MANAGEMENT DISCUSSION & ANALYSIS

INDIA MEDIA AND ENTERTAINMENT INDUSTRY

2014 has been a turning point for the Indian Media and Entertainment industryin many ways. With the current's government optimistic outlook, business sentiments have been positive and strengthened by a number of growth promoting policy initiatives taken in recent months.One of the key highlights of 2014 was announcement of 'Digital India' program by the government — A program to transform India into a digitally empowered society and knowledge economy. The building blocks for future growth have been put in place in 2014 by offerings such as new spectrum for mobile, ongoing digitisation in cable, focus on prividing fast internet and Phase III auctions for radio. 2015-2016 is expected to be a defining year for media and entertainment industry in India.

• As per KPMG analysis domestic Media and Entertainment Industry is expected to grow from INR1,026 billion in 2014 to reach INR1,964 billion, at a 14% CAGR over FY14-19 period.

• As per MPA analysis, total pay-TV subscribers are expected to reach 165 million by end of 2018 and 180 million by end of 2023 .

• As per MPA analysis, broadband internet subscribers are expected to reach 57 million by end 2023 from 15 million in 2013; and fixed broadband subscribers are expected to grow to 20 million from 14 million in the same period

Digitial India — Broadband Opportunity for Cable MSOs

In 2014 India topped as the world's fastest growing smartphone market. Fuelled by the availability of low-cost smartphones and dropping data plan tariff the absolute number of internet connections is at a record high, but overall internet penetration stands at about 12%, which is still lower compared to internet penetration across other countries. (Singapore 81%, Hong Kong 80%, Russia 62%, Brazil 52%, Mexico 43%, World Average 39%).

India ranks poorly at #125 with just about 1% fixed broadband internet penetration (compared to 10% globally, 9% in Brazil, 15% in Russia, 32% in Hong Kong, 26% in Singapore) and internet users are brdominantly on low speed network (<512 KBPs). India's poor rankings in world of fixed internet, poor penetration ratio and low speed internet offerings provide huge growth opportunities for cable MSOs.

Cable or the wired platform has the capacity to provide double-play services of video and high-speed broadband internet. MSOs have started increasing their efforts on leveraging cable infrastructure to capitalize on the potential for broadband growth and opportunity. Of the 252million internet connections in India, only 15million are on wire-line out of whichcable has ~5% share. Increased focus on broadband can tap significant latent demand in the home broadband segment for the MSOs.

Globally, DOCSIS is the brdominant technology used for cable broadband and has higher speed and lower investment advantage over DSL. Currently, DSL is the primary technology in India, accounting for ~70% of fixed broadband connections in 2014. This could change significantly, if MSOs get their broadband plans effectively implemented, given that the last mile infrastructure is largely in place for cable broadband, while telecom companies have to invest heavily in fiber to be able to provide speeds comparable to that of cable broadband.

As per MPA analysis, cable's share of the fixed broadband market is expected to grow from 6% in 2013 to 13% by 2023.

Digitial India — Digitization Driving  Transformation in the Cable Television Ecosystem

Television remains to be vital part of Indian Media and Entertainment (M&E) industry and constitutes around 45% of the M&E industry. India's televisionindustry is at an important inflection point with digitalization, investment and consolidation set to boost value creation acrossthe ecosystem, benefiting all stakeholders.

Indian cable industry is fragmented one with about 6,000 MSOs. However, the DAS implementation has led to start of an era of consolidation. Currently, the Top 5 MSOs control about 50% of the industry share. With phase 3 and 4 on cards, further consolidation is expected to happen in next 2 years following the global trends (top 5 players control 85% market in USA, top 4 control 80% in Taiwan, Liberty controls 95% in UK, top 3 control 63% in Japan)

Digitization was an important step in process of providing transparency in the television value chain and to faciltate better monetization: The rollout of digital cable STBs in DAS Phase 1 and 2 markets were largely achieved in calender year 2013. The Ministry of Information and Broadcasting extended the deadlines for DAS Phase 3 and 4 implementations from the earlier combined deadline of December 2014 to December 2015 and December 2016 respectively. The deadline extension has provided enough time for MSOs and LCOs to streamline DAS phase 1 and 2 and to roll out the implementation of STBs in DAS phase 3 and 4 markets including STBs procurement, setting up digital headends, signing of agreements with broadcasters, and implementing channel packages.The fiscal year 2014-15witnessed thecompletion of KYC form and consumer data for B2C billing readiness billing, thereby moving to sharing of subscription revenues among the television value chain.

HD to Contribute in Subscription Revenue Growth:

The pay-TV subscription revenues are expected to grow at a 2013-2018 CAGR of 11% with packages roll out across pay-TV platforms. The demand for HD channels and ad-free brmium HD channels are also expected to contibute to growth in subscription revenues. Currently, there are about 50 HD channels available in India. Of the 8 million panel televisions sold in India in 2014, approximately 50% were HD

TVs and the number os expected to increase to 80% by 2019. Moreover, the fact that DTH and cable operators are more than happy to increase their HD bouquet, the growth story for HD viewing and consumption in India has only just begun.

Digital cable subscribers are expected to reach to 904 million by end of 2019, up from 29 million at end  of 2014. The major increase will take place at end of 2015 and 2016 when phase 3 and 4 gets implemented respectively. Also, the penetration of digital cable subscribers in total Pay TV Subscribers is expected to go to54% by end of 2019 form 19% in 2013.

Transformation in MSO Operations — On a Journey to shift to B2C from B2B

With rescheduling ofdigitization in DAS Phase 3 and 4 markets, MSOs have spent considerable part of FY'14 in stabilizing their operations in DAS phase 1 and 2 markets, increasing revenues and realizations, and strengthening the relationships with LCOs. Currently, the large national MSOs are in process of establishing internal processes in order to make a shift from B2B to B2C business. MSOs are investing in technology to improve addressability (to track addressable active STBs) and collections at LCO Level.

TRAI on MSO and LCO Agreements

TRAI has formally written to all MSOs, in May 2015, with a list of new rules to be followed strictly. The list of rules requires MSO and LCO to have clear written agreements in place and which conform to TRAI's interconnect agreements, with clear start and finish dates, revenue shares stated, settlement terms, processes for handling customer complaints, processes for inter-company disputes, and so forth. A copy of the agreement is required to be lodged with TRAI within 15 days and a receipt obtained. TRAI warns that its list of requirements must be observed, and signals cannot be delivered to LCOs without an agreement in place.

DEN Networks Ltd. — A Brief

DEN was established in 2007 to provide cable network and services to consumers across India and soon became one of the top cable MSOs in the country. On the journey to tap the opportunity in 'Home Entertainment' and to become a B2C powerhouse, DEN enhanced its product portfolio offering high speed Broadband services with a vision to provide bundle services to its customers. Recently the company has diversified itself into new businesses and forayed in Soccer and TV Commerce business.

As your company, DEN, tries to transform into a B2C organization from B2B, the company has hired key managerial people in 2014-15 with backgrounds in TMT and consumer companies, marketing and consulting.

Cable Business

DEN Networks is India's largest cableTV distribution company serving 13 million homes in over 200 cities. The company has been a frontrunner in the digitization of Indian cable television and has over 7 million digital subscribers.

DEN's geographic footprint spans 13 key states across India including Delhi, Uttar Pradesh, Karnataka, Maharashtra, Gujarat, Rajasthan, Haryana, Kerala, West Bengal, Jharkhand, Madhya Pradesh, Uttarakhand and Bihar. The company has a significant brsence in the strategic & economically important

Hindi Speaking Markets (HSM) belt.

DEN has an estimated analog base of 6 million homes in its Phase 3 & 4 markets which needs to be converted into digital. The Company is well positioned and capitalized to meet the deployment requirements of its existing subscriber base in these cities.

BROADBAND BUSINESS—SUPERFAST DEN BOOMBAND

DEN soft launched its super-fast cable broadband internet services on DOCSIS 3.0 technology in FY'14. The offering offers plans up to speeds of 100 Mbps. The service is currently available in parts of Delhi NCR.

DEN broadband services achieved330,000 homes passed as on 31st March 2015. The benefit of conversions out of the network rollout will come in the following quarters. The company currently has a subscriber base of 23,000 at the end of FY'14-15 and about 40% of the new broadband subscribers come from Non-DEN homes.

DEN SNAPDEAL TV SHOP — GIVING A NEW PERSPECTIVE TO TELEVISION

COMMERCE

DEN entered into a 50:50 JV with e-commerce major, SNAPDEAL and forayed into TV Commerce business leveraging DEN's strengths in distribution and media and SNAPDEAL's strength in brand, merchandising and logistics. The JV is currently converting +30% of the calls received and is clocking an annualized GMV of INR 115 Crores (at Mar'15 average booked GMV rate) within 2 quarter of beginning

TV Commerce business has a reach of 25 million homes and shipping more than 1,300 orders per day (based on Mar'15 numbers).

DELHI DYNAMOS FC; REDEFINING

FOOTBALL CULTURE IN NORTH INDIA

DEN forayed into football business and bought Delhi Dynamos of ISL with the strategic intent of strengthening our consumer brand. Delhi Dynamos FC is one of the most popular teams of the ISL with a fan base of over 419,000 on Facebook and over 30,000 Twitter followers.With the introduction of Delhi Dynamos FC, DEN aims to become the default destination for entertainment, information and interactivity for the Indian family.

SCOT ANALYSIS

Strengths:

• Largest Cable MSO in India with more than 13 Million subscribers across 200 cities

- Serving more than 7.7% of TV homes in India

- Dominant Player in Key Phase 1 and 2 Markets with 25% market share (on basis of subscribers)

• Integrated service and product portfolio covering cable, data (broadband) and shopping (TV Commerce)

- One Stop Shop for Home Entertainment

• Skilled workforce with an experienced management team

Challenges

• Poor Infrastructure in Phase 3 and 4 Markets pushing costs of operations

- Continuously innovating and investing in greaterreach

• Increasing capex network costs

- Continuously upgrading network infrastructure

• Large number of subsidiaries to manage

Opportunities

• Phase 3 and 4 Digitization

- With 6 Million Analog customers in phase 3 & 4 areas, have an excellent opportunity to convert them to digital customers making it the biggest digital subscribers MSO in India

• Increasing Cable TV Penetration

- Digitization Changing the Cable Industry, Digital Cable Subscribers to Reach to 54% of the Total Cable Subscribers by end of 2019 from 19% in 2013

• Untapped fixed broadband market in India

- Low Fixed Broadband Penetration in India (1% compared to 10% globally)

- Target of achieving more than 1Million Homes Passed by end of FY'16

Delay in Implementation of Phase 3 and 4

Increasing Competition

- New players entry in Cable services

RESULTS OF OPERATIONS

Consolidated Financial Highlights

Consolidated revenues increased INR 13 Crore in the year to reach INR 1,130 Crore for the year ended 31st March 2015. On a like to like basis (i.e. excluding the LCO share) DEN recorded revenues of INR 1,067 Crore in FY14-15 vs INR 1,082 Crore in FY'14. The decline in revenues was primarily on account of discontinuation of distribution business by Media Pro (Joint Venture between Star DEN and Zee) in FY'15 where company generated revenues of INR 19 Crore in FY'15 compared to INR 57 Crore in the earlier year. The decline was partially offset by increased revenues from broadband and from new businesses including TV Commerce and Soccer. Consolidated EBITDA lowered to INR 92 Crore in FY'15 vs INR 302 Crore on account of 25% increase in content costs in cable business and due toinvestment phase in cable DAS 3 and 4 markets, broadband, and new businesses, soccer and TV commerce, resulting into losses. The decline in PBT was on account of lower EBITDA and increased debrciation costs, partially offset by increase in treasury income. Debrciation and Amortization costs were higher by INR 39 Crore or 26% over the last year costs of INR 147 Crore.

All these factors lead a net loss of INR -144 Crore vs INR 38 Crore in the earlier year. However, the company reported a positive Cash PAT (Net Income plus Debrciation) of INR 42 Crore in FY'15.

The capital expenditure for the full year FY'15 was INR 304 Crore including INR 244 Crore on cable business and INR 57 Crore on broadband business.

Liquidity and Funding

As on 31st March 2015, the Company had cash and cash equivalents (including short term and liquid investments) of INR 934 Crore. During the year ended 31st March 2015, the Company generated operating cash flow of INR 61 Crore. The net debt as on 31st March 2015 was INR 62 Crore only. The company was graded in 'A' category for long term and A1 for short term with a 'Stable' outlook by the credit rating agency ICRA.

Cable Business Financial Highlights

The year saw the delay in implementation of DAS Phase 3 and 4 to 31 December 2015 and 31 December 2016 respectively. However, continuing with plans to digitize the analog cable subscriber base, DEN seeded additional one million STBs in FY'14-15.This takes the digital subscribers base of the company to 7 million out of a total 13 million subscribers. The company also remained focused on improving subscription revenues and net realizations in DAS 1 and 2 cities which resulted in 33% increments in subscription revenues per box in DAS 1 and 2 Markets. The Blended Revenue per Box (Billing Less

Applicable Taxes) in DAS 1 and 2 markets increased from INR 58 in FY'14 to INR 77 in FY'15. By the end of the year, 9 cities of DAS markets generated net realization (Collection Less Taxes) of more than INR 80 per STB in Q4 FY'15 compared to 3 cities in year ago period.

Cable business revenues increased 3.5% in FY'15 to INR 1,093 Crore from INR 1,055 Crore in last year. On a like to like basis (excluding LCO Share) revenues increased by 0.9% in FY'15 to INR 1,030 Crore vs INR 1,021 Crore last year. Revenues excluding activation income and LCO Share increased 11.5% to INR 966 Crore in FY'15 from INR 866 Crore in FY'14. The increase was driven by 25% jump in subscription income in FY'15 to INR 459 Crore from INR 368 Crore in earlier year. Subscription income contributed 48% of total revenues (excluding activation) in FY'15 compared to 42% in FY'14. The detailed breakup of revenues is as below:

EBITDA for the cable business declined to INR 187 Crore in FY'15 compared to INR 301 Crore in earlier period due to 25% increase in content costs (CPS impact of Star and ZEE etc.) and increase in lease line costs, cable network and maintenance expenses and other operational cost due to investments in DAS phase 3 and 4 markets where the company will start generating money post sunset dates. The company witnessed EBITDA Margin (excluding activation) of ~20% in phase 1 and 2 markets despite a significant brssure on content cost from broadcasters.

HUMAN RESOURCE MANAGEMENT

A pool of committed and motivated employees is the most important asset to an organization. Conforming to this, in the past year the company has seen rapid growth in terms of recruitments. Professionals from diverse fields including Technology, HR, Operations,and Finance, Accounting, Marketing, Research, Technical and Administrative functions are being recruited. DEN has adopted HR policies focused on the long term development and retention of its human capital keeping in mind the company's expanding scope of operations across the country.

Recruitment

Vast growth in the cable business along with diversification of the company into new verticals; especially broadband has seen a huge demand for talented individuals in the organization. Along with retaining its current employees, the company undertook major recruitment drives taking the total employee count to over 1,000. Employees are recruited with a vision of creating synergy and ensuring great dynamics in the workplace.

Training & Development

With the company's expanding scope of operations, training and development has an even more vital role to play. DEN continues its endeavor to enhance its human resource capability by investing heavily in skill development and training of its employees along with various employee engagement initiatives. The company has tied up with leading business schools in India for exclusive deals on higher education for DEN employees and their families.

Rewards & Recognition

DEN has taken various initiatives to improve employee productivity and efficiency by providing enriched jobs, opportunities for career growth and other incentives. The company has a combrhensive remuneration policy that is competitive and in consonance with industry best practices. Rewards and Recognition programs like awarding the 'Star of the Month' to top performers ensures that employee morale and confidence remain high. The Company has a management system in place which aims to align the performance of its employees with the organization's objectives.

Employee Engagement and Welfare Activities

DEN acknowledges the fact that the productivity of the company is directly proportional to the productivity of its employees and hence organizes a host of employee engagement events throughout the year. Annual excursions, weekly movie and puzzle contests, employee birthday bashes and elaborate celebrations on all festivals and occasions are organized Apart from this, a combrhensive Employee Wellness Programs has been launched to raise awareness about common lifestyle problems, urban ailments and how to combat them in today's world. A different aspect of health is taken up every month. Partnerships with medical institutions, regular health camps and checkups are organized in working hours as a part of this initiative. A very good response has been received from employees and more many more such initiatives are planned in the months to come.