UTV Software - 2007/2008 - Annual Report

 UTV SOFTWARE COMMUNICATIONS LIMITED

ANNUAL REPORT 2007-2008

DIRECTOR'S REPORT

Dear Members,

Your Directors take pleasure in presenting the 18th Annual Report on the operations of your Company for the financial year ended March 31, 2008.

1. FINANCIAL HIGHLIGHTS:

Company Standalone:

(Rs. in million)Particulars Year ended Year ended 2007-08 2006-07

Sales and Services 2,862.91 1,524.50Other Income 20.78 285.40Profit on Sale of Post Production Division 8.90 -Total Income 2,892.59 1,809.90Direct cost 2,335.33 1,225.60Staff cost 157.46 141.36Other Expenses 172.00 198.81Total Expenses 2,664.79 1,565.77PROFIT BEFORE INTEREST, DEPRECIATION AND TAX 227.80 244.13Less: Interest (net) 115.54 16.10PROFIT BEFORE DEPRECIATION AND TAX 112.26 228.03Less: Depreciation 33.54 30.66PROFIT BEFORE TAX 78.72 197.37Less: Provision for Taxation:- Current 8.99 22.25- Mat Credit Entitlement (8.47) (21.82)- Fringe Benefit Tax 3.94 4.08- Deferred Tax 29.50 (173.07)Total of Taxes 33.96 (168.56)PROFIT AFTER TAX 44.76 365.93Balance Profit brought forward 741.16 477.08NET PROFIT AVAILABLE FOR APPROPRIATION 785.92 843.01Transfer to General Reserve - 36.59Dividend on Equity shares 34.20 57.23Distribution Tax Thereon 5.81 8.03BALANCE CARRIED TO BALANCE SHEET 745.91 741.16

Consolidated:

Sales and Services 4,341.80 1,749.07Other Income 107.05 283.23Profit on Sale of Post Production Division 8.90 -Total of Income 4,457.45 2,032.30EXPENDITURE:Direct Cost 3,047.16 1,299.13Staff Cost 258.36 160.59Other Expenses 388.79 218.10Total of Expenses 3,694.31 1,677.82PROFIT BEFORE INTEREST, DEPRECIATION AND TAX 763.14 354.48Less : Interest (net) 59.86 16.10PROFIT BEFORE DEPRECIATION AND TAX 703.28 338.38Less : Depreciation 38.91 31.36Add : Exceptional Item PROFIT BEFORE TAX 664.37 307.02Less : Provision for Taxation- Current 20.86 27.44- Mat Credit Entitlement (8.47) (21.82)- Fringe Benefit Tax 4.18 4.08- Deferred Tax (129.10) (173.07)Total of Taxes (112.53) (163.37)PROFIT BEFORE MINORITY INTEREST 776.90 470.39Less : Minority Interest 200.32 7.12PROFIT AFTER MINORITY INTEREST 576.59 463.27Balance Profit brought forward 880.26 518.85NET PROFIT AVAILABLE FOR APPROPRIATION 1,456.84 982.12Transfer to General Reserve - 36.59Dividend on Equity Shares 34.20 57.24Distribution Tax Thereon 5.81 8.03BALANCE CARRIED TO BALANCE SHEET 1,416.83 880.26

2. DIVIDEND:

Your Directors are pleased to recommend a dividend of Re. 1/- per Equity Share on 34,195,468 fully paid Equity Share of Rs.10/- each for the financial year ended March 1, 2008.

3. SUBSIDIARIES & JOINT VENTURE COMPANIES:

As at March 31, 2008, the Company has the following subsidiaries viz.:

1) UMP Plc 2) UTV Motion Pictures (Mauritius) Limited 3) IG Interactive Entertainment Limited 4) UTV Communications (USA) LLC 5) Ignition Entertainment Limited- UK and its subsidiaries i.e. Ignition Entertainment Limited (USA) and Digi-Guys Limited 6) Indiagames Limited 7) UTV TV Content Limited

As at March 31,2008, IG Interactive Entertainment Limited., UTV Communications (USA) LLC & UTV TV Content Limited are wholly owned subsidiaries of the Company.

UMP Plc is 76.82% subsidiary of the Company.

Ignition Entertainment Limited (UK) is a 70% subsidiary and Indiagames Limited is 54.86% subsidiary of IG Interactive Entertainment Limited.

Ignition Entertainment Limited (USA) and Digi-Guys Limited are 100% subsidiaries of Ignition Entertainment Limited (UK).

UTV Motion Pictures (Mauritius) Ltd. is 99.75% subsidiary of UMP Plc.

The statement pursuant to Section 212(1)(8) of the Companies Act, 1956 in respect of subsidiaries is attached. The Consolidated Accounts of your Company and its subsidiaries are presented as part of this Annual Report in accordance with Accounting Standard 21 issued by the Institute of Chartered Accountants of India.

Your Company has been exempted by the Ministry of Company Affairs, vide their letter No. 47/294/2008-CL-III dated May 7, 2008 from attaching the Audited Financial Statements along with the reports of the Board of Directors and the Auditor's Report pertaining to its subsidiary companies viz., 1) UMP Plc 2) UTV Motion Pictures (Mauritius) Limited 3) IG Interactive Entertainment Limited 4) UTV Communications (USA) LLC 5) Ignition Entertainment Limited (UK) and its subsidiaries i.e. Ignition Entertainment Limited (USA) and Digi-Guys Limited 6) Indiagames Limited 7) UTV TV Content Limited. As per the terms of the exemption letter, a statement containing brief financial details of the Company's subsidiaries for the year/ period ended March 31, 2008 is included in the Annual Report. Accordingly, the audited accounts of the above mentioned subsidiary companies are not attached.

The audited accounts of the subsidiary Companies are also kept for inspection by any member at the Company's Registered office and copies will be made available on request to the members when requested.

Subsidiaries:

a) UMP Plc:

The Company was incorporated on March 27, 2007 as UTV Motion Pictures Plc at Isle of Man. The name of the Company was changed to UMP Plc on January 31, 2008.

During the year UMP Plc was listed on the Alternative Investment Market of ('AIM') of the London Stock Exchange and the shares started trading with effect from July 2, 2007. UMP Plc allotted 24,137,931 equity shares of USD 0.05 each comprising of 23.18% of the post allotment equity at USD 2.90 per share aggregating to USD 70 million. The balance shares are held by the Company.

During the year under review, UMP Plc has acquired 99.75% controlling stake in UTV Motion Pictures (Mauritius) Limited. Accordingly, the Company along with UMP Plc holds 100% stake in UTV Motion Pictures (Mauritius) Limited as on March 31, 2008. Thus, UTV Motion Pictures (Mauritius) Limited has become a downstream subsidiary of your Company.

b) IG Interactive Entertainment Limited:

The Company was incorporated on September 6, 2004 as UTV Communications (UK) Limited with an intention to carry out Film Acquisition, Syndication and Distribution business in the United Kingdom. The name of the Company was changed to IG Interactive Entertainment Limited on February 15, 2008. As at March 31, 2008 it posted a sales of GBP 1,116,364 (Previous Year GBP 1,262,049) and a net loss of GBP 139,415 as against the net profit of GBP 144,219 in the previous year. On December 14, 2007, IG Interactive Entertainment Limited acquired 54.86% equity stake in Indiagames Limited which is into the business of mobile and online gaming for a consideration of USD 9 million. Simultaneously, the Company has also acquired a 12.11% equity stake in Indiagames Limited by subscribing to additional shares issued by Indiagames Limited for Rs.0.85 million and holds these for the benefit of the management and shareholders of Indiagames. Accordingly, the Company along with IG Interactive Entertainment Limited holds 66.97% stake in Indiagames Limited as on March 31, 2008. Thus, Indiagames Limited has become a stepdown subsidiary of your Company.

During the year under review, the holding of IG Interactive Entertainment Limited in its subsidiary Ignition Entertainment Limited (UK) has been reduced from 71.09% to 70% due to the issue of additional shares by Ignition Entertainment Limited to its minority shareholders. Ignition Entertainment Limited (USA), Digi-Guys Limited continue to be 100% downstream subsidiaries of Ignition Entertainment Limited (UK).

c) UTV Communications (USA) LLC ('UTV US'):

UTV US was incorporated on April 26, 2004 with an intention to carry out film acquisition, syndication and distribution business in the United States of America (North America) and other surrounding territories. As at March 31, 2008 it posted a sales of USD 16,638,754 (Previous year USD 2,124,161) and a net profit of USD 13,917 (Previous Year USD 10,285).

d) UTV TV Content Limited ('UTV TV'):

The Company was incorporated on July 9, 2007 as UTV Movies Limited. On January 24, 2008, your Company acquired 100% equity stake in UTV TV Content Limited for a consideration of Rs. 0.50 million, making it a wholly owned subsidiary of the Company. The name of the Company was changed to UTV TV Content Limited on June 03, 2008. UTV TV incorporated a Company on May 06, 2008 called RB Entertainment Limited ('RBEL'), which is a 60:40 joint Venture between UTV TV and Mr. Rajesh Beri.

e) UTV Broadcasting Limited ('UTVBL'):

On January 24, 2008, your Company has sold off its 98.75% equity stake in UTVBL, a dormant company at a consideration of Rs.19.75 million. Subsequent to such sale UTVBL ceased to be a subsidiary of the Company.

f) UTV New Media Limited ('UNML'):

On April 30, 2008, your Company acquired 100% equity stake in UNML thus making it a wholly owned subsidiary of the Company. UNML was incorporated on September 20, 2007 under the name of 'United New Media Ventures Limited' and consequent to the acquisition by the Company, the name of the Company was changed to UTV New Media Limited w.e.f. May 06, 2008. The Company carries on the business of developing and maintaining websites and acquisition and exploitation of digital rights on mobile and digital platforms.

On May 08, 2008 UNML completed the acquisition of ITNation Media Private Limited (' ITNation').

ITNation has technology based consumer and trade focussed business model positioned as an Online Technology Infomediary' in India. This business model focuses on the target age group of 15-35 and the Company finds this highly synergistic to its business. The acquisition by UNML of ITNation was through a combination of acquisition of equity shares from the existing promoters of ITNation and subscription to fresh equity shares of ITNation. Post completion of acquisition process UNML will hold 80% stake in ITNation.

Joint Ventures:

i) Windmill Entertainment Limited ('WEL'):

Windmill Entertainment Limited is a 50:50 Joint Venture between the Company and Mr. Shekhar Suman.

During the year under review, the Company has invested Rs. 0.50 million in Windmill Entertainment Limited, a Company incorporated on August 17, 2007 to house the joint venture with Mr. Shekhar Suman for television content production. On November 5, 2007, Mr. Shekhar Suman has invested Rs 0.25 million in Windmill Entertainment Limited by acquiring 50% of the equity capital from the Company, thereby making it a 50:50 Joint Venture. Being in its first year of operation and as at March 31, 2008, WEL posted a net loss of Rs. 4.12 million.

ii) Smriti Irani Television Limited ('SITL'):

Smriti Irani Television Limited is a 50:50 Joint Venture between the Company and Mrs. Smriti Irani. During the year under review, the Company has invested Rs. 0.25 million in STIL, a Company incorporated on December 6, 2007 to house the joint venture with Mrs. Smriti Irani for television content production. Being the first year of its operation and as at March 31, 2008, STIL posted a net loss of Rs.0.75 million.

4. ISSUE OF SHARES ON PREFERENTIAL BASIS:

(A) Pursuant to the approval granted by the members at the Annual General Meeting held on August 24, 2006, the Company had allotted 1,949,360 warrants on a preferential basis with the option of converting each warrant into one equity share @ Rs.192.50 (including premium of Rs.182.50 per share) per share within a period of 18 months from the date of allotment. The Company has, upon receipt of the balance consideration allotted 519,500 equity shares on February 20, 2008 and 1,429,860 equity shares on March 4, 2008 at an issue price of Rs. 192.50 per share upon conversion of the aforesaid warrants.

(B) On February 16, 2008, the Board approved the execution and delivery of a Share Subscription Agreement between The Walt Disney Company (Southeast Asia) Pte Limited (Disney') and Unilazer (Hong Kong) Limited, Mr. Rohinton Screwvala and Unilazer Exports and Management Consultants Limited ('Promoter Group') and the execution and delivery of a Shareholders Agreement between Disney, the Company and the Promoter Group. In compliance with the Share Subscription Agreement and on receipt of the approval of the Foreign Investment Promotion Board and pursuant to the approval granted by the members at the Extra Ordinary General Meeting held on March 17, 2008, the Company has:

i) On May 06, 2008 allotted 4,532,000 warrants to Unilazer Exports and Management Consultants Limited ('Unilazer'), a Promoter Group company on a preferential basis which will entitle Unilazer to 4,532,000 equity shares of the Company of nominal value of Rs. 10/- each at a price of Rs. 860.79 (including a premium of Rs. 850.79 per share) within a period of 18 months from the date of issue. The Company has received 10% of the total amount of the warrants on allotment. The total investment by Unilazer in the Company would be around Rs. 3,901 million.

ii) On May 09, 2008, allotted 9,352,500 equity shares of Rs.10/- each at an issue price of Rs. 860.79 to Disney on preferential basis. The total investment by Disney in the Company was Rs. 8,050 million. After the aforesaid issue and allotment, the issued, subscribed and paid up share capital of the Company consequently has increased and stood at 34,195,468 equity shares of the face value of Rs.10/- each. Pursuant to issue of shares/ warrants aforesaid, Disney and Promoter Group, as persons acting in concert, have made an open offer to the Public shareholders of the Company under the Securities and Exchange Board of India (Substantial Acquisition of Shares & Takeovers) Regulation 1997.

5. INVESTMENT IN UTV GLOBAL BROADCASTING LIMITED:

On February 16, 2008, the Board of the Company approved the conversion of debt funding in UTV Global Broadcasting Limited ('UGBL') together with further investment for a 75% stake for an aggregate consideration of Rs.2,400 million. Disney will also be investing in UGBL for a 15% equity shareholding and 720,000 warrants for an aggregate consideration of Rs.1,189.8 million. In certain circumstances, the Warrants issued by UGBL to Disney may convert into additional equity shares such that Disney has an aggregate holding of 37.5% of the share capital of UGBL. Mr. Rohinton Screwvala will be holding 10% of the shares of UGBL. UGBL is the parent company for its two wholly owned subsidiaries, Genx Entertainment Limited (Genx) and UTV Entertainment Television Limited. Genx has already launched successfully two youth channels through the Bindass brand whilst UTV Television Entertainment Limited has launched the 'World Movies Channel' and 'UTV Movies'. The aforesaid is subject to all regulatory approvals.

6. EMPLOYEES STOCK OPTION SCHEME:

Pursuant to the approval granted by the members at the last year Annual General Meeting held on September 25, 2007, the Company had introduced Employee Stock Option Scheme ('ESOP Scheme') for permanent employees and directors of the Company & of its subsidiaries. The ESOP Scheme provides for grant of 1,000,000 options. Each option, on exercise, is convertible into one equity share of the Company having face value of Rs.10/. Pursuant to a resolution passed by the Remuneration & Compensation Committee at its meeting held on January 11, 2008, all 1,000,000 options have been granted to the eligible employees at exercise price of Rs. 800/- per option.

Disclosure pursuant to Clause 12 of the Securities and Exchange Board of India (Employees Stock Option Scheme and Employees Stock Purchase Scheme) Guidelines is given in the Annexure to this Report.

7. CORPORATE GOVERNANCE REPORT AND MANAGEMENT'S DISCUSSION AND ANALYSIS TATEMENT:

Your Company adheres to high standards of Corporate Governance. Your Company has complied with the Corporate Governance code as stipulated under the listing agreement with the stock exchanges. A separate section on Management's Discussion and Analysis and the Corporate Governance report along with a certificate from Company Secretary in practice confirming the level of compliance is annexed and forms a part of the Director's Report.

8. DIRECTORS:

During the year Mr. Ronald D'Mello resigned as Executive Director from the Company. Mr. Sanjaya Kulkarni and Mrs. Zarina Mehta retire by rotation and being eligible, offer themselves for re-appointment. Your Directors recommend their re-appointment.

9. FIXED DEPOSIT:

Your Company has neither accepted nor renewed any fixed deposit in respect of the year under review.

10. AUDITORS:

M/s. Price Waterhouse & Co., Chartered Accountants, the present statutory auditors of the Company holds office until the conclusion of the ensuing Annual General Meeting. It is proposed to re appoint them as the statutory auditors of the Company until the conclusion of the next Annual General Meeting. M/s Price Waterhouse & Co., have under Section 224(1) of the Companies Act, 1956 furnished the certificate of their eligibility for reappointment.

11. AUDITOR'S REPORT:

The Auditor's Report to the shareholders does not contain any qualification.

12. CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT, TECHNOLOGY ABSORPTION FOREIGN EXCHANGE EARNINGS AND OUTGO:

The particulars as prescribed under sub-section of Section 217 of the companies Act, 1956, read with the Companies (Disclosure of Particulars in the Report of Board of Directors) Rules, 1988 are set out in the annexure, which forms part of this report.

13. PARTICULARS OF EMPLOYEES:

Information as per Section 217 (2A) of the Companies Act, 1956 read with rules framed there under is required to be a part of this report. However, pursuant the provisions of Section 219(b)(iv) of the Companies Act, 1956 the report and accounts are being sent to the shareholders of the Company excluding the statement of particulars under Section 217(2A) of the Act. Any shareholder interested in obtaining a copy of the said statement may write to the Company secretary at the registered office of the Company.

14. DIRECTORS' RESPONSIBILITY STATEMENT:

Pursuant to the requirements of Section 217(2AA) of the Companies Act, 1956 the Board of Directors hereby state:

(a) That in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

(b) That the Directors have selected appropriate accounting policies and applied consistently and made judgments and estimates made are reasonable and prudent so as to give a true and fair view of the state of affairs of the Company as on March 31, 2008 and of the profit of the Company for the year ended March 31, 2008;

(c) That the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

(d) That the Directors have prepared the annual accounts on a going concern basis.

15. ACKNOWLEDGEMENTS:

Your Directors would take this opportunity to thank all the stakeholders for their support and co-operation rendered to the Company during the year under review.

By order of the Board of Directors

For UTV Software Communications Limited

Place: Mumbai Rohinton ScrewvalaDate : June 16, 2008 CMD & Chief Executive Officer

DISCLOSURES REGARDING STOCK OPTIONS:

Pursuant to the applicable requirements of the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999 ('the SEBI Guidelines'), following disclosures are made in connection with the 'UTV Employees Stock Option Scheme 2007'

Details Disclosures

(a) Options Granted The Company granted 1,000,000 options on January 11, 2008. Each option on exercise, is convertible into one equity share of the Company having face value of Rs.10/-.

(b) Pricing Formula The Closing market price on January 10, 2008 at the National Stock Exchange of India Limited ('NSE') which recorded the highest trading volume in the Company's Share i.e. prior to the date of meeting of Remuneration and Compensation committee in which options were granted.

(c) Options Vested N.A., As the Board has provided for a minimum vesting period of 2 years to 3 years from the date of grant.

(d) Options Exercised N.A.

(e) Total No. of shares N.A. Since none of the options have been arising as a result of exercised, no shares have been issued by exercise of options the Company pursuant to exercise of options.

(f) Options Lapsed 470,000 Options lapsed as at March 31, 2008 due to eligible employees not meeting the short term target or due to resignation of employees.

(g) Variations of terms N.A.of options

(h) Money realised by N.A.exercise of options

(i) Total No. of Options 530,000in force

(j) Employee wise detailsof options granted to:

- Senior Managerial Options have been granted to Senior personnel Managerial personnel

- Employees who receives a grant Siddharth Roy Kapur, Vikas Bhal, Ram in any one year of options Mirchandani, Alpana Mishra, G. amounting to 5% or more of Chandrashekhar, Amit Banka, Ajit Thakur, options 5% or more of options Jyotirmoy Sahagranted during that year.

- Identified employees who were Nil.granted options, during any one year, equal to or exceeding 1% of the issued capital (excludingoutstanding warrants and conversions) of the Company at the time of grant.

K. Diluted Earning Per Share N.A.(EPS) pursuant to issue of shares on exercise of option calculated in accordance with AS 20 Earning Per Share'

L. (Rs. in million)

Proforma Adjusted Net Income and EPS:

Net Income as reported 44.76

Add: Intrinsic Value -compensation cost

Less: Fair value compensation 7.66cost

Adjusted proforma net income 37.10

Earnings per share: BasicAs reported (in Rs.) 1.94Adjusted proforma (in Rs.) 1.61

Earning Per Share: DilutedAs reported (in Rs.) 1.94Adjusted proforma (in Rs.) 1.61

M Weighted average exercise price of options granted during the year whose:

(a) Exercise price equals market N.A.price

(b) Exercise price is greater Rs.800than market price

(c) Exercise price is less than N.A.market price

Weighted average fair value of options granted during the year whose

(a) Exercise price equals market N.A.price

(b) Exercise price is greater Rs.351.29than market price

(c) Exercise price is less than N.A.market price

N. Description of method and The Fair Value of Options has been significant assumptions used calculated using the Black-Scholes during the year to estimate Option pricing formula. The assumptions the fair value of options. used in the estimation of the same has been detailed as follows:

VariablesRisk free interest rates 7.34%Expected life (in years) 3.00Expected volatility 55.35%Dividend yield 1.13%Stock price Rs.796.75

PARTICULARS PURSUANT TO COMPANIES (DISCLOSURE OF PARTICULARS IN THE REPORT OF BOARD OF DIRECTORS) RULES, 1988:

Conservation of Energy:

The operations of the Company are not energy intensive. However, the Company has taken adequate measures to reduce the energy consumption by using energy efficient hardware and other equipment. Air conditioners are used only when required. Further the Company has spread awareness among the employees on the need to conserve energy which is well adopted by the employees.

Research and Development:

The Company is an integrated player in the Media and Entertainment Industry and carries out research and innovation in creating content in various segments of entertainment as part of its regular on going business.

Technology Absorption, Adaptation and Innovation:

The Company keeps innovating, takes all measures necessary to absorb and adapt latest technology.

Foreign Exchange Earning and Outgo in Rs. million:

Earnings in foreign exchange Rs.848.35 (Previous Year Rs.492.74)Expenditure in foreign exchange was Rs.12.42 (Previous Year Rs.130.48)

MANAGEMENT DISCUSSION AND ANALYSIS:

INTRODUCTION:

We began as a television content production company in 1990 and have since developed into an integrated media and entertainment group. Our business can be divided into four segments:

1. Television Content Production, Dubbing and Airtime sales;

2. Movie Production and Distribution;

3. Interactive Media, including console and mobile game development, publishing and distribution and

4. New Media including Web and Mobile which is a very recent addition.

On April 30, 2008, we made a foray into the new media segment by acquiring 100% of UTV New Media Limited ('UNML').

We are planning to make a re-entry into the broadcasting space as a new line of business by subscribing to 75% of the equity share capital of UTV Global Broadcasting Limited ('UGBL'). Simultaneous to our investment in UGBL, The Walt Disney Company (South East Asia) Pte. Limited ('Disney') will also invest in 15% of UGBL's share capital. Our television business is focused on producing television programs for our clients on a commissioned basis and selling commercial air time to advertisers on broadcaster networks in South India. Our movie business is focused on the production of Indian, Hollywood and animated films and the distribution of such films across various platforms, such as theatres, television, cable and home entertainment as well as new emerging platforms. Our interactive media business is focused on capitalising on demand for console and mobile gaming through our in-house game development and publishing business where we have taken the inorganic route to growth by acquiring Ignition, a UK based console game developer & publisher and Indiagames, a Mumbai based online & mobile game developer and publisher. UGBL and its subsidiaries which is the broadcasting group that we are proposing to invest in, has already launched four channels targeted at the different segments of audiences whereas UNML will provide the digital content delivery platform catering to the Web and Mobile initiatives of the Group. UNML recently acquired IT Nation Media Pvt. Limited, a new media company having an IT-focused business model that currently comprises four portals. Techtree.com (a B2C portal), Channeltimes.com (B2B portal for the IT supply chain), CXOToday.com (B2B for IT enterprise buyers) and CXOLinux.com (B2B for IT enterprises).

INDUSTRY OVERVIEW:

The Entertainment and Media industry (E&M) has been growing at a steady rate for the past few years and this trend is expected to continue for a few years. This year we have seen many Indian Companies push the envelope and move beyond national boundaries, the result of which is the emergence of a new cult of media companies, what we could call Indian media conglomerates'. The world at large seems to be taking notice of India's burgeoning media industry in addition to the increased domestic merger activity and heightened interest from the private equity sector. Many new segments, new digital delivery platforms and distribution platforms are emerging leading to increased revenues to the industry.

In 2007, the E&M industry recorded a growth of 17% over the previous year, exceeding the expected 15% that was forecasted last year. Currently the size of the E&M industry is estimated at Rs.513 billion, up from Rs. 438 billion in 2006 and has recorded a Compounded Annual Growth Rate (CAGR) of 19% from 2004 to 2007. Going forward, the industry is estimated to reach a size of Rs. 1,158 billion by 2012 recording a CAGR of 18% over a five year period. (Source: FICCI-PwC Report 2008)

The Indian television industry is expected to grow from the current size of Rs.226 billion to Rs. 600 billion by 2012 recording a CAGR of 22% (Source: FICCI-PwC Report 2008). This growth is primarily due to growth in TV Distribution industry fuelled by increase in PayTV homes and subscription revenues, healthy growth in the content industry due to the exponential increase in the number of TV channels. The dynamics of this industry are ever changing with emerging technologies and platforms like DTH, IPTV and Mobile TV.

The Indian film industry has grown phenomenally over the past four years and is expected to continue growing at a CAGR of 13% reaching to Rs. 176 billion in 2012 from the current size of Rs.96 billion in 2007 (Source: FICCI-PwC Report 2008). We will see domestic box office ruling the pie; however, the relative shares are expected to shift marginally from traditional revenues to emerging streams of revenue like Home video, Television, Music, Internet, etc. The multiplexes are also exploding in the country with an expected 5,000 screens to be up and running by 2012 from the current 1,350 screens and with ticket prices, which are also on the rise, being higher in multiplexes than single screens, we can expect a substantial increase in total box office revenues (Source: FICCI-PwC Report 2008).

The gaming industry in India consisting of mobile, console, online and PC gaming, all of which are still at nascent stages of development, has a potential for phenomenal growth in the coming years. But in the gaming industry, the world is the market which is expected to grow at a CAGR of 9.1% from the current USD 37 billion to USD 49 billion in 2011 (Source: FICCI-PwC Report 2008). Principal drivers of growth in this industry are the new generation of consoles like the Wii, Xbox360 and PlayStation3 launchedrecently. The introduction of consoles with internet capabilities and the growing penetration of broadband will fuel the growth in the online gaming sector.

Looking at the constant changes in technology and emerging streams of revenue due to increased penetration of mobiles, Internet and other handheld devices, it is no surprise that this industry has outgrown the Indian economy and shall continue to do so in the coming years.

Business Overview:

Television:

TV CONTENT:

Our TV Content segment represents the shows produced by us on a commissioned basis. During the year, we provided television content for Hindi channels like Star Plus (Bhabhi), Hungama TV (Hero), Bindass (Sun Yaar Chill Maar and Shakira) and Doordarshan (Soni Mahiwal). We are also looking at inorganic growth in the television content business. To that end, we have entered into two Joint Ventures, one each with Smriti Irani and Shekhar Suman. While we would provide these ventures with the financial and infrastructural muscle, the talent would front the respective JVs and lend creative and relevant business acumen. During the year we also forayed into television production for South Indian market, where we have two shows on air, one on Gemini TV and another on KTV.

AIR TIME SALES:

This business has shown steady growth during the fiscal. During the year, we managed a monthly average of approximately 85 hours of content across all leading South Indian Channels such as Sun TV, Gemini TV, Udaya TV and KTV. During the year, among many other shows, we added Ramayanam, the first ever dubbed show going on air on Sun TV. Currently, the Top 2 slots on Sun TV are managed by us, which includes Kolangal on the top position followed by Arasi. Besides Sun TV, we also have shows running on Gemini TV, KTV and Udaya TV wherein some of our shows feature in the Top 5 list of these channels.

DUBBING:

The Dubbing division today, has a talent bank of over 500 voices across genres and languages. During the year, we provided our dubbing services for television content to large international players like Disney, National Geographic Channel, The History Channel and various other channels including Bindass and Bindass Movies.

Motion Pictures:

Our movies business went from strength to strength during fiscal 2008. During the fiscal the group released the following films:

LIFE IN A METROTHE BLUE UMBRELLADHAN DHANA DHAN GOALATIDHIKENNAMOOCHI YENNADATAARE ZAMEEN PAR (International Distribution)JODHAA AKBARRACE

The following were some of the key highlights of the movies business this fiscal:

* THE BLUE UMBRELLA got the National Award for Best Children's film.

* Launch of UTV Spotboy, our second motion picture brand providing us with range and flexibility across a range of genres, budgets and target audiences and at the same time bring them within the same studio through different brands.

* UTV Mauritius entered into collaboration with Virgin Comics, an entertainment division of Sir Richard Branson's Virgin, to create original superhero franchises for publishing, animation and gaming, targeting India's 550 million teenage audiences.

* Foray into the Telugu film industry, India's second largest film market after Hindi films. UTV Mauritius acquired distribution rights for Telugu Superstar Mahesh Babu's 2008 blockbuster ATIDHI and signed him for another 2 movies.

* Foray into the lucrative Tamil film industry with its first co-production KENNAMOOCHI YENNADA.

* Launched our own music label, UTV Music, which distributed our latest tent-pole production JODHAA AKBAR.

* Our Home Entertainment Division with a strong distribution chain across India, launched some of the best Hollywood and World Cinema titles from the Miramax library which are as much box office hits as critically acclaimed.

* WELCOME, one of the movies released during the year was one of the highest grossing films of calendar year 2007.

* We also successfully released three movies; DHAN DHANA DHAN GOAL, TAARE ZAMEEN PAR and RACE in the attractive Pakistan market which has so far been highly insulated from Indian movie releases.

* Our tentpole production JODHAA AKBAR, the first blockbuster of 2008, was released and has also been dubbed in Tamil, Telugu, Dutch and Arabic. Besides being a blockbuster, it is also the 7th highest grosser in India of all time with the 2nd highest opening ever in USA and Australia.

* Following the success of JODHAA AKBAR was RACE, our second release of 2008 and also the 2nd blockbuster of 2008. RACE has recorded the 2nd highest opening weekend collections of all time.

Interactive:

This business segment comprises Gaming Business through recent acquisitions of Ignition and Indiagames, Animation, Post-Production and VFX activities. It is important to note that the Animation, Post-Production and VFX businesses will not form part of this segment in the following year. This is primarily because, we have strategically decided to move out of animation outsourcing and use our animation facilities for captive movie production. Post Production and VFX business was sold during this fiscal so as to move out of service oriented business model.

This year has been an eventful one for Ignition where it launched Mercury Meltdown Revolution for the WiiTM home video game system. It also published games based on children's beloved character George of the JungleTM and Crayola(R). It closed publishing deals with Playlogic and Marvellous Entertainment to bring key properties like Obscure: The Aftermath, Bubble Bobble and New Zealand Story to North America. The following is a list of titles published by Ignition during the fiscal:

During the year, our subsidiary in UK completed our acquisition of majority stake in Indiagames Limited, thereby giving us strong visibility in the fledgling but high growth mobile and online gaming industry in India and around the globe.

NAME FORMAT TERRITORY

Art of Fighting PS2 EuropeBubble Bobble Double Shot NDS USACrayola Treasure Adventures NDS USAFlipper Critters NDS USAGeorge of the Jungle PS2/Wii/NDS EuropeKing of Fighters XI PS2 EuropeMercury Meltdown WII Europe/USAMetal Slug Anthology PS2 EuropeNeves NDS EuropeNew Zealand Story Revolution NDS USAObscure: The Aftermath Wii/PS2/PC USARainbow Island Evolution PSP USASNK Vs CAPCOM NDS EuropeTeenage Zombies NDS Europe/USA

BUSINESS STRATEGY:

The key elements of our business strategy are as follows:

Innovate and Grow Through Our Integrated Platform of Media Businesses:

Our goal is to become one of the largest and most respected integrated media group by continuing to diversify across various entertainment platforms. We believe that each of our business verticals is a highly scalable business model. We believe in creating quality content across multiple platforms for a global audience, but which also caters to local and regional tastes and sensitivities. We recognise the need to target a relatively younger audience, particularly in a country like India, the demographics of which are heavily skewed towards the youth. Our diversified business model, apart from providing scale, also spreads the risk profile of our overall business.

Television:

Continue to Produce and Market a Wide Array of Television Contentntent:

We believe that continuing to produce a diverse mix of television programs is critical to our ability to cater to a wide array of viewers and mitigate against sudden changes in the preferences of our viewers. We continue to plan to deliver diverse multi-genre and multilingual content across multiple channels. In air time sales marketing, our focus is on improving margins rather than volume building.

Motion Pictures:

Strengthen the 'Studio Approach' to Movie Production and Distribution:

We continue to believe in a 'studio approach' to our movie production and distribution business. This involves having a strong portfolio of movies under production at all times and is achieved by entering into multiple movie contracts with various successful directors and artists to develop and release a line-up of movies aimed at various types of audiences. We believe the 'studio approach' enables us to exploit favorable marketing and distribution arrangements and will allow us to exercise greater control over the creation and capitalisation of intellectual property rights in relation to the movies that we produce. The key elements of our 'studio approach' to movie production include:

a. Maintain Diverse Portfolio of Productions:

We believe a key to our success is maintaining a diverse portfolio of movie productions, including live-action movies in Hindi, English and regional Indian languages, as well as animated movies for the Indian and international market. We believe that maintaining a diverse portfolio will allow us to capitalise on the business potential of these segments and diversify our business risks.

b. Continue to Green light Innovative Movie Concepts:

We believe that innovative concepts in diverse genres will drive the future growth of the movie industry. We plan to focus on large, medium and small budget films across various genres. We believe that small budget films will provide us with the opportunity to introduce new and innovative concepts. With our strong background and experience in movie production, we believe we are well positioned to deliver these new and original movie concepts.

c. Establish Multiple Movie Arrangements with Talent:

We believe that building and enhancing relationships with global studios, international production houses and leading Indian and international talent will enable us to increase our operations both in India and in Hollywood.

d. Leverage Distribution Capabilities through Vertical Integration:

In order to leverage our movie distribution capabilities, we will continue to fully integrate our marketing and global distribution business with our movie production business. We believe we can fully capitalise on the movies we produce by successfully distributing such movies across a wide array of distribution platforms, such as theaters, home entertainment products, merchandising, and content on mobile phones.

Diversify Into Producing International and Indian Regional Movies:

We believe in continuing to expand into the international marketplace rather than being restricted in producing only Indian movies. Our co-production of Hollywood movies is evidence of this as we have been associated with well regarded media companies in the United States, such as 20th Century Fox and Fox Searchlight. These relationships have facilitated our access to enhanced marketing platforms and larger financial commitments while reducing the overall risk associated with exploring international markets. The movie industry in South India, including movies made in languages such as Tamil, Telugu, Kannada and Malayalam, is the second largest movie industry in India, collectively delivering approximately 587 movies a year. In addition, many movies from South India are dubbed into other languages, such as Hindi, which enables them to reach an even wider audience. Due to the popularity of South Indian movies, we intend to ensure that we obtain a firm foothold in this industry.

Retain all distribution rights over content:

Our strategy is to continue to focus on the production, or co-production, and distribution of our own movies. We believe that movie production entails fewer risks than having a distribution only model due to the wide array of distribution platforms that are available to us when we produce our own movies. Producing our own movies allows us to utilise our intellectual property rights over such movies and capitalise on multiple distribution channels such as music, home video, television rights, new media and merchandising rights. Alternatively, we are not averse of acquiring movies provided they are available to us for exploitation across multiple platforms and for long period of time.

Broadcasting Develop Unique and High Quality:

Broadcasting Content:

Through our proposed investment into UGBL, we intend to focus on developing broadcasting entertainment that caters to various target segments of India's population. UGBL has launched two youth-oriented broadcasting channels, Bindass and Bindass Movies which target 15 to 34 year olds, India's fastest growing demographic segment, and two movie channels UTV Movies and World Movies. By focusing on niche subsets of entertainment, we believe we can keep broadcasting costs down and capitalise on the high demand in India for higher quality broadcasting content. We also plan to adopt a research-oriented approach to developing broadcasting content which we believe will lead to attracting and retaining viewers and allow us to constantly adapt to such viewers' evolving tastes in television content.

Interactive:

Evaluate Opportunities for Growth in the Console and Mobile Gaming Industry:

During fiscal 2007, we acquired a controlling stake in Ignition that undertakes in-house game development for consoles as well as worldwide distribution of games. We also completed the process of acquiring a controlling interest in Indiagames Limited during the current fiscal. We believe that our acquisition of Ignition and Indiagames will drive our growth in the interactive media business segment. We will also continue to evaluate new opportunities for growth within our business and in the interactive gaming industry generally.

Focus on Creating Intellectual Property Rights over the Gaming Content we develop:

We have in the past been focused on developing animation for clients, which provides us with a stable revenue stream but does not allow us to retain intellectual property rights over the animation we develop. With our state-of-the-art animation studio, we believe we can begin our own in-house large-scale animation projects which will provide us with certain advantages, such as allowing us to retain certain intellectual property rights over the animation content we produce and integrating our animation production capabilities with our various distribution platforms.

In gaming too, the focus is on development rather than just publishing. In Ignition at present, for example, we are in the process of developing three original Intellectual Properties Wardevil, Reich and Angelic, for various platforms. Original IP in gaming not only gives us the flexibility of exploitation worldwide through multiple platforms but also allows us the option of developing and publishing sequels.

New Media:

Monetise in-house and acquired content through Web and handheld platforms:

Besides the website UTVi.com, UNML has plans of working in tandem with the Bindass, UTV Movies and World Movies channels to set up entertainment portals showcasing and monetising their content. However, UNML is not only restricting itself to the in-house content available within the Group.

It is also looking at other sectors of entertainment and leisure which can be deployed over the web and handheld devices. Besides servicing our entire network on Web and mobile domain, it is also simultaneously forging content/ecommerce tie ups with other established portals. On the mobile front, it is also contracting various catalogues from the South Indian and other regional spaces. With ITNation, UNML has got access to an interesting vertical like technology but with an entertainment focus where it shall explore the inherent synergies between its own operations and the Group's various businesses. IT Nation also brings along excellent IT support and infrastructure to the existing UNML businesses along with management with extensive experience in the Web domain.

OPPORTUNITIES AND THREATS:

We currently operate in a highly competitive and dynamic industry. In India, the media and entertainment industry is growing much faster than the growth of the economy. One needs to be quick at spotting opportunities and converting them into success stories. We believe that with the breadth of the businesses that we have developed over the last few years, we are well positioned to ride the growth story in the media space not just in India but also globally.

We look at the World as a marketplace and tapping that marketplace is a huge opportunity for us. We are taking strides in that direction through our foray into Hollywood and through our entry into the gaming business.

In the Movies distribution business, the rapid growth of multiplexes and digitisation of movie halls is presenting us with the opportunity of reaching wider audiences in the first weekend itself. This is changing the economics of the film distribution business. Changes such as these help film makers work with greater creative freedom given the ability to work with larger budgets. The flipside to this is that costs of production in general and star prices in particular are on the rise and this calls for some degree of caution on the part of film makers. We also believe the revolution in home video is still in the making and lots will change in the areas of new media exploitation as well.

The television space is highly fragmented and we expect some consolidation to take place on that front. The mushrooming of broadcasting channels in India gives us a great opportunity to make the most of.

Further, fragmentation of audiences and growth of two TV households will increase the demand for innovative, specialised programming. Audience preferences, fickle as they are, are the biggest threat to this business. It is essential to be ahead of time in this business rather than being a follower. Innovation cannot be sporadic; it has to be continuous.

Gaming is a multi billion dollar industry worldwide and we are at present, barely a drop in this large ocean. Both Ignition and Indiagames are looking at the world as their markets rather than being restricted to any particular region. Gaming in India is growing at phenomenal rates and Indiagames is well positioned to capture a good chunk of that growth. Online gaming is another huge opportunity, particularly in Asian economies and that is definitely something we will closely monitor in the near future.

While new and addressable technologies like Conditional Access System (CAS), Direct-to-Home (DTH) and Internet Protocol Television (IPTV) provide opportunities for broadcasters, due to the regulatory environment surrounding these areas, any delay or change in the implementation of these can prove detrimental to our broadcasting plans. The single biggest threat in this segment would come from the large number of players, both existing and new, with fairly deep pockets, which are capable of changing the dynamics of the business, at least in the short term.

Considering the integrated business model that we have put together in the recent past, the biggest opportunity for us is to cross leverage the power of these businesses with each other. While each of these businesses in themselves are capable of substantial scale up, achieving optimal synergies between these businesses can take us to a different scale altogether.

The business of media and entertainment is all about creativity, people being at the centre of that. With the amount of money that is being offered, manpower retention is one the biggest challenges for any manpower intensive business.

HUMAN RESOURCES:

We seek, respect and value the diverse qualities and background that our people bring to the table and are committed to utilising their richness of knowledge, ideas and experience that this diversity provides. The work environment is stimulating and development of core competencies through formal training, job rotation and hands on training is an ongoing activity. We have built a resource base of crossfunctional managers to take care of multi dimensional businesses.

We have been able to attract the best talent from around the industry for our existing and new business initiatives and for taking us to the next level of growth. As at March 31, 2008, we, along with our subsidiaries, had 827 full time employees, long-term professional associates and animation talent, the business wise classification of which is given in the table along side.

Motion Pictures 64Television 46Interactive 631Corporate 86TOTAL 827

FINANCIAL OVERVIEW:

CONSOLIDATED RESULTS OF OPERATIONS SOFTWARE COMMUNICATIONS LIMITED:

Revenues:

The Company reported a growth in consolidated operating revenues of Rs.2,593 million to Rs. 4,342 million from Rs. 1,749 million reported in the previous year, due to increase in the scale of all the three segments of our business - Television, Movies and Interactive.

Revenues in the Television segment increased from Rs. 767 million in the previous year to Rs. 1,006 million in the current year, an increase of 31%. This was primarily due to the growth in the level of activity in the television business.

The Movies segment reported an increase in revenues from Rs. 721 million in the previous year to Rs. 2,424 million this year, mainly due to the increase in the number of movie releases during the year. Our Movies business has started to realise the benefits of our IP focus and studio model approach and the level of activity has increased substantially following the IPO in London Stock Exchange under AIM.

During the year, the results of the Interactive segment included consolidated financials of Ignition for the full year and financials of Indiagames for the period December 14, 2007 to March 31, 2008. This segment also includes the results for the Post production and VFX business for a part of the year. The Post production and VFX business was sold to Prime Focus Limited, during the third quarter of the year. During the year, the interactive segment reported an increase in revenues of 249% from Rs. 274 million in the previous year to Rs. 956 million, primarily due to the consolidation of Ignition and Indiagames.

Other Income:

Other Income for the year was Rs.116 million as against Rs. 283 million (which included Rs. 263 million as profit on sale of the entire shareholding in the associate company, United Home Entertainment Limited ('UHEL'), to The Walt Disney Company (South East Asia) Pte Limited) in the previous year.

Direct Costs:

Direct costs incurred during the current fiscal are Rs. 3,047 million as against Rs. 1,299 million in the previous year, an increase of 135%, which is a result of increase in the level of activity of the Company. Direct cost as a percentage of operating revenues was at 70% compared to 74% in the previous year.

Staff Costs:

The staff cost of the Company has increased by 60% from Rs. 161 million in the previous year to Rs. 258 million during the current year. This is primarily due to the consolidation of Ignition and Indiagames and also due to growth in the movie business overseas.

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. 389 million compared to Rs. 218 million in the previous year showing an increase of 78%. This was mainly due to the consolidation of Ignition and Indiagames into the consolidated results of the Company and the increase in the scale of operations of the other businesses more so movies business overseas.

Interest Cost:

During the year, the Company's borrowings increased by Rs. 1,060 million compared to previous year. The increased borrowings was used to fund the expansion activities of the Company and resulted in interest costs being high at Rs. 183 million compared to Rs. 73 million during the previous year. The Company received Rs. 123 million by way of interest income and

the net interest cost for the year was at Rs. 60 million. In the previous year, the Company earned interest income of Rs. 57 million against an interest outgo of Rs. 73 million which resulted in a net interest expense in the previous year of Rs. 16 million.

Depreciation:

The depreciation charge for the current year was Rs. 39 million as compared to Rs. 31 million in the previous year. This increase was primarily due to the consolidation of Ignition and Indiagames.

Profit before Tax:

The Profit before Tax for the year increased by 116% from Rs. 307 million in the previous year to Rs. 664 million in the current year. This increase in profit is due to both the increase in the turnover and the increase in operating margins.

Provision for Taxation:

During the year the total Provision for tax was Rs. (113) million as against Rs. (163) million during the previous year. The provision for tax during the current year is negative primarily due to deferred tax assets being created on account of past consolidated losses in Ignition and its subsidiaries.

Profit after Tax and Minority Interest:

The Profit after Tax and Minority Interest for the year was higher at Rs.577 million against Rs. 463 million in the previous year. This was primarily due to increase in the revenues and better operating margins.

CONSOLIDATED FINANCIAL POSITION:

SOURCES OF FUNDS:

Share Capital, Revenues and Surplus: The Equity Share Capital of the Company increased from Rs. 229 million to Rs.248 million due to the conversion of 1.9 million warrants earlier issued to the Promoters into equity shares. The consolidated Reserves and Surplus increased from Rs. 1,547 million to Rs.4,324 million, an increase of Rs.2,777 million.

Loan Funds:

The Company's borrowings increased by Rs. 1,060 million, up from Rs.1,637 million in the previous year to Rs.2,697 million in the current year. These increased borrowings were being used to fuel the growth of the Company.

UTILISATION OF FUNDS:

Fixed Assets:

Gross Fixed Assets as on March 31, 2008 were at Rs. 485 million (excluding Goodwill on consolidation) as against Rs. 525 million on March 31, 2007. This reduction is gross fixed assets is primarily due to the sale of the post production and VFX business during the year.

Goodwill on Consolidation:

During the year the Company acquired Indiagames Limited. The consolidation of this Company primarily resulted in an increase in the Goodwill on Consolidation from Rs. 451 million in the previous year to Rs. 708 million in the current year.

Investments:

The Company had investments of Rs. 171 million at the start of the year. Investments as on March 31, 2008 were negligible at Rs. 1 million showing a decrease of Rs. 170 million. The liquid investments that were held by the Company at the start of the financial year were liquidated during the course of the year and the proceeds were used to fund the expansion needs of the Company.

Current Assets, Loans and Advances:

Total current assets, loans and advances increased by Rs. 6,024 million during the year, up from Rs. 3,285 million in the previous year to Rs.9,309 million. Debtors (net of provisions) as on March 31, 2008 were at Rs.1,538 million representing 129 days of sale as against Rs. 465 million as on March 31, 2007 representing 97 days of sale. During the year, inventories have more than doubled to Rs. 4,056 million from Rs. 1,637 million in the previous year. This was primarily due to increase in level of activity in the Movies and Interactive businesses. Loans and advances have increased by Rs. 2,501 million during the year, primarily due to an increase in loans made towards the broadcasting business and due to the increase in level of activity of the other businesses. Cash and Bank balances have increased marginally from Rs. 685 million as on March 31, 2007 to Rs. 714 million as on March 31, 2008.

Current Liabilities and Provisions:

Current Liabilities has shown an increase of Rs.1,441 million. This is primarily due to an increase in Creditors and other liabilities resulting from an increase in the level of activity.

Overall, net current assets have increased by Rs. 4,584 million over the previous year primarily due to increase in the scale of operations as compared to the previous year.

Net Deferred Tax Asset/Liability:

Net deferred tax assets at the year end was at Rs. 260 million compared to Rs.135 million in the previous year. The higher deferred tax provision has accrued primarily due to the deferred tax assets being created on account of past losses in Ignition and its subsidiary.

SEGMENTAL PERFORMANCE:

During the fiscal year 2007-08, the business of the Company was broadly categorised into the following three segments:

Television:

Revenues from the television segment increased by 31% from Rs. 767 million in the previous year to Rs. 1,006 million during the year primarily due to the growth in the scale of operations of the television business. Along with an increase in revenues, there was also a substantial improvement in margins from about 6.5% in the previous year to 18.2% during the current year. The segment reported a profit of Rs. 183 million as compared to Rs. 50 million in the previous year.

Motion Pictures:

The Movies segment reported an increase in revenues of 236% from Rs.721 million in the previous year to Rs. 2,424 million this year, mainly due to an increase in the number of releases during the year and due to an increase in revenues earned from syndication of rights. The Movies business reported a profit of Rs. 480 million [margins of 19.8%] during the year against a profit of Rs. 37 million [margins of 5.1%] during the previous year.

Interactive:

During the year, the results of the Interactive segment included consolidated financials of Ignition for the full year and financials of Indiagames for the period December 14, 2007 to March 31, 2008. This segment also includes the results for the Post production and VFx business for a part of the year. The Post production and VFx business was sold to Prime Focus Limited, during the third quarter of the fiscal. During the year, the interactive segment reported an increase in revenues of 249% from Rs. 274 million in the previous year to Rs. 956 million, primarily due to the consolidation of Ignition and Indiagames. The profit from the interactive segment increased from Rs. 91 million during the previous year to Rs. 114 million during the current fiscal.

Revenue Contribution:

Motion Pictures 55%Interactive 22%Television 23%

Profit Contribution:

Interactive 15%Television 24%Motion Pictures 61%

CORPORATE DEVELOPMENTS DURING THE FISCAL AND DEVELOPMENTS POST BALANCE SHEET DATE:

1. Acquisition of Indiagames, a Mumbai based mobile & online gaming company:

On December 14, 2007, we completed our acquisition of Indiagames which develops & publishes their games in over 67 countries around the world with more than 150 relationships with wireless operators and channel partners. This acquisition has gives us a strong foothold in the rapidly growing mobile games industry, which in India, is growing exponentially.

2. Sale of Post:

Production Business:

In the third quarter of the fiscal, we sold our interest in the Post Production and VFX business to Prime Focus Limited With an objective of focusing on businesses which cater to the end consumer and allows us to be on the top end of the value chain, we decided to exit this service oriented business.

3. Increase in Strategic stake by Disney:

On February 16, 2008, we announced the increase in Disney's stake from the current 13.7% to 32.1% of the fully diluted equity. The key terms of the transaction are given below:

a. Preferential allotment to Disney through subscription of 9,352,500 shares for investment of approximately Rs.8,050 million (~USD 203 million).

b. The Promoter Group consolidated its shareholding - investment through subscription of 4,532,000 equity shares through 4,532,000 warrants for around Rs. 3,900 million (~USD 98 million).

This maintains Promoter shareholding equal to Disney at 32.1% on a fully diluted basis.

c. The transaction including the preferential allotment and the subsequent Open Offer will consummate at Rs.860.79 per share.

d. Additionally, Disney invests approximately Rs. 1,190 million (~USD 30 million) for 15% stake in UTV Global Broadcasting Limited, at an enterprise value of Rs. 7,930 million (USD 200 million).

e. Total Fund Infusion of approximately Rs. 13,140 million (~USD 331 million):

This is by far, the largest strategic deal ever by a foreign investor in the Indian Media and Entertainment Industry. We have received necessary statutory approvals for Disney's investment into the Company and that leg of the transaction was consummated on May 09, 2008. The UGBL leg of the transaction is still awaiting regulatory approvals.

4. Proposed foray into Broadcasting:

After the success with HungamaTV, we are planning a foray into the broadcasting space once again, this time by investing into UGBL, which has already launched a bouquet of four channels i.e. Bindass, Bindass Movies, World Movies and UTV Movies. Simultaneous to our investment into UGBL, Disney will also invest in UGBL for a 15% stake.

Brand Bindass is India's first 36% Entertainment Brand for young India. Bindass and Bindass Movies are targeted at the age group 15-34. While Bindass is a mix entertainment across genres - comedy, action and thrillers, Bindass Movies is a unique concept which features bindass' movies from across the globe [including the best of Hollywood dubbed (bindassified') in Hindi].

The World Movies channel, featuring the best of international movies, broke into the Top3 in English entertainment space within 5 weeks of launch. Equipped with a great library of international films, the channel offers a range of genres like, drama, suspense, thrillers, award-winning family movies, Japanese horror, Asian action, besides of course, Hollywood fare. The focus is on contemporary, commercially successful films in various languages, subtitled in English. UTV Movies features the best of Hindi movie fare, complete with the latest blockbusters, exclusive access to behind the scene footage, deleted scenes and much more.

UGBL has also successfully built its own distribution platform for all its channels ground up by providing placement, connectivity and reach to all of these channels since launch.

5. Foray into New Media (Web and Mobile):

We have recently forayed into horizon businesses like Mobile and Web which are still at nascent stages of development in India. UNML, our 100% subsidiary since end of April 08 will leverage the Group's synergies in Entertainment, News and Current Affairs for digital/handheld platforms.

UTVi.com, an internet portal is currently operated and managed by UNML. With a team strength of 26, it is independently exploring other segments beyond Group businesses like Gadgets, Consumer Electronics, Travel, etc. where it has recently acquired ITNation, a technology info-mediary in India which has an ITfocused business model consisting of four portals:

a. Techtree.com: B2C Portalb. Channeltimes.com: B2B for supply chainc. CXOToday.com: B2B for enterprise buyersd. CXOLinux.com: B2B for enterprises

Having the best revenue share distribution arrangements with telcos in India, UNML is aggressively acquiring content for the mobile space. The first venture on this platform was our tent pole production of 2008, JODHHA AKBAR.

RISK FACTORS:

1. We operate in a highly competitive environment that is subject to innovations, changes and varying levels of resources available to each player in each segment of business.

2. Certain parts of our business like production of television content and dubbing are highly fragmented with competition ranging from other organised large players to smaller unorganised ones.

3. Our business depends upon us creating a successful product line. Acceptance of our films, television programming and games by the public is difficult to predict, which could lead to fluctuations in revenues and profitability.

4. Our business of film production and distribution involves high level of risks. Certain factors could adversely affect our business including, but not limited to escalating costs of the movies we produce and delays in movie production schedules.

5. Most of the activity undertaken by us is creativity driven and our long-term profitability is dependent on our ability to attract and retain creative and technical talent.

6. Our business is significantly regulated and segments of media and entertainment changes in regulations could adversely affect our operations.

7. We are proposing to enter into the Broadcasting space where we will be competing not only with established players having deep pockets but also recent entrants and a whole host of new players planning a foray into the space. We believe that there are risk factors inherent to such a new venture, such as competitive risk and the risk of unpredictability in viewer reactions.

8. The success of our proposed broadcasting and airtime sales businesses depends on the amount of income we earn from advertising, which could decline due to a variety of factors including, but not limited to, the popularity and commercial success of our programs, the state of our competitors or even general economic conditions.

9. The broadcasting business is subject to extensive regulation by the government of India and our failure to comply with such regulations could have an adverse effect on our business.

FORWARD LOOKING STATEMENT:

In this Annual Report, we have disclosed forward-looking information to enable investors to comprehend our prospects and take informed investment decisions. This report and other statements - written and oral - that we periodically make, contain forward-looking statements that set out anticipated results based on the management's plans and assumptions. We have tried wherever possible to identify such statements by using words such as anticipate', estimate', expects', projects', intends', plans', believes', and words of similar substance in connection with any discussion of future performance.

We cannot guarantee that these forward-looking statements will be realised, although we believe we have been prudent in assumptions. The achievement of results is subject to risks, uncertainties and even inaccurate assumptions. Should known or unknown risks or uncertainties materialise or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Readers should bear this in mind.

We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise.