Draft Letter of Offer March 11, 2013 For Equity … Letter of Offer March 11, 2013 For Equity...

Draft Letter of Offer

March 11, 2013

For Equity Shareholders of the Company only

RELIANCE MEDIAWORKS LIMITED

Our Company was incorporated as Adlabs Films Private Limited on November 30, 1987, as a private limited company in Mumbai under the

Companies Act, 1956. Pursuant to conversion into a public company, our Companys name was changed to Adlabs Films Limited. Subsequently,

our Companys name was further changed to Reliance MediaWorks Limited. For details of changes in the name and the registered office of our Company, please see the chapter entitled History and Certain Corporate Matters at page 189.

Registered Office: Film City Complex, Goregaon (East), Mumbai 400 065, Maharashtra Contact Person: Ashish Agarwal, Company Secretary and Compliance Officer

Tel: +91 22 3980 8900 Facsimile: +91 22 3980 8985 Email: [email protected] Website: www.reliancemediaworks.com

FOR PRIVATE CIRCULATION TO THE EQUITY SHAREHOLDERS OF RELIANCE MEDIAWORKS LIMITED

THE COMPANY OR THE ISSUER ONLY

THE PROMOTERS OF OUR COMPANY ARE RELIANCE LAND PRIVATE LIMITED AND RELIANCE CAPITAL LIMITED

ISSUE OF [] EQUITY SHARES WITH A FACE VALUE OF `5 EACH (EQUITY SHARES) FOR CASH AT A PREMIUM OF `[]

PER EQUITY SHARE FOR AN AMOUNT NOT EXCEEDING `60,000 LAKHS ON A RIGHTS BASIS TO THE EXISTING EQUITY

SHAREHOLDERS OF OUR COMPANY IN THE RATIO OF [] EQUITY SHARES FOR EVERY [] FULLY PAID-UP EQUITY

SHARES HELD BY THE EXISTING EQUITY SHAREHOLDERS ON THE RECORD DATE, THAT IS ON [] (ISSUE). THE

ISSUE PRICE IS [] TIMES THE FACE VALUE OF THE EQUITY SHARES. FOR FURTHER DETAILS, PLEASE SEE THE

CHAPTER ENTITLED TERMS OF THE ISSUE AT PAGE 354 OF THE DLOF

GENERAL RISKS

Investment in equity and equity related securities involve a degree of risk and investors should not invest any funds in the Issue unless they can afford to take the risk of losing their investment. Investors are advised to read the risk factors carefully before taking an investment decision in

the Issue. For taking an investment decision, investors must rely on their own examination of our Company and the Issue including the risks

involved. The securities being offered in the Issue have not been recommended or approved by the Securities and Exchange Board of India

(SEBI) nor does SEBI guarantee the accuracy or adequacy of this Draft Letter of Offer. Investors are advised to refer to the chapter entitled

Risk Factors at page 11 before making an investment in this Issue.

ISSUERS ABSOLUTE RESPONSIBILITY

Our Company, having made all reasonable inquiries, accepts responsibility for and confirms that this Draft Letter of Offer contains all information with regard to our Company and the Issue, which is material in the context of the Issue, that the information contained in this Draft

Letter of Offer is true and correct in all material aspects and is not misleading in any material respect, that the opinions and intentions expressed

herein are honestly held and that there are no other facts, the omission of which makes this Draft Letter of Offer as a whole or any such information or the expression of any such opinions or intentions misleading in any material respect.

LISTING

The existing Equity Shares are listed on the BSE Limited (BSE) and the National Stock Exchange of India Limited (NSE) (collectively,

Stock Exchanges). Our Company received in-principle approvals from the BSE and the NSE for listing the Equity Shares to be Allotted in the Issue vide their letters dated [] and[], respectively. For the purpose of the Issue, the Designated Stock Exchange is [].

Lead Manager REGISTRAR TO THE ISSUE

Axis Capital Limited

Axis House, 1st Floor,

C-2 Wadia International Centre,

P.B. Marg, Worli, Mumbai 400 025 Telephone: +91 22 4325 3150

Facsimile: +91 22 4325 3000

Email: [email protected] Website: www.axiscapital.co.in / www.enam.com

Investor Grievance Email: [email protected]

Contact Person: Vivek Toshniwal SEBI Registration Number: INM000012029

Link Intime India Private Limited

C 13, Pannalal Silk Mills Compound

LBS Marg, Bhandup (West)

Mumbai 400 078 Telephone: +91 22 2596 7878

Toll-free: 1-800-22-0878

Facsimile: +91 22 2596 0329 E-mail: [email protected]

Investor Grievance Email: [email protected]

Website: www.linkintime.co.in Contact Person: Pravin Kasare

SEBI Registration No.: INR 0000 04058

ISSUE PROGRAMME

ISSUE OPENS ON LAST DATE FOR RECEIVING REQUESTS FOR

SPLIT APPLICATION FORMS ISSUE CLOSES ON

[] [] []

TABLE OF CONTENTS

SECTION I: GENERAL ............................................................................................................................................... 1

DEFINITIONS AND ABBREVIATIONS .................................................................................................................... 1 NOTICE TO OVERSEAS SHAREHOLDERS ............................................................................................................. 6 PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA ............................................ 8 FORWARD LOOKING STATEMENTS .................................................................................................................... 10

SECTION II: RISK FACTORS ................................................................................................................................... 11

SECTION III: INTRODUCTION ............................................................................................................................... 41

SUMMARY OF INDUSTRY ...................................................................................................................................... 41 SUMMARY OF BUSINESS ....................................................................................................................................... 43 SUMMARY FINANCIAL INFORMATION .............................................................................................................. 49 THE ISSUE ................................................................................................................................................................. 64 GENERAL INFORMATION ...................................................................................................................................... 65 CAPITAL STRUCTURE ............................................................................................................................................ 70 OBJECTS OF THE ISSUE .......................................................................................................................................... 84 BASIS FOR ISSUE PRICE ....................................................................................................................................... 140 STATEMENT OF TAX BENEFITS ......................................................................................................................... 143

SECTION IV: ABOUT THE COMPANY ................................................................................................................ 152

INDUSTRY OVERVIEW ......................................................................................................................................... 152 BUSINESS ................................................................................................................................................................ 165 REGULATIONS AND POLICIES ............................................................................................................................ 185 HISTORY AND CERTAIN CORPORATE MATTERS ........................................................................................... 189 OUR SUBSIDIARIES, JOINT VENTURES AND PARTNERSHIP ........................................................................ 201 OUR MANAGEMENT ............................................................................................................................................. 212 OUR PROMOTER AND PROMOTER GROUP ...................................................................................................... 223 OUR GROUP COMPANIES ..................................................................................................................................... 233 DIVIDEND POLICY ................................................................................................................................................ 251

SECTION V: FINANCIAL STATEMENTS ............................................................................................................. F1

PRO FORMA FINANCIAL STATEMENT .......................................................................................................... F235

FINANCIAL INDEBTEDNESS ............................................................................................................................... 254 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATION ............................................................................................................................................................ 265 MATERIAL DEVELOPMENTS .............................................................................................................................. 301

SECTION VI: LEGAL AND OTHER INFORMATION ......................................................................................... 312

OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS ............................................................... 312

GOVERNMENT AND OTHER APPROVALS ........................................................................................................ 338 OTHER REGULATORY AND STATUTORY DISCLOSURES ............................................................................. 340

SECTION VII: ISSUE INFORMATION .................................................................................................................. 354

TERMS OF THE ISSUE ........................................................................................................................................... 354

RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN SECURITIES .......................................................... 390

SECTION VIII: MAIN PROVISIONS OF ARTICLES OF ASSOCIATION .......................................................... 391

SECTION IX: OTHER INFORMATION ................................................................................................................. 421

MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION ................................................................... 421 DECLARATION ....................................................................................................................................................... 422

1

SECTION I: GENERAL

DEFINITIONS AND ABBREVIATIONS

Definitions

This Draft Letter of Offer uses certain definitions and abbreviations which, unless the context indicates or implies

otherwise, have the meanings as provided below. Reference to any legislation, act or regulation shall be to such

legislation, act or regulation as amended from time to time.

Issuer Related Terms

Term Description

RMWL, our Company, the

Company or the Issuer Reliance MediaWorks Limited

We or us or our or our

Group

Reliance MediaWorks Limited and its subsidiaries, joint ventures and

associates on a consolidated basis, unless the context indicates or implies

otherwise

ADAV Anil Dhirubhai Ambani Ventures Limited

Articles / Articles of Association Articles of Association of our Company

Auditors B S R & Co., Chartered Accountants and Chaturvedi & Shah, Chartered

Accountants

Board/Board of Directors Board of Directors of our Company or a duly constituted committee thereof

DDMG Digital Domain Media Group Inc. and its subsidiaries

Director A director of our Company

Eligible Equity Shareholders Existing Equity Shareholders on the Record Date i.e. []

Equity Shares Equity Shares of our Company at face value of ` 5 each

Equity Shareholder / Shareholder A holder of the Equity Shares of our Company

Group Companies

Companies, firms, ventures etc. promoted by our Promoters, irrespective of

whether such entities are covered under section 370(1)(B) of the Companies

Act or not and disclosed in the chapter entitled Our Group Companies at

page 233

iLab Our facility for digital image correction, film restoration and film processing in

the UK

Joint Ventures Joint ventures of our Company set out in the chapter entitled Our Subsidiaries

Joint Ventures at page 201

Lowry Digital Reliance Lowry Digital Imaging Services Inc.

Memorandum / Memorandum of

Association Memorandum of Association of our Company

Promoter Group

Such persons and entities constituting the promoter group of our Company in

terms of Regulation 2(1)(zb) of the ICDR Regulations. However, Reliance

Capital Limited, being an investing company, has made investments in excess

of 10% in its normal course of business in various companies, which are

neither related to Reliance Capital Limited nor Reliance Capital Limited has

any influence of management control over them. Accordingly, these companies

have not been included within the definition of Promoter Group.

Promoters The promoters of our Company viz. Reliance Land Private Limited and

Reliance Capital Limited

Registered Office The registered office of our Company situated at Film City Complex,

Goregaon (East), Mumbai 400 065, Maharashtra

Reliance Group In context of this Draft Letter of Offer, Reliance Group shall mean the group of

companies headed / promoted by Anil Dhirubhai Ambani

2

Term Description

RoC Registrar of Companies, Maharashtra, situated at Everest, 5th Floor, 100, Marine Drive, Mumbai - 400 002, Maharashtra

Subsidiaries Subsidiaries of our Company set out in the chapter entitled Our Subsidiaries

and Joint Ventures at page 201

Issue Related Terms

Term Description

Abridged Letter of Offer The abridged letter of offer to be sent to the Equity Shareholders of our Company

with respect to the Issue in accordance with the ICDR Regulations

Allot / Allotted / Allotment The allotment of Equity Shares pursuant to the Issue

Allottees Persons to whom Equity Shares of our Company are Allotted pursuant to the Issue

Application Supported by

Blocked Amount / ASBA

The application (whether physical or electronic) used by an ASBA Investor to

make an application authorizing the SCSB to block the application amount in his /

her specified bank account maintained with the SCSB

ASBA Account An account maintained with an SCSB and specified in the CAF for blocking the

amount mentioned in the CAF

ASBA Investor

Equity Shareholders proposing to subscribe to the Issue through ASBA process

and who:

1. are holding the Equity Shares of our Company in dematerialized form as on the Record Date and have applied for their Rights Entitlements and /

or additional Equity Shares in dematerialized form;

2. have not renounced their Rights Entitlements in full or in part; 3. are not Renouncees; and 4. are applying through blocking of funds in a bank account maintained

with the SCSBs

Bankers to the Issue []

Composite Application Form /

CAF

The form used by an Investor to make an application for the Allotment of Equity

Shares in the Issue

Consolidated Certificate In case of holding of Equity Shares in physical form, the certificate that our

Company would issue for the Equity Shares Allotted to one folio

Controlling Branches of the

SCSBs

Such branches of the SCSBs which coordinate with the Lead Manager, the

Registrar to the Issue and the Stock Exchanges, a list of which is available at

http://www.sebi.gov.in

Designated Branches Such branches of the SCSBs which shall collect application forms used by ASBA

Investors and a list of which is available at http://www.sebi.gov.in

Designated Stock Exchange []

Draft Letter of Offer This draft letter of offer dated March 11, 2013 filed with SEBI

Investor(s) The Equity Shareholders of our Company on the Record Date, i.e. [] and the

Renouncees

Issue

Issue of [] Equity Shares each for cash at a premium of ` [] per Equity Share

for an amount not exceeding `60,000 lakhs on a rights basis to the existing Equity

Shareholders of our Company in the ratio of [] Equity Shares for every [] fully

paid-up Equity Shares held on the Record Date (i.e. [])

Issue Closing Date []

Issue Opening Date []

Issue Price ` []

Issue Proceeds The proceeds of the Issue that are available to our Company Issue Size The issue of [] Equity Shares for an amount not exceeding `60,000 lakhs

Lead Manager/LM Axis Capital Limited

3

Term Description

Letter of Offer The final letter of offer to be filed with the Stock Exchanges after incorporating

the observations received from the SEBI on this Draft Letter of Offer

Listing Agreement The listing agreements entered into between our Company and the Stock

Exchanges

Monitoring Agency The Monitoring Agency appointed in accordance with Regulation 16 of the ICDR

Regulations

Net Proceeds The Issue Proceeds less the Issue related expenses. For further details, please see

the chapter entitled Objects of the Issue at page 84

Non Institutional Investors

All Investors including sub-accounts of FIIs registered with SEBI, which are

foreign corporate or foreign individuals, that are not QIBs or Retail Individual

Investors and who have applied for Rights Issue Equity Shares for a cumulative

amount of more than ` 2 lakhs.

QFI

QFI shall mean a person who fulfills the following criteria:

i. Resident in a country that is a member of Financial Action Task Force (FATF)

or a member of a group which is a member of FATF; and ii. Resident in a country

that is a signatory to International organization of Securities Commissions

Multilateral Memorandum of Understanding or a signatory of a bilateral

Memorandum of Understanding with SEBI.

Provided that the person is not resident in a country listed in the public statements

issued by FATF from time to time on: (a) jurisidictions having a strategic Anti-

Money Laundering / Combating the Financing of Terrorism (AML / CFT)

deficiencies to which counter measures apply; (b) jusrisdictions that have not

made sufficient progress in addressing the deficiencies or have not committed to

an action plan developed with the FATF to address the deficiencies;

Provided further, such person is not resident in India;

Provided further that such person is not registered with SEBI as FII or Sub-

Account, Foreign Venture Cpaital Investor.

QIB(s) or Qualified

Institutional Buyer

Applicants in the Issue who are qualified institutional buyers, as defined under

Regulation 2(1)(zd) of the ICDR Regulations

Record Date []

Registrar to the Issue Link Intime India Private Limited

Renouncee(s) Any person(s) who has/have acquired Rights Entitlements from Equity

Shareholders

Rights Entitlement The number of Equity Shares that an Investor is entitled to in proportion to the

number of Equity Shares held by the Investor on the Record Date

SAF(s) Split Application Form(s)

SCSB(s)

A Self Certified Syndicate Bank registered with SEBI, which acts as a banker to

the Issue, and which offers the facility of ASBA. A list of all SCSBs is available at

http://www.sebi.gov.in

Stock Exchanges The BSE and the NSE where the Equity Shares of our Company are presently

listed

Conventional and General Terms or Abbreviations

Term/Abbreviation Description/ Full Form

` or Rupees or INR or Rs. Indian Rupee

AGM Annual General Meeting

4


AS Accounting Standards in accordance with the Companies (Accounting Standards)

Rules, 2006 as amended

BPLR Benchmark Prime Lending Rate

BSE BSE Limited

CDSL Central Depository Services (India) Limited

Central Government The Central Government of India

CIN Corporate Identification Number

Companies Act Companies Act, 1956

CY Calender Year

Depositories Act Depositories Act, 1996

Depository A depository registered with the SEBI under the Securities and Exchange Board of

India (Depositories and Participants) Regulations, 1996

DIN Director Identification Number

DP ID Depository Participant Identity

DP / Depository Participant Depository Participant as defined under the Depositories Act

EBITDA Earnings Before Interest, Tax, Depreciation and Amortisation

ECS Electronic Clearing Service

EGM Extra-Ordinary General Meeting

EPS Earnings Per Share

FDI Foreign Direct Investment

FEMA Foreign Exchange Management Act, 1999

FII Foreign Institutional Investor (as defined under the SEBI (Foreign Institutional

Investors) Regulations, 1995), registered with the SEBI

Financial Year / Fiscal / FY

12 months ended March 31 of that particular year. In relation to our Company, Fiscal

2008 represents the nine months ended March 31, 2008, Fiscal 2012 represents eighteen

months ended September 30, 2012, Fiscal 2013 represents six months ending March 31,

2013 and Fiscal 2014 represents 12 months ended March 31, 2014

GAAP Generally Accepted Accounting Principles

GDP Gross Domestic Product

GoI Government of India

ICAI Institute of Chartered Accountants of India

ICDR Regulations Securities and Exchange Board of India (Issue of Capital and Disclosure

Requirements) Regulations, 2009, as amended from time to time

IFRS International Financial Reporting Standards

India Republic of India

Indian GAAP Generally accepted accounting principles followed in India

IT Act Income Tax Act, 1961

LLC Limited Liability Company

LIBOR London Inter Bank Offer Rate

MCA Ministry of Corporate Affairs, Government of India

Mutual Fund / MF Mutual fund registered with the SEBI under the SEBI (Mutual Funds)

Regulations, 1996

NECS National Electronic Clearing Service NR Non-Resident

NRE Account Non-Resident External Account

NRI Non-Resident Indian

NRO Account Non-Resident Ordinary Account

NSDL National Securities Depository Limited

NSE National Stock Exchange of India Limited

p.a. Per annum

5


PAN Permanent Account Number

PAT Profit After Tax

PBT Profit Before Tax

PLR Prime Lending Rate

QIP or Qualified Institutions

Placement

Qualified Institutions Placement in accordance with the provisions of Chapter VIII of

the ICDR Regulations

RBI Reserve Bank of India

Regulation S Regulation S under the Securities Act

SBI PLR Prime lending rate of State Bank of India

SEBI Securities and Exchange Board of India

SEBI Act Securities and Exchange Board of India Act, 1992, as amended from time to time

Securities Act U.S. Securities Act, 1933, as amended from time to time

SEZ Special Economic Zone

Sq.ft. square feet

STT Securities Transaction Tax

Takeover Code The Securities and Exchange Board of India (Substantial Acquisition of Shares and

Takeovers) Regulations, 2011

Tier 1 Cities Fairly well-established market, with potential of higher consumer pattern

Tier 2 Cities Growing market, experiencing growing demand and investments

Tier 3 Cities Market yet to be established, where customers are relatively more price sensitive

UK United Kingdom

US / USA / United States United States of America

Technical and Industry Related Terms


2D 2 dimensional

3D 3 dimensional

6D 6 dimensional

ATPs Average ticket prices

C&S Cable and satellite

CGI Computer-generated imagery

DCI Digital Cinema Initiative

DI Digital intermediate

DTS Digital Theatre Surround

E&M Entertainment and media

IMAX Image Maximum

SPH Spend per head on food and beverages

TVC Television commercials

VFX Visual effects services

6

NOTICE TO OVERSEAS SHAREHOLDERS

No action has been or will be taken to permit the Issue in any jurisdiction where action would be required for that

purpose, except that this Draft Letter of Offer has been filed with the SEBI for its observations. Accordingly, the

Equity Shares may not be offered or sold, directly or indirectly, and this Draft Letter of Offer may not be

distributed, in any jurisdiction, except in accordance with legal requirements applicable in such jurisdiction. Receipt

of this Draft Letter of Offer will not constitute an offer in those jurisdictions in which it would be illegal to make

such an offer and, in those circumstances, this Draft Letter of Offer must be treated as sent for information only and

should not be copied or redistributed. Accordingly, persons receiving a copy of this Draft Letter of Offer should not,

in connection with the issue of the Equity Shares or the Rights Entitlements, distribute or send this Draft Letter of

Offer in or into the United States or any other jurisdiction where to do so would or might contravene local securities

laws or regulations. If this Draft Letter of Offer is received by any person in any such territory, or by their agent or

nominee, they must not seek to subscribe to the Equity Shares or the Rights Entitlements referred to in this Draft

Letter of Offer.

Neither the delivery of this Draft Letter of Offer nor any sale hereunder shall, under any circumstances, create any

implication that there has been no change in our Company's affairs from the date hereof or that the information

contained herein is correct as at any time subsequent to the date of this Draft Letter of Offer.

NO OFFER IN THE UNITED STATES

The rights and the Equity Shares have not been and will not be registered under the United States Securities Act,

1933, as amended (Securities Act), or any U.S. state securities laws and may not be offered, sold, resold or otherwise transferred within the United States of America or the territories or possessions thereof (United States

or U.S.) or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act (Regulation S)), except in a transaction exempt from the registration requirements of the Securities Act. The

rights referred to in this Draft Letter of Offer are being offered in India, but not in the United States. The offering to

which this Draft Letter of Offer relates is not, and under no circumstances is to be construed as, an offering of any

securities or rights for sale in the United States or as a solicitation therein of an offer to buy any of the said securities

or rights. Accordingly, this Draft Letter of Offer / Letter of Offer / Abridged Letter of Offer and the enclosed CAF

should not be forwarded to or transmitted in or into the United States at any time.

Neither our Company nor any person acting on behalf of our Company will accept subscriptions or renunciation

from any person, or the agent of any person, who appears to be, or who our Company or any person acting on behalf

of our Company has reason to believe is, either a U.S. person (as defined in Regulation S) or otherwise in the

United States when the buy order is made. Envelopes containing CAF should not be postmarked in the United States

or otherwise dispatched from the United States or any other jurisdiction where it would be illegal to make an offer

under the Letter of Offer, and all persons subscribing for the Equity Shares and wishing to hold such Equity Shares

in registered form must provide an address for registration of the Equity Shares in India. Our Company is making

this issue of Equity Shares on a rights basis to the Equity Shareholders of our Company and the Letter of Offer /

Abridged Letter of Offer and CAF will be dispatched to Equity Shareholders who have an Indian address. Any

person who acquires rights and the Equity Shares will be deemed to have declared, represented, warranted and

agreed, (i) that it is not and that, at the time of subscribing for the Equity Shares or the Rights Entitlements, it will

not be, in the United States when the buy order is made, (ii) it is not a U.S. person (as defined in Regulation S), and does not have a registered address (and is not otherwise located) in the United States, and (iii) is authorised to

acquire the rights and the Equity Shares in compliance with all applicable laws and regulations.

Our Company reserves the right to treat as invalid any CAF which: (i) does not include the certification set out in the

CAF to the effect that the subscriber is not a U.S. person (as defined in Regulation S), and does not have a registered address (and is not otherwise located) in the United States and is authorised to acquire the rights and the

Equity Shares in compliance with all applicable laws and regulations; (ii) appears to our Company or its agents to

have been executed in or dispatched from the United States; (iii) where a registered Indian address is not provided;

or (iv) where our Company believes that CAF is incomplete or acceptance of such CAF may infringe applicable

7

legal or regulatory requirements; and our Company shall not be bound to allot or issue any Equity Shares or Rights

Entitlement in respect of any such CAF. Our Company is informed that there is no objection to a United States

shareholder selling its rights in India. Rights Entitlement may not be transferred or sold to any U.S. Person.

European Economic Area Restrictions

In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive

(each, Relevant Member State), an offer of the Equity Shares to the public may not be made in that Relevant

Member State prior to the publication of a prospectus in relation to the Rights Entitlement or the Equity Shares

which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved

in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in

accordance with the Prospectus Directive, except that an offer of Equity Shares or Rights Entitlement to the public

in that Relevant Member State from and including the Relevant Implementation Date may be made:

(a) to legal entities which are authorised or regulated to operate in the financial markets or, if not so authorised or regulated, whose corporate purpose is solely to invest in securities;

(b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last Fiscal; (2) a total balance sheet of more than Euro 430.00 lakhs and (3) an annual net turnover of more than Euro

500.00 lakhs, as shown in its last annual or consolidated accounts; or

(c) in any other circumstances falling within Article 3(2) of the Prospectus Directive;

provided that no such offer of Equity Shares shall result in the requirement for the publication by our Company or

the Lead Manager pursuant to Article 3 of the Prospectus Directive.

For the purposes of this provision, the expression an offer to the public in relation to any Equity Shares in any

Relevant Member State means the communication in any form and by any means of sufficient information on the

terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe

the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus

Directive in that Member State and the expression Prospectus Directive means Directive 2003/71/EC and includes

any relevant implementing measure in each Relevant Member State. In the case of any Rights Entitlement or Equity

Shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive, such

financial intermediary will be deemed to have represented, acknowledged and agreed that the Rights Entitlement or

Equity Shares acquired by them in the Issue have not been acquired on a nondiscretionary basis on behalf of, nor

have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an

offer of any Rights Entitlement or Equity Shares acquired by them in the Issue to the public other than their offer or

resale in a Relevant Member State to qualified investors as so defined who are not financial intermediaries or in

circumstances in which the prior consent of the Lead Manager has been obtained to each such proposed offer or

resale.

United Kingdom Restrictions

This Draft Letter of Offer is only being distributed to, and is only directed at (i) persons who are outside the UK , or

(ii) investment professionals falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial

Promotion) Order 2005 (Order) or (iii) high net worth entities, and other persons to whom it may lawfully be

communicated, falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as

relevant persons). The Equity Shares are only available to, and any invitation, offer or agreement to subscribe,

purchase or otherwise acquire such Equity Shares will be engaged in only with, relevant persons. Any person who is

not a relevant person should not act or rely on this document or any of its contents.

8

PRESENTATION OF FINANCIAL INFORMATION AND USE OF MARKET DATA

Certain Conventions

References in this Draft Letter of Offer to India are to the Republic of India. All references to the US, or the

U.S.A. or the United States are to the United States of America and all references to UK or the U.K. are to

the United Kingdom.

Financial data

Unless stated otherwise, the financial data in this Draft Letter of Offer is derived from our Company's audited and

restated consolidated financial statements. Our Company's Financial Year commences on April 1 and ends on

March 31 of the following calendar year except for:

Fiscal 2008, which commenced on July 1, 2007 and ended on March 31, 2008;

Fiscal 2012, which commenced on April 1, 2011 and ended on September 30, 2012; and

Fiscal 2013, which commenced on October 1, 2012 and will end on March 31, 2013.

Our Company prepares its financial statements in accordance with the generally accepted accounting principles in

India, which differ, in certain respects, from generally accepted accounting principles in other countries. Indian

GAAP differs, in certain significant respects, from the International Financial Reporting Standards. Our Company

publishes its financial statements in Indian Rupees. Any reliance by persons not familiar with Indian accounting

practices on the financial disclosures presented in this Draft Letter of Offer should accordingly be limited. We have

not attempted to explain those differences or quantify their impact on the financial data included herein, and we urge

you to consult your own advisors regarding such differences and their impact on our financial data.

In this Draft Letter of Offer, any discrepancies in any table between the total and the sums of the amounts listed are

due to rounding off and, unless otherwise specified, all financial numbers in parenthesis represent negative figures.

For definitions, please see the chapter entitled Definitions and Abbreviations at page 1.

Market and Industry data

Unless stated otherwise, market, industry and demographic data used in this Draft Letter of Offer has been obtained

from market research, publicly available information, industry publications and government sources. Industry

publications generally state that the information that they contain has been obtained from sources believed to be

reliable but that the accuracy and completeness of that information is not guaranteed. Similarly, internal surveys,

industry forecasts and market research, while believed to be reliable, have not been independently verified and

neither our Company nor the Lead Manager makes any representation as to the accuracy of that information.

Accordingly, Investors should not place undue reliance on this information.

Currency of presentation

All references in this Draft Letter of Offer to Rupees, `, Rs., Indian Rupees and INR are to Indian

Rupees, the official currency of India. All references to U.S. $, U.S. Dollar, USD or $ are to United States

Dollars, the official currency of the United States of America. All references to EUR, or Euro are to Euro,

the official currency of the European Union. All references to MUR are to Mauritian rupee, the official currency

of Mauritius. All references to MYR or RM are to Malaysian Ringgit, the official currency of Malaysia. All

references to NPR are to Nepalese Rupee, the official currency of Nepal. All references to GBP or are to

Pound Sterling, the official currency of the UK.

9

Please Note:

One lakh is equal to 100,000/100 thousand

One million is equal to 10,00,000/10 lakhs

One billion is equal to 1,000 million/100 crores

One crore is equal to 10 million/100 lakhs

Exchange rates

Fluctuations in the exchange rate between the Rupee and the U.S. Dollar will affect the U.S. Dollar equivalent of the

Rupee price of the Equity Shares on the Stock Exchanges. These fluctuations will also affect the conversion into

U.S. Dollars of any cash dividends paid in Rupees on the Equity Shares.

The following table sets forth, for the periods indicated, information with respect to the exchange rate between the

Rupee and the U.S. Dollar (in Rupees per U.S. Dollar) based on the reference rates obtained from www.rbi.org.in.

No representation is made that the Rupee amounts actually represent such amounts in U.S. Dollars or could have

been or could be converted into U.S. Dollars at the rates indicated, at any other rates or at all.

12 months ended March 31 Period End Average* High* Low*

2009 50.95 45.91 52.06 39.89

2010 45.14 47.42 50.53 44.94

2011 44.65 45.58 47.57 44.03

2012 51.16 47.95 54.24 43.95

Eighteen months ended September 30,

2012

52.70 50.25 57.22 43.95

Month ended Period End Average* High* Low*

August 2012 55.72 55.56 56.08 55.15

September 2012 52.70 54.61 55.97 52.70

October 2012 54.12 53.02 54.17 51.62

November 2012 54.53 54.78 55.70 53.66

December 2012 54.78 54.65 55.09 54.20

January 2013 53.29 54.32 55.33 53.29

February 2013 53.77 53.77 54.48 52.97

Source: website at www.rbi.org.in

*Note: Average, High and low have been obtained from www.rbi.org.in as the average of all the rates available during the period,

the maximum of all the rates available during the period and the minimum of all the rates available during the period

respectively. The reference rate on March 8, 2013 was U.S. $1.00 = ` 54.40.

http://www.rbi.org.in/

10

FORWARD LOOKING STATEMENTS

Certain statements in this Draft Letter of Offer are not historical facts but are forward-looking in nature. Forward

looking statements appear throughout this Draft Letter of Offer, including, without limitation, under the chapters

entitled Risk Factors, Management's Discussion and Analysis of Financial Condition and Results of

Operations, Industry and Business. Our Company may, from time to time, make written or oral forward-

looking statements in reports to Equity Shareholders and in other communications. Forward-looking statements

include statements concerning our Companys plans, objectives, goals, strategies, future events, future revenues or

financial performance, capital expenditures, financing needs, plans or intentions relating to acquisitions, our

Companys competitive strengths and weaknesses, our Companys business strategy and the trends our Company

anticipates in the industries and the political and legal environment, and geographical locations, in which our

Company operates, and other information that is not historical information.

Words such as believe, anticipate, estimate, seek, expect, continue, intend, predict, project,

should, goal, future, could, may, will, would, targets, aims, is likely to, plan and similar

expressions, or variations of such expressions, are intended to identify forward-looking statements but are not the

exclusive means of identifying such statements.

By their nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and

risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved.

These risks, uncertainties and other factors include, among other things, those listed under the chapter entitled Risk

Factors, as well as those included elsewhere in this Draft Letter of Offer. Prospective investors should be aware

that a number of important factors could cause actual results to differ materially from the plans, objectives,

expectations, estimates and intentions expressed in such forward-looking statements. These factors include, but are

not limited, to:

Our inability to effectively implement our business and growth strategies;

Our ability to effectively respond to competition and changes in technology;

Prevention of piracy;

Reduction in our advertising/sponsorship revenue;

Reduction or termination of our tax incentives;

Success of the films that we exhibit; and

Competition from other entertainment avenues.

For a further discussion of factors that could cause our Companys actual results to differ, see the chapters entitled

Risk Factors and Business at pages 11 and 165, respectively. By their nature, certain market risk disclosures are

only estimates and could be materially different from what actually occurs in the future. As a result, actual future

gains or losses could materially differ from those that have been estimated. Neither our Company nor the Lead

Manager make any representation, warranty or prediction that the results anticipated by such forward-looking

statements will be achieved, and such forward-looking statements represent, in each case, only one of many

possible scenarios and should not be viewed as the most likely or standard scenario. Neither our Company nor the

Lead Manager nor any of their respective affiliates or advisors have any obligation to update or otherwise revise any

statements reflecting circumstances arising after the date hereof or to reflect the occurrence of underlying events,

even if the underlying assumptions do not come to fruition. In accordance with SEBI / Stock Exchanges

requirements, our Company and Lead Manager will ensure that Investors in India are informed of material

developments until the time of the grant of listing and trading permissions by the Stock Exchanges.

11

SECTION II: RISK FACTORS

An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information in

this Draft Letter of Offer, including the risks and uncertainties described below, before making an investment in our

Equity Shares. The risks and uncertainties described in this section are not the only risks that we currently face.

Additional risks and uncertainties not known to us or that we currently believe to be immaterial may also have an

adverse effect on our business, results of operations and financial condition. If any of the following risks, or other

risks that are not currently known or are now deemed immaterial, actually occur, our business, results of operations

and financial condition could suffer, the price of our Equity Shares could decline, and you may lose all or part of

your investment.

The financial and other related implications of risks concerned, wherever quantifiable, have been disclosed in the

risk factors mentioned below. However, there are risk factors where the effect is not quantifiable and hence the

same has not been disclosed in such risk factors.

To obtain a complete understanding, you should read this section in conjunction with the chapters entitled

Business and Management's Discussion and Analysis of Financial Condition and Results of Operations as well

as the other financial and statistical information contained in this Draft Letter of Offer.

Unless otherwise stated, the financial information of our Company used in this section is derived from our restated

consolidated financial statements.

Internal Risks

1. There are certain criminal cases pending against us, our Directors, our Promoters, our Group Companies and our Joint Ventures.

There are 115 criminal proceedings pending against us, our Directors, our Promoters, our Group Companies and our

Joint Ventures before various fora and are at various stages of adjudication. The impact of these litigations cannot be

quantified. For details of all the pending criminal actions and cases against us, our Directors, our Promoters, our

Group Companies and our Joint Ventures, please see the chapter entitled Outstanding Litigations and other

Material Developments at page 312.

2. Gautam Doshi, one of our non-executive Directors, is currently being investigated by the Central Bureau of Investigation.

The Central Bureau of Investigation (CBI) has registered a first information report (FIR) dated October 21, 2009

pertaining to allegations of criminal conspiracy and criminal misconduct, in respect of telecommunications licences

and spectrum allotted by the Government of India inter alia to SwanTelecom Limited in 2008. Pursuant to the FIR,

the CBI filed a charge sheet dated April 2, 2011 in the Court of Special Judge (CBI), New Delhi, against various

persons, including one of our non-executive Directors, Gautam Doshi. The Special Judge (CBI) has framed charges

against all the persons specified in the charge sheet.

Proceedings in the matter, including a writ petition that Gautam Doshi has preferred to the High Court at Delhi, are

ongoing. For further details, please see the chapter entitled Outstanding Litigation and Material Developments at

page 312.

3. We have incurred losses in the past and, at present, we have a negative net worth.

We incurred net losses of `32,816.99 lakhs and `12,803.24 lakhs in Fiscal 2011 and Fiscal 2010, respectively.

Further, for the 18 months ended September 30, 2012 (Fiscal 2012), we incurred a net loss of ` 91,016.62 lakhs and

our net worth as at September 30, 2012, reduced to ` (58,149.80) lakhs. For further details, please see the chapter

entitled Financial Statements at page F1. In addition, our ability to pay dividends will depend upon a number of

12

factors, including, amongst others, our profitability, our results of operations, earnings, capital requirements and

surplus, general financial conditions, contractual restrictions and applicable Indian and foreign legal restrictions. Our

financial position may accordingly be perceived adversely by external parties such as customers and bankers, which

may affect our reputation and business operations.

4. Our net worth has decreased substantially over the last three years which restricts our ability to invest in our overseas subsidiaries and joint ventures and may hamper our growth plans.

Our Companys net worth on a standalone basis has decreased from `66,641.08 lakhs as on March 31, 2008 to `

(20,451.53) lakhs as on September 30, 2012. In terms of the applicable FEMA regulations, we may not invest in our

joint ventures or wholly owned subsidiaries situated outside India in excess of 400% of our Companys net worth as

on the last audited balance sheet. This limit includes contribution to the capital of, loans granted to, and guarantees

issued to or on behalf of, the overseas joint ventures or wholly owned subsidiaries. As on December 31, 2012 we

have invested ` 74,363.64 lakhs in our overseas subsidiaries and joint ventures. Accordingly, we will not be able

invest in our overseas joint ventures or wholly owned subsidiaries till our net worth increases significantly, which

may have an adverse impact on our future growth plan.

5. If we are unable to effectively implement our business and growth strategies, our results of operations may be adversely affected.

Our success will depend, in large part, on our ability to effectively implement our business and growth strategies.

We cannot assure you that we will be able to execute our strategies in a timely manner or within budget estimates or

that we will meet the expectations of targeted customers. We believe that our business and growth strategies will

place significant demands on our management and other resources and will require us to develop and improve

operational, financial and other internal controls. Our business and growth strategies may require us to incur further

indebtedness. Any inability to manage our business and growth strategies could adversely affect our business,

financial condition and results of operations.

As part of our growth strategy, we propose to increase the number of cinema theatres we operate in India and other

countries with Indian diaspora. When establishing new cinema theatres, we may encounter cost overruns or delays

in implementation due to, among other causes, delays in construction, receipt of government approvals or delivery

of equipment by suppliers. For instance, the Image Maximum (IMAX) Dome theatre scheduled to be established in

Mumbai in December 2000 was not established until March 2001. In addition, the four screen multiplex project

scheduled to be established in Mumbai in September 2001 was not fully established until November 2001. In the

future, if any cinema theatres are not established in a timely manner, or at all, our business and results of operations

may be adversely affected. Further, we were scheduled to complete construction of all three stages of our studio by

December 2011. However, while we completed one stage by January 2011, we are yet to complete construction of

the other stages.

New cinema theatres we establish may not achieve anticipated levels of patronage and as a result may not perform

as expected. The occurrence of any of these risks could adversely affect our business, financial condition, and results

of operations.

6. Our Companys high debt-equity ratio may hamper our ability to avail of future debt

As of September 30, 2012, our Companys total outstanding borrowing was `201,220.40 lakhs against our

Companys net worth of ` (20,451.53) lakhs as of September 30, 2012 and EBITDA of ` (20,505.74) lakhs for

Fiscal 2012. Further, our Companys total outstanding borrowing increased to ` 210,882.50 lakhs as on January 31,

2013. Our Companys high debt leverage may make it difficult for us to raise finance, on terms favourable to us or

at all. While one of the objects of this Issue is to pre-pay / repay some of our Companys existing borrowings, there

can be no assurance that the improvement in the debt-equity ratio, upon repayment of such existing borrowings, will

facilitate raising additional debt on favourable terms. If our Companys highly levereaged debt profile continues, or

worsens, it will have a significant impact on our business, results of operations and financials.

13

7. Our Company has delayed the repayment of certain loans.

During Fiscal 2012, our Company has delayed the repayment of the following loans:

Nature of loan Principal amount (` in

lakhs)

Due date Date of payment

Unsecured term loan 12,500.00 March 28, 2012 May 14, 2012

Secured term loan 13,333.33 March 31, 2012 May 11, 2012

Secured term loan 1,250.00 December 16, 2011 December 30, 2011

Secured term loan 1,000.00 May 3, 2012 May 6, 2012

Delay in repayment of the abovementioned loans may not only constitute a default under the respective loan

agreements but may also affect our ability to raise further debt. Consequently, our inability to raise further debt may

adversely affect our business, financial condition and results of operations. While none of the abovementioned loans

has been recalled by any lender so far, there can be no assurance that they may not be recalled in future.

8. If we cannot respond effectively to competition, our financial condition and results of operations may be adversely affected.

We face competition in the various segments of the entertainment and media industry in which we operate. During

Fiscal 2012, Fiscal 2011 and Fiscal 2010, our theatrical exhibition business constituted 69.99%, 65.39% and

64.37%, respectively of our total consolidated revenues. We cannot assure you that this business segment will

continue to contribute to our consolidated revenue at similar levels. Increased competition resulting from the growth

of other theatrical exhibitors operations may reduce attendance in our cinema theatres, which could adversely affect

our financial condition and results of operations.

In addition, our theatrical exhibition business competes with alternative film delivery methods, including cable

television, Internet, digital video disc, satellite and pay-per-view services. Film distributors, while licensing a film to

the domestic theatrical exhibition industry, have traditionally refrained from making the same film available through

other film delivery methods for a certain period of time, a practice commonly referred to as the theatrical release

window. If film distributors significantly reduce the duration of the theatrical release window, the appeal of

viewing films in cinema theaters may be reduced, which may adversely affect our business, financial condition and

results of operations.

We are also engaged in the business of television content production, an area which has witnessed increasing levels

of competition.

Our costs related to marketing and human resources may increase due to such increased competition. Further, our

competitors may expand their financial and other resources in an attempt to increase their market share. If we are

unable to adequately address such competitive pressures, our business and financial condition may be adversely

affected.

9. Piracy may reduce attendance at our cinema theatres, which may adversely affect our business and financial condition.

Piracy, i.e., making available unauthorised copies of media content, software or other digital content at highly

reduced prices or without charge, is prevalent throughout the world, including India. Anti-piracy laws may not be

adequate or may be inadequately enforced in the jurisdictions in which we operate. The availability of pirated copies

of films may cause some of our potential customers to be less inclined or completely disinclined to visit cinema

theatres, which may adversely affect our business and results of operations.

14

Our business is highly dependent on the maintenance of intellectual property rights in the entertainment products

and services we create and exhibit. Piracy of media products, including digital and Internet piracy and the sale of

counterfeit consumer products, may decrease revenues received from the exploitation of our products. The move to

digital formats has facilitated high-quality piracy, particularly through the Internet and cable television. We may

face difficulties in monitoring infringement of our intellectual property rights. The Indian film industry experiences

significant amounts of losses due to piracy. Existing copyright and trademark laws in India afford only limited

practical protection and the lack of Internet-specific legislation relating to trademark and copyright protection

creates a further challenge for us to protect our content delivered through such media. Notwithstanding the anti-

piracy measures we take, we cannot assure you that we will be able to prevent piracy of our products.

10. Our Auditors have qualified their audit report.

Our auditors have qualified their audit report in respect of our consolidated financial statements for Fiscal 2012 and

Fiscal 2011.

In the audit report on consolidated financial results for Fiscal 2012, our Auditors have drawn attention to the

recognition of Deferred Revenue Expenditure aggregating ` 1,213.81 lakhs pertaining to start up and stabilization

costs of the business of Reliance MediaWorks Entertainment Services Limited, one of our subsidiaries, since the

recognition is not in accordance with the relevant accounting standard.

If our Company had recognised these losses in Fiscal 2012, the loss for the said period would have been higher by `

1,213.81 lakhs.

Further, our Auditors have in the report on restated standalone financial information drawn attention to the fact that

the networth of our Company has fully eroded on account of loss of `70,356.34 lakhs (as restated) for Fiscal 2012.

In addition, our Auditors have in the report on restated consolidated financial information drawn attention to the fact

that the networth of our Company has fully eroded on account of loss of ` 91,016.62 lakhs (as restated) for Fiscal

2012.

The erosion of networth, in their view, indicates an uncertainty that may cast a doubt about our Companys ability to

continue as a going concern.

We cannot assure you that our net worth will not decrease further. For further details, please see the chapter entitled

Financial Statements at page F1.

11. Our pro forma financial statements have not been audited or reviewed by our Auditors.

Our Company is proposing to undertake internal restructuring of its business by transferring its whole or part of

theatrical exhibition business and film and media services to certain of its wholly owned subsidiaries which it is yet

to identify and our shareholders have approved the same proposal on February 21, 2012 through postal ballot.

Accordingly, our Company has prepared pro forma financial statements which assume the transfer of our

Companys film and media services and theatrical exhibition business division to our subsidiaries at book values.

For the purpose of the transfer, it is assumed that all assets which form part of business division assets and business

division liabilities are transferred to the subsidiaries of the Company and the amount receivable as consideration on

transfer is shown as a short term loan and advance recoverable from these subsidiaries.

The pro forma financial information has been prepared by our management and has not been audited or reviewed by

our Auditors. It may not necessarily be indicative of the net results of operations that might have been achieved by

the Company for period or dates indicated, nor is it necessarily indicative of the future results of the Company after

such proposed internal restructuring.

For further details, please see the chapter entitled Financial Statements at page F1.

15

12. We have not received consents for transferring our film and media services and theatrical exhibition business to our subsidiaries from some of our lenders.

We are in the process of transferring our film and media services and theatrical exhibition business to certain of our

wholly owned subsidiaries which we will identify in due course. The shareholders of our Company have approved

the transfer through a resolution dated February 21, 2012.

In terms of the financing agreements with our lenders we are required to obtain their prior consent for, amongst

other, transferring our business. While we have received consents from certain lenders, we have not received

consent from all. Further, the consents received are also subject to certain conditions including:

that there should be no material change to the security offered to the lenders and the assets transferred should continue to secure the exposure;

the relevant subsidiaries or our Company, as the case may be, should ensure sufficient cash flows to meet the repayment obligations;

that our Company has received necessary approval from all lenders; and

that we would continue to comply with the terms and conditions of the financing documents.

Non-receipt of the requisite consents in time or at all from the lenders may either hamper the process of

transferring our film and media services and theatrical exhibition business to certain of our wholly owned

subsidiaries or we may be forced to repay the debt due to them.

13. Changes in technology may render our current technologies obsolete or require us to undertake substantial capital investments, which could adversely affect our results of operations.

Technologies currently under development or that may be developed in the future, if employed by our existing

competitors or new entrants, may adversely affect our competitiveness. The development and application of new

technologies involve time, substantial cost and risk. Our competitors may be able to deploy new technologies before

us and we cannot predict how emerging and future technological changes will affect our operations or the

competitiveness of our services. If we fail to successfully implement new technologies in a timely manner or at all,

our business, financial condition and results of operations may be adversely affected.

We are engaged in the business of film and media services and currently have a production laboratory in Mumbai

and a post-production services facility in Burbank, USA and London, UK. Our film and media services business

generated ` 27,802.90 lakhs, `23,265.50 lakhs and `15,764.30 lakhs for Fiscal 2012 and Fiscals 2011 and 2010,

respectively, which constituted 22.55%, 27.82% and 21.72%, respectively, of our total consolidated revenues for the

said periods. However, new technologies may replace traditional film production methods which may adversely

affect our business and results of operations.

In relation to our theatrical exhibition business, digital projection technology may replace traditional analogue film

projection technology in cinema theatres. Digital projection technology is more expensive to implement and operate

than analogue film projection technology. While 334 of our screens were equipped with digital projection

technology as of January 31, 2013, to remain competitive in the future, we may be required to implement and

operate digital projection technology in more of our cinema theatres, which would require significant investments of

time, financial resources and personnel attention that may adversely affect our financial condition. Further, if we are

unable to implement digital projection technology in our cinema theatres in a timely manner, or at all, we may lose

patronage which could adversely affect our business and financial condition, specifically in the US.

16

14. If the exhibition of films through megaplexes becomes more popular in India, our business and results of operations may be adversely affected.

Changes in technology and the availability of real estate have significantly altered the global theatrical exhibition

industry. Multiplexes, a cinema theatre format that typically comprises four to five screens may, in the future, be

substantially replaced by megaplexes, a cinema theatre format that typically comprises 14 to 15 screens. The

megaplex format has achieved popularity in many developed markets, including the United States. In these markets,

the industry-wide strategy of aggressively building megaplexes has generated significant competition and has

rendered many multiplexes obsolete. If the exhibition of films through megaplexes becomes more popular in India,

we may be required to make significant investments to shift our theatrical exhibition business towards the

establishment and operation of megaplexes, which could adversely affect our business, financial condition and


15. Reduction in our advertisement/ sponsorship revenues could have an adverse effect on our results of operations.

During Fiscal 2012, Fiscals 2011 and 2010, we had ` 3,498.40 lakhs, `3,684.20 lakhs and `4,651.70 lakhs of advertisement/sponsorship revenue, respectively. This constituted 2.79%, 4.33% and 6.22%, respectively, of our

total consolidated revenue for the same periods. We generally utilise our existing cinema infrastructure to display

advertisements for our advertising customers. Our gross margin on advertisement revenue is high as we do not incur

significant additional cost for each additional amount of advertisement revenue we earn. Consequently, changes in

our advertisement revenue will have a larger percentage impact on our profit before tax than changes in some of our

other sources of revenue.

16. The cost of exhibition of a film varies across films and cinemas and if we are unable to obtain films on competitive terms, our results of operations may be adversely affected.

We rely on distributors to obtain films for exhibition. In order to obtain a film for exhibition, we enter into

agreements in which the distributors share is typically calculated as a percentage of ticket receipts (net of

entertainment taxes and other applicable taxes). The applicable percentage is negotiated on a film-to-film basis in

respect of films produced in India and periodically for film releases by international studios. Distributors work on a

non-exclusive basis and there is competition between exhibitors to acquire films. Competitive pressures may result

in increasing the cost at which we acquire the rights to exhibit films. If we are unable to recover such increased costs

through higher box office collections or other forms of revenue generation, our results of operations would be

adversely affected.

17. In the event of any reduction or termination of any of our tax incentives or, specifically, if a state Government refuses to grant, withdraws or reduces its entertainment tax incentive, our business and results

of operations may be adversely affected.

We benefit from certain tax regulations and incentives. Specifically, we are subject to entertainment taxes in various

states in India in which we operate our cinema theatres. The applicable entertainment tax is determined by the

relevant state as a percentage of our gross box office collections in that state. The rates vary substantially from state

to state. We are eligible for entertainment tax exemption for certain of our cinema theatres, which is typically

staggered over a period of time. In addition, we also enjoy full entertainment tax exemption in respect of certain of

our cinema theatres in Punjab and Rajasthan. When deciding whether to open a new cinema theatre, we consider the

availability of entertainment tax holidays and incentives given by various state Governments. Typically, the

developer, from whom we propose to acquire a new property, files an application for the grant of an entertainment

tax exemption with respect to the relevant property. If a state Government refuses to grant, withdraws, or reduces its

entertainment tax incentive, our business, financial condition and results of operations may be adversely affected.

Further, in certain instances, we are required to operate a cinema theatre for a certain period of time in order to avail

of certain tax incentives. If we fail to operate a cinema theatre for the required period of time, we will not be eligible

17

for the tax incentive and will have to pay taxes in arrears, which may adversely affect our financial condition and


18. Certain equipment for the construction of our studio and some of our cinema theatres may not be received in a timely manner, or at all, which could adversely affect our business and results of operations.

We are currently in the process of constructing a studio in Film City, Mumbai. As part of the construction process,

we have placed orders for certain equipment. However, based on our estimates, we are yet to place orders for large

number of equipment. Similarly, we are yet to place orders for certain equipment for new cinema theatres that we

are constructing. If we do not receive any such equipment in a timely manner, on favourable terms, or at all, the

construction of our studio and cinema theatres may be delayed or prevented, which could adversely affect our

business, financial condition and results of operations.

19. Our business and growth strategies involve the pursuit of strategic acquisitions, and any difficulties encountered in identifying or integrating other entities may adversely affect our financial condition and


Our growth strategy involves the acquisition of new businesses. For example, we have acquired Rave Entertainment

Private Limited, Synergy Communications Private Limited (now, Big Synergy Media Limited), iLab and

Reliance Lowry Digital Imaging Services Inc. (Lowry Digital) between the financial years 2007 and 2010 and the

assets and brand Digital Domain belonging to DDMG, through Galloping Horse-Reliance LLC, an associate

entity, in financial year 2012. Although as of the date of this Draft Letter of Offer, we have not entered into any

letters of intent, memoranda of understanding or agreements regarding contemplated acquisitions, we intend to

continue to evaluate options for acquisitions that may improve our businesses and service offerings. We may be

unable to complete future acquisitions on terms acceptable to us, in a timely manner, or at all. Our acquisitions may

require that our management develop new expertise, manage new business relationships, attract new customers and

operate in new geographic markets. Furthermore, acquisitions require the devotion of significant attention and

resources from our management, and the diversion of our management, attention and resources could adversely

affect our ability to manage our business.

In addition, we cannot assure you that the integration of any future acquisitions will be successful or that the

expected strategic benefits or synergies of any future acquisitions will be realised. We may experience difficulties in

integrating acquisitions into our existing business and operations. Future acquisitions may expose us to potential

risks including risks associated with the integration of new operations, services or personnel, unforeseen or

unaccounted liabilities, the diversion of resources from our existing businesses and technologies, our inability to

generate sufficient revenue to offset the costs of acquisitions, and potential loss of, or harm to, relationships with

employees or customers, any of which could significantly disrupt our ability to manage our business and in turn

adversely affect our business, financial condition and results of operations.

20. If we are unable to obtain or renew approvals in a timely manner, or at all, our business and results of operations may be adversely affected.

As of January 31, 2013 we operated 121 cinema theatres with 452 screens across India and the United States. In

order to operate each of these cinema theatres, we must obtain certain approvals, many of which we must renew

from time to time. In addition, as we expand our business and open new cinema theatres, we will require additional

approvals for these new locations. If we fail to obtain or renew any applicable licences, registration or permits in a

timely manner, or at all, our ability to operate our cinema theatres may be adversely affected, which could in turn

adversely affect our business, financial condition and results of operations.

The approvals and licences obtained by us may contain conditions, some of which could be onerous. We cannot

assure you that the approvals, licences, registrations or permits issued to us would not be suspended or revoked in

the event of non-compliance or alleged non-compliance with any terms or conditions thereof, or pursuant to any

18

regulatory action. Any suspension or revocation of any of the approvals, licences, registrations or permits that have

been or may be issued to us may adversely affect our business and results of operations.

21. Failure to complete contracts, which have a fixed-time frame, as scheduled may negatively affect our profitability and may result in increased expenses due to repetition of work.

We derive a significant portion of our earnings from our post-production services on a fixed-time frame basis. In

respect of such fixed-time post-production services, we bear the risk of penalty provisions, cost overruns,

completion delays and wage inflation in connection with these projects. Our failure to estimate the resources and

time required for a project, including as a result of uncertainties due to creativity issues, may adversely affect our

reputation, business, financial condition and results of operations. In addition, our post-production agreements

require that we redo the production of content that is rejected by clients on grounds of such content not complying

with specifications. Such agreements also provide for penalty clauses where we are liable to pay penalties for any

delay in the completion and handover of the material being produced under the agreement. We cannot assure you

that we will always complete the production of material under our post-production arrangements on time or that

such material will be accepted by our clients. Any inability to complete these post-productions in a timely manner or

in accordance with client specifications could adversely affect our business, financial condition and results of

operations.

22. Procurement of new contracts for our post-production business is subject to negotiations, financial closure and initial quality tests. Our inability to procure new contracts could affect our future results of operations

and cash flows.

The growth of our business depends on our ability to win new contracts. Generally, it is difficult to predict whether

and when we will be awarded a new contract since many potential contracts involve negotiations with our clients

and also financial closure prior to signing definitive agreements. The process also involves initial quality tests which

are normally done by way of pilot productions and subject to approval by the clients. As the growth of our business

will be derived primarily from these contracts, our future results of operations and cash flows can fluctuate

materially from period to period depending on the timing of contract awards.

23. If the number of unsuccessful films in the film industry increases, our business, financial condition and results of operations may be adversely affected.

Our business relies heavily on the success of the films we exhibit. Our potential cinema theatre patrons may be

inclined to visit our theatres in significant part based on the appeal of the films we exhibit, irrespective of the

services, technologies and amenities we offer. Typically, we are also able to raise the profile of our film and media

services business through association with successful films. A films success cannot be predicted through the use of

any definite formula or study of prior successful films. Consequently, the success of a new film may be difficult to

predict. We cannot assure you that box office collections of films with well-known casts or previously successful

content will be successful. If the number of unsuccessful films in the film industry increases, our business, financial

condition and results of operations may be adversely affected.

24. We operate most of our cinema theatres through agreements with the owners and / or developers of the relevant properties, which entail certain risks.

As of Janruary 31, 2013 we operated 121 cinema theatres with 452 screens across India and the United States. We

operate a vast majority of our cinema theatres through a lease on the relevant property, a business conducting

agreement or a management agreement to operate the relevant property as a cinema theatre. We cannot assure you

that we will be able to enter into or renew business conducting agreements for our cinema theatres that are of the

same duration as the relevant property leases on favourable terms, or at all. In the event that a business conducting

agreement or lease is not renewed, we will be required to expend time and financial resources to relocate the cinema

theatre, which may adversely affect our financial condition. We cannot assure you that we will be able to relocate a

cinema theatre to an appropriate location in a timely manner, or at all. There can be no assurance that a relocated

19

cinema theatre will generate revenues at levels equal to those generated at the previous location. Further, if any lease

or business conducting agreement is terminated, revoked subsequent to the lock-in period and prior to tenure, not

renewed or if we are required to cease business operations at a property for any reason whatsoever, our business,

financial condition and results of operations may be adversely affected. After such termination, if the relevant

property is leased or sold to another theatrical exhibition company, we may face increased competition in that

geographic area. We operate some of our cinema theatres inside shopping malls and if the operator of a shopping

mall has not obtained certain approvals, our ability to operate such cinema theatres may be adversely affected.

While we pay stamp duty on our business conducting agreements, these agreements may be treated as lease under

relevant stamp legislation. In such event, we would be required to pay a higher stamp duty and might also be

required to pay penalties in accordance with the relevant stamp duty legislation. If any of our business conducting

agreements is treated under relevant stamp duty legislation as a lease, our business and financial condition may be

adversely affected.

25. We are dependent on the services of key management personnel and our ability to recruit and retain skilled and experienced employees.

In order to successfully manage and expand our business, we are dependent on the services of key management

personnel and our ability to attract, train, motivate and retain skilled employees, including artists, technicians and

other professionals. If we are unable to hire additional personnel or retain existing qualified personnel, our ability to

expand our business may be impaired and our revenues may decline. We may be unable to hire and retain enough

skilled and experienced employees to replace those who leave or may not be able to re-deploy. In addition, we do

not maintain key man insurance. We also may be unable to retain the proper mix of employees to follow industry

trends and changing customer preferences. Any failure to hire or retain key management personnel and skilled and

experienced employees could adversely affect our business and results of operations.

26. Conditions and restrictions imposed on us by the agreements governing our indebtedness could adversely affect our ability to operate our businesses.

Certain of our financing agreements include conditions and restrictive covenants that require us to obtain consents

from the respective lenders prior to carrying out certain activities and entering into certain transactions. Our lenders

have certain rights to determine how we operate our businesses, which, among other things, restrict our ability to

raise additional equity, pay dividends, make investments, effect a change in ownership, amend our Memorandum

and Articles of Association, undertake a merger, amalgamation or reconstruction, make changes in our management,

incur additional long-term indebtedness, sell assets or acquire other businesses. We cannot assure you that we will

be able to obtain approvals to undertake any of the activities restricted under these financial covenants as and when

required in respect of such restrictions or comply with such covenants or other covenants in the future.

Further, these debt obligations are typically secured by a combination of security interests over our assets and

hypothecation of movables and future receivables. The security allows our lenders to sell the relevant assets in the

event of our default, convert outstanding debt into equity, nominate directors to our Board or exercise other such

related rights.

Under such financing agreements, we are also required to comply with certain financial covenants, such as the

maintenance of certain specified financial ratios, including a ratio of gross borrowings to tangible net worth, which

may limit our ability to obtain additional funds. We currently are not in compliance with some of these financial

ratios; however the relevant lenders have not yet recalled any of these loans. If we are unable to maintain these

ratios, the lenders are entitled to declare the loans due immediately. In addition, certain of the loan agreements

contain cross-default provisions, whereby a default of any of the covenants under any one of financing agreements

may result in an event of default under other financing agreements or respective concession or licence agreements. If

we do not repay the outstanding loan amounts in a timely manner or at all, our business, reputation and financial

condition may be adversely affected. Further, our Company has used short term borrowings for long term

20

investments during Fiscals 2012, 2011 and 2010. For further details, please see the chapter entitled Financial

Statements at page F1.

If we incur more debt or there is an increase in the applicable interest rates for our existing debt, our interest

payment obligations will increase and we may become subject to additional conditions from lenders, including

additional restrictions on the operation of our businesses. The financing agreements that we are party to or which we

may enter into in the future may be unilaterally terminated by our lenders or the lenders could decline to lend to us

under such agreements. Further, we cannot assure you that we will be able to raise additional financing on

favourable terms, or at all. Any failure in the future to obtain sufficient financing could result in a lack of cash flow

to meet our operating requirements and, therefore, could have an adverse effect on our business, financial condition

and results of operations.

27. Our Company, Subsidiaries, Promoters, Group Companies and associate companies of our Company have availed of unsecured loans that may be recalled by lenders at any time.

Our Company, Subsidiaries, Promoters, Group Companies and associate companies of our Company have availed of

unsecured loans which may be recalled by the lenders at any time. Any accelerated repayment of such loans may

adversely affect the cash flow and results of operations of such entities. We may also require alternative sources of

financing, which may not be available on commercially reasonable terms or at all. For further details in relation to

the unsecured loans obtained by our Company, please see the chapter entitled Financial Indebtedness at page 254.

28. If we are unable to recover certain amounts outstanding in relation to our film and media services business, our financial condition and results of operations may be adversely affected.

Certain risks are involved in relation to the film and media services industry practice of extending credit for long

periods of time and the uncertainty regarding the receipt of certain outstanding amounts due. Due to these industry

conditions, we have and will continue to have high levels of outstanding receivables. As of September 30, 2012, we

had `9,288.38 lakhs of trade receivables in relation to our film and media services business. Given the nature of the film and media services industry and our clients, billings are generally subject to negotiation at the time of

settlement. This often results in high levels of rebates, discounts and write-offs. Any increase in the levels of rebates,

discounts or write-offs given could increase our working capital requirements and could adversely affect our

business, financial condition and results of operations.

29. If a third party files an intellectual property infringement case against us, our business, reputation and financial condition may be adversely affected.

A significant portion of our business involves intellectual property. The films exhibited at our cinema theatres and

television content we produce involve intellectual property rights of various entities. While we attempt to ensure that

necessary consents are obtained from third parties to acquire intellectual property rights for the distribution and

exhibition of films and the

Draft Letter of Offer March 11, 2013 For Equity … Letter of Offer March 11, 2013 For Equity...

Documents

Transcript of Draft Letter of Offer March 11, 2013 For Equity … Letter of Offer March 11, 2013 For Equity...