CREDIT APPLICATION Borrower Static Details Name of Customer Location the INOX LEISURE LTD Mumbai Priority sector

Non Priority Sector Others PART A Group Customer ID CA Ref. No. CA Date 25/08/2013

Exposure Classification

SSI Activity Constitution Proprietorship (X) Appropriate Ownership / Share holding pattern

ME

Industry Partnership Pvt. Ltd. Co. Public Ltd. Co. X Amount Subscribed In Rs 4,87,38,11,040 7,04,95,320

Advertising, Media Others (Specify)

Name of the Promoter Gujarat Fluorochemicals Ltd Inox Leasing And Finance Ltd.

No of Equity Shares 40615092 587461

65.62 0.95

Quarterly. Q1 Performance + ve movement (+ ve, - ve or stable)

Q2 + ve

Q3 + ve

Q4 + ve

External Credit Date of Rating Rating A+ Valid upto Agency : Crisil & Amount ICRA (if any) Rating Type : LT (A1 for ST)

Aug 16, 2012

Rs. 1066.8 Million

Instrument Nature of Proposal / Aggregate Limits Proposed : (Rs Crs) FB WC NFB WC Term loan VaR 5

CMS

Total 5

Credit Proposal Outline - Transaction Summary and Use of Funds:

What facility is being proposed, what is the purpose, for what tenor , with what key terms and conditions.
Term loan amounting to Rs.500 lacs carries interest @ 8.75% p.a and is secured by mortgage of immovable property situated at Pune and charge on all movable assets situated at Pune,Thane, Rajapark (Jaipur) and Madurai multiplexes and four future properties. The loan is repayable in 12 equal quarterly instalments.

Comforts Available: Equitable Mortgage of

Paari Paasu charge of immovable property situated at Pune and charge on all movable assets situated at Pune,Thane, Rajapark (Jaipur) and Madurai multiplexes and four future properties

Security PDC for the limit Escrow Arrangement

About 1/5th of the loan amount

Banking Arrangement Present Arrangement (Mark (X) as appropriate) Sole Banking X Multiple Banking Outside Multiple Banking Proposed Arrangement(Mark (X) as appropriate) Sole Banking X Multiple Banking Outside Multiple Banking

Consortium

Outside Consortium

Consortium

Outside Consortium

Facilities proposed : what is being proposed by you as an RM

Nature of Facilities Facility Rating Existing Limit O/s as on Prop. By Business Prop. By Credit Secured / Unsecured Pricing & Tenor

Term Loans

A+

96.68 Cr

16.8.2 012

7 Cr

5 Cr

Secured

8.75%, Annual

I. Total Funded

5 Cr

Secured

II. Total Non Funded Treasury VAR Forex Forward MTM as on Derivatives MTM as on CMS Intraday Total Exposure (TE) Total Group Exp. (TGE) Rs. 5 Cr TE as % Banks Capital Funds TGE as % Banks Capital Funds 10.31%

Security:

Paari pasu charge on the immovable assets situated at Pune and charge on all movable assets situated at Pune,Thane, Rajapark (Jaipur) and Madurai multiplexes and four future properties

Company Background and Business Activities:

Details the group to which the business is there and about the business
INOX Leisure Limited (BSE: 532706) is the diversification venture of the INOX group into entertainment and is a subsidiary of Gujarat Fluorochemicals Ltd headquartered in Mumbai. INOX currently operates 73 multiplexes and 289 screens in 39 cities across India. Location of Multiplexes:

Faridabad, Jaipur, Mumbai,Kanpur, Kolkata, Chennai, Bangalore, Lucknow, Hyderabad, Vadodar a, Pune, Darjeeling,Goa, Indore, Kota, Nagpur, Vijayawada, Bharuch, Raipur,Durgapur, Burdwan , Siliguri, Howrah, Vishakhapatnam, Thane, Belgaum, Kharghar, Bhubaneswar, Bhopal and Udai pur
Physical Performance Details

What is the production in terms of units, capacity utilization etc ( division wise data)
The company derives the major share of revenue from the box office collections. The company has a total of 289 screens across India. On an average there are 275 seats per screen and 75% of them are reserved per show.

List of Directors:

Name of promoter directors and other key directors and experience in the field Chairman Director CEO Mr. Pavan Jain >30 years of experience as MD of INOX air products Mr. Vivek Jain >25 years of experience Mr. Alok Tandan (BE, close to 25 years of experience)

Cross Sell Opportunities 1. The exhibition industry is in a consolidation phase giving good opportunity to acquire single/small multiplexes. 2. There is an opportunity to expand in the international market. 3. There has been experimentation in the content that a multiplex screens provides. The kind of software content that has been experimented is live sporting events- Football, Cricket, Formula 1 grand prix, music concerts, beauty pageants, etc.

Account / Group Relationship profitability analysis Account Profitability Existing FB NFB Trsy/others Total Expected FB NFB Trsy/others Total Group Current and Proposed Borrowing Arrangements: Current Arrangements : Term loans (Existing) Details of Term Loans: Term loans from Axis bank, Citi Bank and ING Vysya Bank 1.31 Cr 1.31 Cr Average Net Interest Income Non-Interest Income Utilization (Rs. in Crs) (Rs. in Crs) ROC %

Proposed Arrangements: Term Loan % share Rate of Int. 5 Cr 8.75%

Limit FB 5 Cr NFB Total 5 Cr

Rs. In Crs Remarks (if any)

Security Related Covenants:

The ratio of Net Cash Flow to Debt Service Liability shall not be less than 1.3:1

FOREX EXPOSURE OF THE BORROWER : Capital Market Perception: Listed in : NSE & BSE 52 week high ? 97.25 52 week low ? 50.25 Current price ? 58.45

ANALYSIS & ASSESSMENT Business & Industry Analysis:

PART B

PRODUCT / USAGE / COLLABORATION(S)/ MARKET GROWTH / MARKET SHARE etc:

The film exhibition business and the domestic box office is expanding at a healthy pace. The industry is projected to grow at a Compound Average Growth Rate (CAGR) of 11.5%* to touch ` 193 billion in 2017. Domestic theatrical revenues are expected to continue dominating the overall film exhibition pie. Significantly, multiplexes account for 50% of the Indian theatrical revenues, despite having less than 15% market share in terms of screen count. DETAILS VIS-A-VIS COMPETITORS:

Name

Last Price 228.25 371.5 368.6 117.15 42.75

Market Cap.
(Rs. cr.)

Sales Turnover

Net Profit

Total Assets

Zee Entertain Sun TV Network PVR Eros Intern Reliance Media

21,900.73 14,640.24 1,511.46 1,076.86 838.05

2,565.88 1,817.62 671.52 925.31 759.87

640.69 683.34 54.85 117.09 -703.56

3,354.30 2,645.24 442.07 1,024.02 1,576.04

Cinemax India Cinevista

166.55 3.4

466.34 19.53

409.97 54.88

29.96 0.13

0.05 181.88

B) (2)

Brief Performance And Financial Position Indicators: Rs. in Lakhs

FINANCIALS FOR THE PERIOD ENDED (A) PERFORMANCE ANALYSIS: NET SALES (incl. Trading and Other Operating Income) OTHER NON OPERATING INCOME PBDIT (OPERATING PROFIT) NET PROFIT CASH PROFIT PBDIT / NET SALES (%) PAT / NET SALES (%) (B) FINANCIAL POSITION: TANGIBLE NET WORTH TOL / TNW ADJUSTED TANGIBLE NET WORTH (ATNW) TOL / ADJ. TNW (ATNW) LONG TERM DEBT / TNW TERM DEBT / PBDIT TERM DEBT(incl. Deb) / CASH PROFIT (Years) NET WORKING CAPITAL CURRENT RATIO RECEIVABLE TURNOVER (DOMESTIC) (DAYS)

2012 Actual

2013 Actual

2014 Estimated

40954.01 602.66 1921.46 1027.69 3813.67 4.69% 2.51% 32560.07 0.97 32560.07 0.97 0.71 10.82 5.45 -5426.29 0.36 28.90

74581.88 362.46 3387.03 1844.63 4965.08 4.54% 2.47% 50559.29 0.97 50559.29 0.97 0.57 6.61 4.5 -11698.90 0.41 20.34

96956.44 471.20 5318.68 3150.19 4502.25 5.49% 3.25% 53709.48 0.98 53709.48 0.98 0.49 3.43 4.05 -16420.78 0.37 20.34

INVENTORY TURNOVER (DAYS) CREDITORS TURNOVER (DAYS) (B) (3) Capital Expenditure Plans: Nature of Capex: Capacity Addition from the Capex: Other Benefits from the Capex: Total Cost Investment till date along with the means of finance Means of finance for balance investment Schedule of completion Auditors Qualification: M/s. Patankar & Associates

131.33 81.65

136.48 68.51

136.48 69.49

Management Details: Mr. Pavan Jain Mr. Sanjeev Jain Mr. Vivek Jain Mr. Deepak Asher Mr. Siddharth Jain Mr. Haigreve Khaitan Mr. Amit Jatia

Chairman Non Executive Director Non Executive Director Non Executive Director Non Executive Director Independent Director Independent Director

Market Checks & References: http://www.moneycontrol.com/india/stockpricequote/mediaentertainment/inoxleisure/INO01

FACILITIES ASSESSMENT: Working Capital Assessment:- 101 Cr (Max permissible) Fund Based Rs. 5 Cr(Proposed) Non Fund based

Credit Structure & Our Share Term loan from development credit bank & HSBC- Already existing Term loan = Rs. 5 Cr (about 5.15% of total) Take-Out Repayments in Quarterly installments Any deviation from internal / external (RBI / Fema) policies. Substantial Exposure, if the exposure gets covered under substantial exposure. No

SWOT Analysis Strenghts : 1. The company plans to go for in-depth research of demographic segments, income patterns, preferences of customers, spending habits and regulatory framework before selecting cities for setting up new units. 2. It has an early mover advantage 3. Edge over local competitors in terms of economies of scale due to managing a chain of multiplexes. 4. Inox enjoys brand Weakness : 1. It's promoter Gujarat Fluorochemicals Limited (GFL) is not related to the exhibition business and has no prior experience in the multiplex/entertainment industry. 2. Two of its multiplexes are currently enjoying a 50% exemption from income tax, which is due to expire shortly. Opportunities: 1. The exhibition industry is in a consolidation phase giving good opportunity to acquire single/small multiplexes. 2. Inox has an opportunity to expand in the international market. 3. Internationally there has been experimentation in the content that a multiplex screens provides. The kind of software content that has been experimented is live sporting events- Football, Cricket, Formula 1 -grand prix, music concerts, beauty pageants, etc. Threats : 1. Inox faces threats from alternative sources of entertainment. 2. Increased competition from organized and unorganized players. In a short span of

equity and is well recognized in the industry.

time, there has been a significant increase in the number of multiplexes in India. 3. The key players in India (other than Inox Leisure Limited) include PVR, Adlabs Films, E-City Entertainment, Shringar Cinemas and Wave Cinema.

Certification (in case of non-compliance, give details / reasons & justification for recommending the limit despite non-compliance) a) There are no un-rectified irregularities in the account b) All formalities regarding documentation and security creation for existing facilities have been completed

c) All other terms, including EODs, for existing exposures are in compliance d) The company / directors / group companies / guarantors do not figure in RBIs defaulter list,
CIBIL list e) Neither directors of any bank nor their relatives (viz : spouse, father, mother, son, sons wife, daughter, daughters husband, brother, brothers wife, sister, sisters husband, brother, sister) are interested in the borrowing entity as a partner / director /guarantor nor do they hold substantial interest in the borrowing entity f) The borrowing entity does not produce / consume CFC-11 /CF-12/ mixtures of CFC 11 and CFC12 / CFC 13 / Halons-1211,1301,2402

g) There are no deviations from the credit policy (including policy on Bill Finance), RBI policy, FEMA and other related regulatory provisions h) There are no cases pending against the borrower / guarantor in any court in respect of any dues to banks / financial institutions

Recommendation: Facility: Term loan of Rs. 5 Cr at 8.75% repayable at the end of one year Security & Comfort: Paari Paasu charge of immovable property situated at Pune and charge on all movable assets situated at Pune,Thane, Rajapark (Jaipur) and Madurai multiplexes and four future properties CREDIT RISK ASSESSMENT NOTE (1) BUSINESS RISKS & MITIGANTS:

The period for which a particular film is screened has been steadily decreasing over the past few years and it is expected to decline even further leading to generation of lower profits. Also, the other distribution platforms like DTH, satellite television and the launch of 3G enabled mobile handsets pose huge risks to the continuation of profitable business Too many films being released on one particular day may dilute the revenue. Uncertainty over the policies had posed huge challenges to operate in the industry

(2)

FINANCIAL RISK & MITIGANTS ANALYSIS: Very Important financial statement to understand the financial risk is the Cash flow statement. The Cash Flow from Operations is very volatile over the past few years. Even though the Interest Coverage Ratio and the DSCR are healthy on the face of it, the major part of the repayment schedule starts from FY2014. The Client had already taken secured loans from banks and obtained deposits from other corporates. When the repayments have to be made, the ICR and DSCR may drastically come down and the Client may find it difficult to repay dues regularly.

(3)

MANAGEMENT RISKS & MITIGANTS: INOX has always been, and will continue to be, a professionally managed company. The management team helped create this formidable brand in the multiplex space There have been many consolidations happening in the recent past and that had not affected the brand by any chance. There have been no records of any Mitigants. We do not foresee any management risks in near future.

(4)

Reference checks and Market Information:

There is a mention about this client in watchoutinvestors database but it was not because that the regulatory order was against them but their names had been mentioned only for association purposes.

(5)

Highlights on Industry & comments on competitiveness

The film exhibition business and the domestic box office are expanding at a healthy pace. The industry is projected to grow at a Compound Average Growth Rate (CAGR) of 11.5% to touch Rs.193 billion in 2017. Domestic theatrical revenues are expected to continue dominating the overall film exhibition pie. Significantly, multiplexes account for 50% of the Indian theatrical

10

revenues, despite having less than 15% market share in terms of screen count. With multiplex chains charting out an aggressive expansion roadmap, increasing digitalization of screens enabling wider film print releases, experimentation with different content, increasing popularity of regional film segment and arrest of piracy are some of the major drivers of growth, riding on which, the industry is expected to be follow a strong growth trajectory going forward. The competition in the industry is not only from the multiplexes, but also from the other single screen operators and the growing popularity of alternate distribution platforms like DTH, satellite television and the launch of 3G enabled mobile handsets are a potential threat to theatrical exhibition. There are only a few multiplex segment operators which is organized. But the Single screen segment is highly fragmented and unorganized.

(6)

Peer Comparison

Name Sun TV Network Dish TV India DB Corp Hathway Cable TV18 Broadcast JagranPrakashan Den Networks HT Media PVR Ent Network Ind Eros Intern Hindustan Media Reliance Media Siti Cable INOX Leisure

Market Cap
15,365.36 4,504.02 4,386.81 3,786.93 2,978.29 2,743.25 2,392.92 2,102.32 1,605.15 1,135.99 1,048.36 880.36 876.28 673.8 593.22

Sales Turnover
1,817.62 2,166.80 1,578.86 654.32 541.55 1,411.80 700.91 1,345.09 671.52 338.39 925.31 636.27 759.87 416.01 765.29

Net Profit
683.34 -65.75 230.61 3.2 10.22 220.51 44.96 24.15 54.85 67.67 117.09 84.52 -703.56 -61.84 18.45

(7)

Assessment of Limits Proposed: (Comments on changes only, if you feel that the assessment needs to be changed)

On the face of the Credit, the Loan amount of Rs. 5 Cr can be disbursed to the Client since the cash flow from operations look very healthy. But, the Client had taken many other loans from Banks worth Rs. 56 Crores out of which almost 65% of the Loan amount is still due. They are due to be repaid in next 2 years. Also, The intercorporate deposits are repayable in 3-4 years from the date of the respective deposits beginning

11

from 8th June 2014 and carry interest in the range of 10% to 11%. These deposits (to be repaid) are worth Rs.202.7 Cr. On an average, the Client has to repay Rs. 75 Cr for the next 2 years. The Cash Flow from Operations is Rs. 97.8 Cr in FY2013 and Rs. 71.3 Cr showing a decline of 37%. The previous Financial Years Cash Flow also seems not promising and hence a huge volatility Risk is involved. Hence the loan amount of Rs. 5 Cr to be repaid in 3 years is risky. The Client may not be able to repay the loan amount if the current state of Operations continues. Also the Interest Rate of 8.75% is below the Base rate of JK Bank (as assumed). Base Rate = 10.25%. Since the Credit Rating of the client is A+, according to the Bank Stipulations, minimum of Base Rate + 3.00% is appropriate. As explained earlier, since the risk involved is very high, the liquidity Premium and the risk Premium should also be added. Hence, considering the above scenario, if the loan has to be disbursed, it has to be done on a high interest rate. With the Present financial Position of the Client, it is unlikely that the Payments would be made on due dates.

(8)

PRODUCT STRUCTURE RISK & MITIGANTS:

Risk with this credit is obviously high. Repayment in 12 quarters for Rs. 5 Cr is the condition stipulated by RM. Since the risk is high, the interest rate has to be definitely increased. Proposed Product Structure: Term Loan Rs. 5 Cr. Interest Rate Base Rate + 3.00% + 1.50% + 0.75% = 15.5% Repayment Schedule 12 Quarters Even with this structure, the credit is riskier.

(9)

Risk Reduction & Credit Enhancements:

Previous Term Loans were taken with Paari pasu charge on the immovable assets situated at Pune and charge on all movable assets situated at Pune, Thane, Raja park (Jaipur) and Madurai multiplexes and four future properties. Giving away the loan with the charge on movable/immovable assets of the new multiplex may not be wise considering the huge competition in the Industry. The revenue and the PBIT (considering the same % of previous 2 years) from the new multiplex may not be good enough to cover the Interest charges. Risk involved is very high. With the expansion in future plans, the Client does not have enough Cash Inflows to support the Expansion Expenditure. Hence, the Client will have to fund the expansion only through borrowed funds. Interest Expense may shoot up. DSCR may take a hit.

12

Hence, the scope for reducing the risk is low.

(10)

Recommendation:

Proposed Structure by RM: Term Loan Rs. 5 Cr. Interest Rate 15.5% Repayment Schedule 12 Quarters Considering the risk involved in this credit, I would recommend not to lend to this Client.

(15)

Additional Terms & Conditions (other than standard conditions) None

ANNEXURE: I Compliance with credit policies Internal / External Internal Credit Policies : Broad Customer Acceptance Criteria: MANUFACTURING ENTITIES: Sl.No. Criteria Applicable for SME Customers For the last two years Minimum 10% of net sales. No slippage in the last two years. Complied With/ Not Complied With Complied with Not Complied Remarks

1 2

Net Sales / Net Profit on the growth path Profitability at Operating Profit (PBDIT) (i.e. excluding non operative income) Total term borrowing / Cash profit (basis as per last audited financials) Interest / Net Sales (basis as per last

Within Stipulated Limits Just around 3-4% in the past 3 years

Not exceeding 4

Not Complied

Around 5.86 which is way above the safer limit As per Audited Accounts, it is well

Not exceeding 5%

Around 2% Complied with

13

audited financials)

TOL/TNW ratio

Current Ratio

Not exceeding 2.50 (treating unsecured loans from promoters clearly sub-ordinated to the banks exposure as part of TNW) Minimum 1.15

Around 1.00 Complied with

within our limits. But, this may shoot up in the future. Operations not looking good. They might well sell of their assets to meet their short/long term obligations. Not a good sign Negative Working Capital. Very common for this business None Major threats from local players, other form of Media Entertainers No records of default yet

< 1.00 Complied with None Complied with Competitive

7 8

Promoters Reputation Industry Outlook

No negative reports from the market Positive

Borrower Rating

Not below BBB

A+ Complied with

Annexure: II: Sr. A 1 2 3 4 B 1

RBI Checklist Compliant NA Deviation NA

2 3 4

5 C

Particulars Default Check No directors in the RBI list of non suit filed willful defaulters accounts of Rs.25 lacs and above No directors in the RBI list of non suit filed accounts of Rs.100 lacs and above No directors in the CIBIL list of suit filed accounts (Willful Defaulters) of Rs.25 lacs and above No directors in the CIBIL list of suit filed accounts of Rs.100 lacs and above Restricted advances against shares No Advances against Our Banks Shares No Advances against shares of an amount exceeding 30% of the paid-up share capital of the company or 30% of Our Banks paid-up share capital and reserves, whichever is less No loans to company for buy-back of shares/ securities No loans to be granted against partly paid shares No loans to be granted to partnership/ proprietorship concerns against the primary security of shares and debentures Restricted advances where directors/officers are

14

1 2 3 D 1 2 3

interested No Advances against shares of Co. in which directors are interested No Advances to banks Directors and parties related to directors No advances to Officers and the Relatives of Senior Officers of Our Bank/other Banks Restricted advances No advances to small/medium scale units engaged in the manufacture of aerosol units No advances against Fixed Deposit Receipts (FDRs) issued by Other Banks No advances for Bridge Loans to NBFCs All advances to Small Scale Industries with working capital limits of up to Rs.5 crore from the banking system are to be provided on the basis of 20% of their projected annual turnover

NA

NA

15

Annexure IV Common conditions Documentation 1. Duly accepted copy of Sanction Letter, signed by authorised signatory of the Borrower. 2. Certified True Copy of Memorandum of Association and Articles of Association. 3. Resolution of the Board of Directors for facilities granted by the Bank. 4. Master Facility Agreement. 5. Signature verification of authorised signatories. 6. Any other Documentation as prescribed by Legal. Covenants/ Conditions 7. Facility shall be reviewed/ renewed at the end of the validity period. The Borrower shall submit data for review (as requested by the Bank) at least 1 month before the expiry of the validity period. 8. The Bank reserves the right to undertake audit/ inspection of the stock, book debts and plant by appointing an external agency or by its own personnel at a 24 hour notice. Stock and Book debts audit/ plant inspection may be undertaken at a quarterly frequency. Cost of audit/ inspection shall be borne by the Borrower. 9. The Borrower to intimate the Bank at the time of raising any further loans/ availing any facilities from any other Bank or Institution. 10. Any change in shareholding/ directorship shall be undertaken with prior permission of the Bank. 11. The Borrower shall not allow any payout by way of Salary to directors (other than professional directors) or by way of interest to other subordinated lenders or by way of dividend to shareholders in case of delay or default in repayment of any of the facilities availed by the Borrower from the Bank or any other Bank or Financial Institution. 12. The working capital facilities granted by the Bank and other Banks both secured and unsecured shall be within the overall working capital requirements assessed by the Bank. 13. The Borrower to route their entire banking business including foreign exchange, deposits and bill business through the Bank. 14. The Borrower to submit an undertaking that they do not have any borrowing arrangements at present (other than the proposed facilities from THE BANK).

Documentation

Review Conditions

15. Sales and Net Profit going below 85% of the projected level. To be verified at annual interval. 16. Current Ratio falling below 1.33 17. The company, the Corporate Guarantor, incurring losses in any quarter. 18. Any reduction of shareholding of promoter group in the borrower company below 51% without prior permission of the Bank. The same shall be verified at annual intervals.

16

Conditions Not Applicable since the Facility is not approved Facility Limit Type Purpose Validity Usance Rate Of Discounting Default/ Penal Rate Margin Disbursement 1. Method Documentation 2. Transactional Documents Covenants/ 3. Conditions Float 4. Security Documentation 5. Covenants/ 6. Conditions Standard Penalty Clauses Type Quarterly Performance Report, interalia providing the total sales and profitability Audited Annual Report Provisional unaudited financials Overdue Charges/ Default/ Penal Rate Deadline One month from the end of the quarter. Penalty Amount NA

8 months from close of financial year 3 months from close of financial year All amounts unpaid on due date

NA NA NA

17