE PROXY NEED NOT BE A MEMBER OF THE COMPANY. THE PROXY FORMS, TO BE EFFECTIVE SHOULD BE DEPOSITED AT THE REGISTERED OFFICE OF THE COMPANY NOT LATER THAN 48 HOURS BEFORE THE COMMENCEMENT OF THE MEETING. 2. The Explanatory Statement pursuant to section 173 of the Companies Act, 1956 that sets out details relating to the Special Business under Item No. 4 is annexed hereto. 3. The Register of Members and Share Transfer Books of the Company will remain closed from Saturday, the 5th August, 2006 to Saturday, the 12th August, 2006 (both days inclusive). 6. Members seeking any information or clarification on the Accounts are requested to send in written queries to the Company, at least seven days before the date of the meeting. Replies to such written queries received, will be provided only at the meeting. 7. Members/proxies should bring the Attendance Slip sent herewith, duly filled in, alongwith the Annual Report for attending the meeting. Registered Office: By Order of the Board 6, Bashiron, 281h Road TPS - III, Bandra (W) Mumbai - 400 050 Ravi B. Poplai Company Secretary Place : Mumbai Date : 30th June, 2006 www.reportjunction.com