Rediff.com India Limited (NASDAQ:REDF)
Q3 2012 Earnings Call
January 24, 2013 9:00 a.m. ET
Mandar Narvekar – Director Marketing
Ajit Balakrishnan – Chairman & CEO
Swasti Bhowmick – CFO
Jim Frost – Private Investor
Very good afternoon ladies and gentlemen. I am Sandeep Sarkar (ph) the moderator of this call.
Thank you for standing by and welcome to the Third Quarter Financial Year 2012 Earnings Conference Call. For the duration of the presentation, all participants’ lines will be in a listen-only mode. And we will have Q&A session after the presentation.
I would like to now hand over the conference to Mr. Mandar Narvekar. Over to you sir.
Thank you, Sandeep. Good morning everyone, and thank you for being with us to discuss Rediff.com’s financial results for the third fiscal quarter ended 31 December 2012. I would like to introduce you to the members of the management present on this call who will take you through the highlights of the Company’s performance. We have with us Mr. Ajit Balakrishnan, Chairman and CEO; and Mr. Swasti Bhowmick, CFO.
As mentioned earlier, all of you are currently on a listen-in mode only. This conference will last for about 20 minutes, and then we’ll be glad to answer any questions that you may have. For your immediate reference, we have also posted the earnings release for the third fiscal quarter ended December 31, 2012, dated today on our website at investor.rediff.com. You may also call me at our Indian office at +9122-61820000, and we will be glad to fax or email you a copy during the course of this call.
Before proceeding, I would like to mention that during the conference call except for the historical information and discussions contained herein, statements may constitute forward-looking statements for the purpose of the Safe Harbor Provision under the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements may be identified by the use of forward-looking terminology such as may, will, expect, believe, will continue, anticipate, estimate, intent, plan, contemplate, seek to, future, objective, goal, project, should, will perceive or similar terms, variations of those terms or the negatives of those terms.
These statements involve a number of risks, uncertainties and other factors that can cause the actual results to differ materially from those that may be projected by the forward-looking statements. These risks and uncertainties include but are not limited to a slowdown in the economy worldwide and in the sectors in which our clients are based, a slowdown in the internet and the IT sectors worldwide, competition, the success or failure of our past or future acquisitions, attracting, recruiting and retaining highly-skilled employees, technology, acceptance of new products or services, the development of broadband Internet and 3G networks in India, legal and regulatory policies, managing risks associated with customer products and a widespread acceptance on the Internet.
Listeners should carefully review the risk factors and any other cautionary statements contained in our latest annual report on Form 20-F and other reports filed by Rediff.com with the U.S. Securities and Exchange Commission from time to time. These reports are available on the SEC website from the SEC’s offices in Washington DC and on request by emailing us at firstname.lastname@example.org.
Rediff and its subsidiaries may from time to time make additional written and oral forward-looking statements. Rediff.com and its subsidiaries do not undertake to update any forward-looking statements that may be made from time to time by Rediff.com or on its behalf.
I would now like to introduce Mr. Ajit Balakrishnan, our Chairman and CEO.
Good morning and thank you for joining us on this call. We appreciate your continued interest in our company. And I’m pleased to announce that we continue to make progress in executing our strategy in our third quarter fiscal quarter ended December 2012. Consistent with my remarks during our last quarter conference call. We remain focused on growing our businesses particularly some of the newer online initiatives we are embarked on.
We continued to extend the reach of the Rediff brand across the Indian market, looking to offset some of the weaknesses in advertising in both business and consumer spending and we continue to aggressively manage our cost structure to preserve capital and be opportunistic in our investments.
During the third quarter, and now for three quarters in a row we saw sequential growth in our core business of online advertising in India. And the eCommerce and Subscription businesses we operate. While at the year-to-date comparison was lower in the face of challenging economic landscape in India, we’re cautiously optimistic during the sequential in revenues. And we do believe this trend to continue.
The growth we are experiencing albeit modesty is a result of a continuing efforts in the form of a revamped sales strategy for eCommerce subscriptions and online and local TV advertising, supported by a more focused investments on growth driven programs.
I will provide a brief overview on the unfolding internet ComScore in India, and now some facts that have direct implications on our business. I will also brief you on the progress of our business and the quarterly performance, our CFO Swasti Bhowmick will then discuss the financial performance in detail. Following the presentation we will open the call for questions.
As for the latest statistics on ComScore, the Indian internet market is now 71 million active users, it’s in the growth range of 51% year-over-year. This also compares to 66 million active users as of end of September 2012, an increase of 7.5% in just three months time. Additionally with 16 million active users, Rediff commands a 23% market share in Indian market and the usability has grown 15% in the last three months, these figures are according to ComScore.
According to the Telecom Regulatory Authority of India, the active mobile subscriber base in India was 707 million as of November 2012, and the broadband subscriber base was 13% to 14.88 million in the same month. This we believe is the most recent published data. The broadband penetration is growing slowing and currently is affection of the total Indian population. However we remain optimistic about the growth potential of the Indian internet market as interest sector investments continue.
As I just mentioned, we are pursuing activities aimed at positioning Rediff for more rapid growth in the years to come. Despite the continued economic slowdown and global uncertainty, our core business India Online grew 7% sequentially in dollar terms over the past fiscal quarter. This is the second consecutive quarter that this segment has registered revenue growth.
During the third quarter we saw an increase in spending by our client’s panel in the banking, financial services and internal sectors as well as in electronics and IT products and the online matrimony services.
Besides the growth in our quarterly India Online revenue, our adjacent businesses, including eCommerce, subscription and local TV also showed continued signs of expansion. For example, our eCommerce business in the quarter ended December 31, 2012 increased 95% year on year as compared to 61% year on year, we announced in the previous quarter. The total number of merchants on our online marketplace has increased from 510 to 620 to 670 over the past two quarters, while our SKU range has also increased from 138,000 to 172,000, to close at 184,000 SKUs over the same period.
This equates to over 30% growth in both our vendor base and SKUs over the past six months. Additionally, we have successfully grown our eCommerce business while maintaining a positive margin of 20%.
And our local TV offering, where we enable local businesses, to advertise the national channels in specific cities, we’ve added three more TV channels apart from Zoom, NDTV Good Times, Times Now and ET Now. Our service has been expanded to include three more channels namely ETV Movies, Bindaas and ABP News. The reach of our offering cover extends local and strategic markets for us, Delhi, Bombay, Pune, Ahmedabad, Baroda, Surat, Mysore, Bangalore, Indore and Jaipur.
With this, our local TV ad business now has a potential reach of 80 million individuals across these 10 cities, 189 local merchants from these 10 cities are taking advantage of the opportunity of being able to advertise on national channels, listing our local TV ad service.
Today, India has over 30 million micro-small and medium enterprises according to the Ministry of MSME, and a total of over 700,000 registered companies according to the Ministry of Corporate Affairs. Our pay demand business targeted at this additional market is gaining traction, the use of popular Rediff mail platform to offer these clients, business e-mail under own domain, along with administrative controls, a free domain and website and e-mail on mobile feature that works across most phones. About 234 large corporate businesses, including some of the most well-known brands of India that is Dr. Reddy’s labs, Videocon Telecom, Bajaj Auto Dealers, HDFC Life, HDFC Sales, Bajaj Finance and our RP- Sanjiv Goenka Group, subscribe to fade mail business today and we’re working hard to increase our reach among smaller to mid-sized corporations.
Another key part of our strategy has been to reach the mobile market in India, and some of our more recent initiatives have been centered on mobile phones and smartphones and developing applications and offerings that have been to the Indian demographic.
We believe that people want news, people want secure mechanisms for online transactions, people want easy-to-use e-mail applications and quick and it’s not for content, which continues to be key for consumers.
Mail and use are ready to stop activities down your mobile devices and through Rediffmail, and real-time news offering we are reaching this market. As we acted during the third quarter just ended, our real-time news service became available on the recently launched on Windows 8 platform and was already operating on the popular Android operating systems. Our applications are now available on all the leading mobile operating systems, namely IOS, Android, Blackberry, Windows, Java and Symbian.
We are leveraging our 16 million unique visitors and focusing on work has been reported, by Nielson informative mobile insights to be at 27 million smartphone usability in urban India. In particular which represents a small fraction of total urban mobile on user base, approximately 7% also as per nation’s informative mobile insights.
You’re seeing the growth introduction of smartphones everywhere in India and this is where we are focusing many of our advertising eCommerce and technology offerings in the mobile market. Our strategy has not changed and I continue to believe Rediff will be one of the primary beneficiaries of the anticipated growth in India broadband and mobile expansion over the coming years.
Our goal remains to drive growth, increase margins, lower our cost structure and drive bottom line performance and increase shareholder value. Equally important is that this goal we have a long-term vision to make Rediff a destination choice for online use, entertainment and communication throughout India. And we are operating our business with long-term in mind.
We want to build a sustainable business and provide’s India home and mobile communication solutions and need. This will help us extend the reach and value of the Rediff brand enable us to achieve these four goals. Swasti Bhowmick, our CFO will now provide you with details of our financial performance.
Thank you Mr. Balakrishnan and good morning to all. Overall revenues for the third fiscal quarter ended December 31, 2012 were US$3.97 million, down 18% over the corresponding quarter last fiscal year, but also up by 3% sequentially over our second fiscal quarter. Within this, revenues from India Online were US$3.20 million a decrease of 18% over the corresponding quarter last fiscal year.
As Mr. Balakrishnan noted, however, India Online have posted another quarter of sequential growth and we believe we are positioned well to see this continue to increase over the coming quarters.
Today, total India revenues include both online advertising revenues and fee-based revenues, these totaled US$2.12 million and US$1.02 million respectively in the quarter ended December 31, 2012. Note, our advertising revenues declined by 30% year-over-year due to softness in select industry verticals, but our fee based revenues grew 18% year-over-year helping to offset some of the weakness in advertising spend we have seen.
Our fee-based revenues are up due to the growth in Online Shopping, we continue to see declines in revenue from mobile pass, driven by stricter and prospect of the Do Not Disturb policy laid down by TRAI, but our local TV advertising shows an increase of 60% in rupee terms which more than offset this. I will add that we are taking steps to increase our customer’s advertising, for new solutions and new packages. And there are some vertical sectors which didn’t increase their spend, which is a positive sign for the economy and our business.
Basically, revenues from our U.S. Publishing business were $0.77 million for the third quarter this fiscal year, a decrease of 17% versus the third quarter last fiscal year.
Our gross margins for the quarter ended September 30, 2012 were 38% compared to 47% for the same quarter last fiscal year. This change was mainly on account of the declining revenue as a large portion of our costs of goods sold relatively fixed in nature. As revenues ramp up, we expect to see improvements on our gross profit margins accordingly. Additionally, our gross margins were up 3% on a quarterly sequential basis.
Operating EBITDA showed a loss of $2 million for the quarter ended December 31, 2012, as compared to an operating EBITDA loss of $1.73 million for the corresponding quarter last year.
As you are aware, operating EBITDA is a non-GAAP financial measure and we direct you to our earnings release dated today, which sets out a reconciliation of operating EBITDA to net income. Depreciation and amortization expenses increased to $0.93 million for the quarter ended December 31, 2012 compared to US$0.81 million for the corresponding quarter in 2011.
During the quarter ended December 31, 2012 we exited from one of our equity investment which accounted for one-time gain from the sale of investment of US$1.4 million, included under the heading average cost.
Interest income for the quarter decreased to $0.51 million, as compared to $0.56 million for the quarter in the previous year.
During the quarter, as the end of December 31, 2012, we recorded a non-cash goodwill impairment charge of $2 million comprising from our acquisition of the Print New Stable India cover in the United States in 2001.
Net loss for the quarter ended December 31, 2012, was $3 million as compared to a net loss of $1.2 million for the comparable quarter in the previous year. Net loss per ADS for the quarter was $0.109, as compared to net loss per ADS of $0.043, for the same quarter last fiscal year.
Our total cash and cash equivalents stood at $21.1 million in rupee terms 1,157 million as of December 31, 2012, as compared to $25 million or in rupee terms 1,330 million as of December 31, 2011.
We believe that our cash resources are sufficient to execute our strategy and that our balance sheet provides us with the flexibility to do so. As we look at the remainder of the current fiscal year, with substantial new investments to be made by industry and by government, we are hopeful that our business will return to growth, and we expect to re-invest cash from operations in parts to continue to broaden the reach of Rediff throughout India.
That concludes our review of the results for the quarter ended December 31, 2012.
Thank you Swasti. We’re going to continue to stay in the course as we believe in the long term future of the Indian internet market. There were large population that we believe is craving for technology contingency by expanding our reach whether though online mobile printer TV, we’re reaching new markets, enhance new consumers. We’re going to maintain tight controls on our capital spend to ensure they are the resources to investor’s needed. And we will continue to be opportunistic and aggressive as economic conditions improve. Growth is what we are focused on and hopefully as evidenced by the past two quarterly results, we can see that we’re starting to make better progress sequentially.
I would like to thank you all for your continued patience and support.
Thank you Mr. Balakrishnan. A this point of time, we would like to open the call for questions.
Thank you so much. Thank you all the analysts. With this we are going to start with the Q&A interactive session. (Operator Instructions). And here comes the first question from Mr. Jim Frost, he’s a private investor. Mr. Frost, you can go ahead and ask your question, your line has been unmated.
Jim Frost – Private Investor
Will you please restate the amount of cash on your balance sheet?
Our total cash and cash equivalents through that US$21.1 million, in rupee terms it’s 1,157 million as of December 31, 2012. This compares to US25 million or Rupees 1,330 million as of December 31, 2011.
Jim Frost – Private Investor
Thank you Mr. Frost. (Operator Instructions).
Sandeep, thank you very much. I think, if there are no more questions, you can conclude this call. I would like to thank everyone for being with us on this call and a very good day to everyone. Thank you very much.
Thank you so much once again. Thank you all the participants for joining in. With this we conclude the conference for today. Wish you all a great evening. You all can disconnect your lines. Thank you so much.
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