financial analysis of utv

INTRODUCTION:

UTV Software Communications Ltd (UTV), is India's first integrated global media and entertainment company. The entire UTV focus is on creating, aggregating and disseminating outstanding content - we are a creatively led company which believes in setting not following trends. UTV is a diversified media and entertainment company with content creation abilities across platforms and genres.

The UTV group has expanded into 5 verticals, all of which allow for synergy across in terms of content development, communication and development of thought leadership. This also creates exciting opportunities for employees to move across businesses in order to broaden their experience and enrich their career.

Listed on India's premier stock exchange, The Bombay Stock Exchange UTV has subsidiaries with offices across India, UK, USA and Japan. The Walt Disney Company holds a strategic stake in UTV.

We are a diversified media and entertainment company headquartered in India, with growing operations around the world. We began as a television content production

company in 1990 and have since developed into an integrated media and entertainment company. Our business is divided into three business segments:

(1) Television; (2) Movies; (3) Games and Interactive:

Television segment involves four main functions (1) production of television content (2) airtime sales, which includes managing slots and selling commercial air time on other broadcasting networks, (3) dubbing; and (4) broadcasting of four speciality genre channels, UTV Action, UTV World Movies, UTV Movies and UTV Bindass distributed through out India and selected international markets.

Movies segment focuses on the production and co-production of Indian

films and the distribution of such films across various platforms. UTV has more than a decade of experience in movie production having produced / co-produced movie blockbusters such as, Swades, Rang De Basanti, Jodhaa Akbar and Raajneeti. UTV has also co-produced Hollywood movies including The Namesake and The Happening.

Games and Interactive includes video game content development,

publishing and global distribution across mobile, online and console

platforms as well as other Interactive entertainment content development for mobile and internet platforms worldwide. UTV has a majority stake in Games Content companies across three platforms, high-end console Game Content, games for mobile phones and publishing of Massively Multi Player Online (MMOG) games for the online PC platform.

Industry Overview

The Indian M&E industry grew from INR 587 billion in 2009 to INR 652 billion in 2010, achieving an overall growth of 11 percent. This fiscal year has seen increased sentiment in the industry and increased consumer consumption resulting in estimated growth of 13 percent in 2011 to touch INR 738 billion with projected growth at CAGR of 14 percent to reach INR 1,275 billion by 2015. This growth was primarily driven by the resurgence of media spends by advertisers across media platforms. While television and print continue to dominate the Indian M&E industry, sectors such as gaming, digital advertising, and animation VFX also show tremendous potential in the coming years. By 2015, television is expected to account for almost half of the Indian M&E industry revenues, and more than twice the size of print, the second largest media sector. Advertising revenue continues to be the main source of revenue for the Television industry and is expected to increase from 38 percent in 2007 to 42 percent in 2012 of the total revenues generated.

DIRECTOR’S REPORT:

Dear Members,

Your Directors take pleasure in presenting the 21st Annual Report on the operations of your Company for the financial year ended March 31, 2011.

FINANCIAL HIGHLIGHTS :

Profit loss account

	Mar ' 11	Mar ' 10	Mar ' 09	Mar ' 08	Mar ' 07
Income
Operating income	545.68	326.52	251.19	286.29	152.45
Expenses
Material consumed	-	-	-	-	-
Manufacturing expenses	368.95	235.03	239.60	233.57	122.76
Personnel expenses	28.21	20.91	20.75	15.75	14.14
Selling expenses	2.86	1.10	0.72	1.08	0.51
Adminstrative expenses	16.30	18.70	6.14	15.99	19.17
Expenses capitalised	-	-	-	-	-
Cost of sales	416.31	275.73	267.21	266.38	156.58
Operating profit	129.37	50.79	-16.02	19.91	-4.13
Other recurring income	30.18	21.76	61.08	7.87	6.21
Adjusted PBDIT	159.55	72.54	45.05	27.78	2.08
Financial expenses	25.53	34.85	14.29	19.02	7.21
Depreciation	1.92	1.91	2.91	3.35	3.07
Other write offs	-	-	-	-	-
Adjusted PBT	132.09	35.79	27.85	5.41	-8.19
Tax charges	0.01	-20.09	11.29	3.40	-16.97
Adjusted PAT	132.08	55.89	16.56	2.02	8.77
Non recurring items	0.14	1.44	7.26	2.36	26.82
Other non cash adjustments	1.67	1.53	2.00	0.11	1.00
Reported net profit	133.89	58.85	25.82	4.48	36.59
Earnigs before appropriation	378.34	159.26	100.41	78.59	84.30
Equity dividend	-	-	-	3.42	5.72
Preference dividend	-	-	-	-	-
Dividend tax	-	-	-	0.58	0.80
Retained earnings	378.34	159.26	100.41	74.59	77.78

FINANCIAL OVERVIEW:

Revenues

The Company reported a growth in consolidated operating revenues of Rs 2,654 million to Rs 9,295 million from Rs 6,641 million reported in the previous year, led by increase in revenues in the Movies and Television divisions. Revenues in the Television segment increased from Rs 2,490 million in the previous year to Rs 3,558 million in the current year, an increase of 43%. This was primarily due to the growth of our four broadcast channels and growth in the Television Content business.The Movies segment reported an increase in revenues from Rs 3,154 million in the previous year to Rs 4,544 million this year an increase in 44%, primarily due to box office success of several movies as well as growing revenues from C&S rights. Our Movies business is continuing to realize the benefits of our IP focus and studio model approach. During the year, the Games and Interactive segment reported an increase in revenues of 12% from Rs 1,070 million in the previous year to Rs 1,201 million. This increase was a result of continue growth in the Interactive segment with new product offerings and increased sales from the games business.

Other Income

Other income decreased moderately from Rs 204 million for the year ended March 31, 2010 to Rs 191 million for the year ended March 31, 2011. This decrease is partly attributed to the decline in Profit on Sale of Investments.

Direct Costs

Direct costs incurred during the current fiscal are Rs 5,927 million as against Rs 4,473 million in the previous year, an increase of 33%. Direct cost as a percentage of operating revenues was at 64% compared to 67% in the previous year.

Staff Costs

The staff cost of the Company has increased by 26% from Rs 618 million in the previous fiscal to Rs 780 million during the current fiscal. This is a decrease in staff costs as a percentage of operating revenues from the previous fiscal year.

Other Expenses

Other Expenses comprises administrative overheads, provisions for doubtful debts/ advances, advertisement and business promotion expenses, general expenses and others. During the year, other expenses were at Rs 983 million compared to Rs 1,076 million in the previous year showing a decrease of 9%. This decline is due to an absence of any Loss on Foreign Exchange Fluctuation which is offset partially by an increase in Marketing Expense in this fiscal.

Interest Cost

During the year, the Company’s borrowings decreased by Rs 636 million compared to previous year. The net interest expense for the year was Rs 343 million against Rs 384 million in the previous year.

Depreciation

The depreciation charge for the current year was Rs 74 million as compared to Rs 62 million in the previous year.

Profit before Tax

The Profit before Tax for the year increased from Rs 231 million in the previous year to Rs 1,380 million in the current year. The Company has now started reaping the benefits of being in investment mode during the last two years. An expansion in gross margins and a less than proportionate increase in the fixed costs have resulted in this increase.

Provision for Taxation

During the year, the total Provision for tax was Rs 4.3 million as against Rs (270.25) million during the previous year.

Profit after Tax and Minority Interest

The Profit after Tax and Minority Interest for the year was higher at Rs 1,355 million against Rs 533 million in the previous year, an increase of 154%.

MANAGEMENT DISCUSSION AND ANALYSIS

Consolidated Financial Position

Sources of Funds

Share Capital, Revenues and Surplus

The Equity Share Capital of the company remained constant at Rs 406 million as there were only a small number of shares allotted due to exercise of ESOPs during this fiscal. The consolidated Reserves and Surplus increased from Rs 7,317 million to Rs 8,810 million, an increase of Rs 1,493 million. This is primarily due to a Profit in the current fiscal and increase in the Foreign Currency Translation Reserve.

Loan Funds

The Company’s borrowings decreased by Rs 636 million, down from Rs 9,627 million in the previous year to 8,991 million in the current year.

Utilisation of Funds

Fixed Assets

Gross Fixed Assets as on 31 March 2011 were at Rs 1,030 (excluding Goodwill on consolidation) million as against Rs 924 million on 31 March, 2010.

Goodwill on Consolidation

Goodwill arising on Consolidation from Rs 3,952 million in the previous year to Rs 3,916 million in the current year is primarily on account of 15% additional stake acquired by the Company in True Games Interactive Inc. during the year.

Investments

The company had investments of Rs 201 million at the start of the year. Investments as on 31 March, 2011 were Rs 1 million showing a decrease of Rs 200 million.

Current Assets, Loans and Advances

Total current assets, loans and advances increased by Rs 3,889 million during the year, up from Rs 13,992 mllion in the previous year to Rs 17,881 million. Debtors (net of provisions) as on March 31, 2011 were at Rs 2,208 million representing 87 days of sale as against Rs 1,403 million as on March 31, 2010 representing 77 days of sale. During the year, inventories increased to Rs 11,786 million from Rs 8,538 million in the previous year. This is largely due to an increase in inventory in the Games segment and Movie Copyrights. Loans and advances decreased to 3,083

million during the year from Rs 3,336 in the previous fiscal. Cash and Bank balances have increased from 711 million as on 31 March, 2010 to Rs 800 million as on 31 March, 2011. Other Current Assets increased from Rs 3 million in the previous fiscal to Rs 5 million as on 31 March, 2011.

Current Liabilities and Provisions

Current Liabilities have shown an increase of Rs 2,951 million from 2,005 million in the previous fiscal to 4,956 million.

Net Deferred Tax Asset/Liability

Net deferred tax assets at the year end were 1,023 million compared to Rs 1,016 million in the previous year. This was mainly on account to Foreign Exchange variations.

Segmental Performance

The business of the Company, during the year, was broadly categorized into the following three segments:

Television

Revenues from the television segment increased by 43% from Rs 2,490 million in the previous year to Rs 3,558 million during the year primarily to the growth and maturation of our Broadcasting channels and an increase in our revenues

from the Television Content Production business. The segment reported a profit of Rs 309 million as compared to a loss of Rs 2 million in the previous year.

Movies

The Movies segment reported an increase in revenues of 44% from Rs 3,154 million in the previous year to Rs 4,544  million this year, due to an increase in the scale of our movies. The increased number of movies and the success at the box office and other streams of revenue have driven the results. The Movies business reported a profit of Rs 1,523 million [margins of 34%] during the year against a profit of Rs 951 million [margins of 30%] during the previous year.

Games and Interactive

During the year, the results of the Games and Interactive segment included consolidated financials of Ignition, True Games and Indiagames as well as the web and mobile properties for the full year. During the year, the Games Content

segment reported an increase in revenues of 12% from Rs 1,070 million in the previous year to Rs 1,201 million. The Games and Interactive segment had a profit of Rs 141 million up from a loss of Rs 148 million in the previous year.

ANNEXURE:

Revenue contribution as on 31 March, 2011

Note: Intersegment revenue contribution is not considered in the pie charts above. Key Financial Ratios of UTV Software Communications Ltd.

Particulars	Mar ‘11	Mar ‘10	Mar ‘09	Mar ‘08	Mar ‘07
Liquidity Ratio: Current Ratio	3.68	12.73	8.20	3.36	5.20
Leverage ratio: Debt to equity ratio	0.55	0.79	0.34	1.21	0.96
Profitability ratio: Earnings per share (Rs) Return on capital employed (%)	32.95 11.86	14.48 5.91	7.55 2.53	1.80 2.20	19.58 22.27

ANALYSIS OF RATIO

LIQUIDITY RATIOS :

Current ratio should be ideally 1.5 or 2:1, the higher the ratio, greater the assurance that CL will be paid in time.

INVENTORY RATIOS

Inventory turnover is the cost of goods sold divided by the total cost of inventory.

LONG TERM SOLVENCY RATIOS

Lower long term ratio has a better leverage for borrowing, it should be less than 1 as will show that claims of owners are greater than those of lenders.

High ratio represents a large degree of security to lenders, measures the proportion of firm’s TA financed by debt.

COVERAGE RATIOS

Indicates whether the business generates sufficient profit to serve intrest payment.

COMPUTING PROFITABILITY MEASURES

Ability to use available resources to generate income.

ANALYSIS OF THE BALANCE SHEET

The balance sheet has three major components which an investor can look upon. They are total assets, Equity and total liabilities. Thus we can say that from an investor’s perspective a balance sheet mainly revolves around the equation

                            

Total assets = Equity + Total Liabilities

As per the balance sheet of UTV Software Communications Limited we can say that:

CURRENT ASSETS

ANALYSIS

The current assets in the 5 years assimilated balance shows an increasing trend up to year 2010 and then a slight fall in the year 2011. Thus we can decipher the strong growth of company in the past years. As company is in a position to pay off their debts easily, have protection against future times and have more future options. On the other hand we can say that the cash is accumulating so quickly that company don’t have time to figure out where to invest it. But of course we can say that company has figured the harbinger out in the year 2011 as we can observe a slight decline in the current assets.

FORECAST

Going by the above pattern and the change that took place in the year 2011 we can say that the company has started to work on the strategy or plan regarding the investment of current assets. Thus we may observe a further decrease in current assets in the coming year. This can also be a steep decrease because till then the company will formulate and implement its strategy much better.

ANALYSIS

The company’s current liabilities are showing a sudden acclivity in the year 2011, which is not a good sign for a company. But the current assets are far more than the current liabilities in the same year, which indicates that the company is still going descent. This increase may also be because of a new dimension of business in which the company must have entered.

FORECAST

But the trend of reducing gap between CA & CL should not continue as this could hamper the company’s growth. Thus going by the positive perspective, we will witness a decline in the current liabilities for the coming year.

OTHER COMPONENTS OF THE BALANCE SHEET

Apart from these major attractions for the investors there are certain other eye candies for the investors in a balance sheet for example fixed assets, investments etc.

Thus as far as secured loans are concerned we can say that it has been showing a increasing trend except for year 2011, which is a good indication for the company because it means that company in 2011 did not take any extra loan but instead paid off its previous loans, hence reduced the burden of liability from the shoulder of the company. There is also a possibility of a connection between the decrease in the current assets and the loans, as company could have used the current assets to pay off its loans.

And again the balance sheet is showing a burgeoning trend in the investments and the reserves and surpluses, which is again an indicator of good financial position of the company.

Thus in a nutshell we can say that the company is doing good and in the coming years it will do better, if will follow the same trend. Hence as per the trends observed, it is a good company to invest in.

WORKING CAPITAL

year	current assets	current liabilities	working capital
2007-08	257.59	49.49	208.1
2008-09	484.5	144.2	340.3
2009-10	1,021.16	124.53	896.63
2010-11	1,523.26	414.18	1109.08

Detail calculation of working capital in Appendix

From the above working capital table we can analyse that the working capital, has been increasing from 2007 to 2011, From 208.1 to 1109.08

1)      The value of inventories stored has been increasing over the past five years as the company is trying to increase its efficiency level by maintain sufficient amount of inventories.

2)      Current liabilities have been increasing over the number of years. In the years 2011 the current liabilities have increased by a considerable amount, this may be because the credit period allowed by creditors has increased. However, there was a sudden fall in the liabilities in the year 2010-11.