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Rediff.com India Limited - American Depositary Shares (NASDAQ:REDF)

2Q 2014 Earnings Conference Call

October 22, 2013 9:00 AM ET

Executives

Mandar Narvekar – Investor Relations and Corporate Communication

Ajit Balakrishnan – Chairman and Managing Director

Swasti Bhowmick – Chief Financial Officer

Operator

Good morning ladies and gentlemen. My name is Tanmoy Mukherjee and I am the moderator for this conference. Welcome to Rediff.com India Limited’s Quarter Two 2013-2014 Earnings Conference Call. For the duration of the presentation, all participants’ lines will in a listen-only mode. After the presentation, a question-and-answer session will be conducted for the participants.

I would like to now hand over the conference to Mr. Mandar Narvekar; thank you and over to you Mr. Narvekar.

Mandar Narvekar

Thank you, Tanmoy. Good morning everyone and thank you for being with us to discuss Rediff.com’s financial results for the second fiscal quarter ended September 30, 2013. 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 second fiscal quarter ended September 30, 2013 dated today on the website at investor.rediff.com. You may also call me at our Indian office at 91-22-6182-0000. And we’ll be glad to fax or e-mail 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 maybe identified by the use of forward-looking terminology such as may, will, expect, belief, will continue, anticipate, estimate, intend, plan, contemplate, seek to, future, objectives, 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 maybe 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 Internet and IT sectors worldwide, competition, the success or failures of our past or future acquisitions, attracting, recruiting, and retaining highly skilled employees, technology, acceptance of new products and services, the development of broadband Internet and 3G networks in India, legal and regulatory policies, managing risks associated with consumer products and a widespread acceptance of the Internet.

Response 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 D.C. and on request by e-mailing us at investor@rediff.co.in. Rediff.com and its subsidiaries may inform 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 maybe made from time-to-time by Rediff.com or on as behalf.

I would now like to introduce Mr.Ajit Balakrishnan, our Chairman and CEO.

Ajit Balakrishnan

Thank you, Mandar and good morning to all of you on this call. Our CFO, Swasti Bhowmick will provide financial details, but I’d like to first start with a few comments about our quarterly results before providing updates on our business, our market and what we expect for the future.

We reported total revenues of approximately $4 million, which represented 3% increase in US Dollar terms and a 17% in Indian rupee terms over last year’s comparable second quarter, with the increases driven from our India Online operations.

We are encouraged by this growth despite all that we have faced in this challenging economic environment. Additionally, our gross margins for the quarter were comparable with last year’s second quarter at 34%. Consistent with my remarks in recent quarters, we are being patient. We are managing our cash wisely while continuing to invest in the areas of our business that we believe will position us for sustained growth. It is well documented what’s going on in the Indian economy and worldwide.

So I won’t rehash this. What’s important is that while we conserve and strategically allocate the capital and we remain very much focused on driving growth, further building out our online and mobile offerings and increasing our market reach among our target demographic.

While growth in India has slowed and mass broadband reduction has taken longer than most as anticipated, I remain a firm believer in our potential. I also remain bullish for India’s long term potential and believe India still represents another greatest global opportunity to internet services both on traditional desktops and rare mobile platforms and added to our growth in India has been slower than initially anticipated because some of our countries recent economic challenges.

Some of the following metrics are encouraging. The Indian internet market is growing at the pace of 22% per year-on-year in unique visitor trends and is now at 80 million unique visitors at the end of September 2013. This is from the latest report from comScore Media Metrix in this market. We did accounted 14 million unique visitors, commands an 18% reach.

Also from the last latest report from TRAI, the total number of active wireless subscribers in India grew 5% over the last year to reach 751 million in July 2015, while broadband subscription, grew 4% in the last one year to reach 15 million at the end of July 2015.

Moving on to our business, during the second quarter, we saw a positive momentum in our online marketplace, enterprise email business and in local TV advertising, which help to offset some of the continued weaknesses in the overall advertising markets and pressure we and others in industry have experienced with broadband adoption and network speed. First, our online marketplace business grew 82% year-on-year and is up 23% sequentially. A positive indicator that steps we have taken in recent quarters to improve the user experience and expand our offerings is working. We’ve also maintained a positive margin of 14% despite competitive pressures.

As a result of our early successes, we’ve been able to grow our vendor base which now stands at over 800. During the second quarter, we added roughly 117 vendors expanding the products and services available on our site and made improvements in our customer service and delivery platforms. We’re continuing to talk with other vendors both large and small as well as potential business partners and this is an area we intend to continue to invest in throughout the year.

Second our enterprise class email business continues to grow by relatively small percentage of our revenue base, it’s an important element in our strategy as more active users we have, greater brand awareness we will achieve.

Through our main features, we’re able to offer corporations, SMBs and individual professionals secure and reliable business e-mail on their own domain along with administrative controls, free domain name and website and their mobile e-mail features that work on most phones and smartphones offered by India’s carriers and the retail.

For reference purposes, during the second quarter we added over 150 new clients over 1,000 large corporate businesses including some of the most well known brands in India such as Dr. Reddy’s Labs, Videocon Telecom, Edelweiss Tokyo, Bajaj Auto Dealers, HDFC Life, HDFC Sales, Bajaj Finance, Sanjiv Goenka Group, KFC and Pizza Hut franchises subscribed to our print media business today.

Our local TV advertising service which enables local merchants to advertiser national television channels in specific cities now reaches 10 million households in 16 cities. The services uses the internet instead of TV ads on national channels at city level. Small merchants can create low cost TV ads with their own in MPEG-2 format, which plays on television directly.

The merchants can create the media plan without incurring the cost of hiring a professional media planner. The service is now available on eight national channels and we believe we have both near and longer term potential to expand their reach and build out this platform significantly in the coming years.

I’m pleased to report that during the second quarter, we saw a sequential increase in revenue from this business of 57%. The key part of our strategy is to reach the mobile market in India and some of our recent, more recent initiatives are centered on mobile phones and smartphones and developing applications and offering that appeal to the India demography. We have introduced mobile apps with key services, such as Rediffmail, news and shopping. These applications are now available on all the leading mobile operating systems, namely iOS, Android, BlackBerry, Windows, Java and Symbian.

We continue to focus on building the reach of our key services such as Rediffmail, news and video and are investing in our social platform based on extended use by the demographic. The growth we are seeing in our online businesses and the continued ascent of the Rediff brand has enabled us to remain among the preferred media choices for advertising partner, after the consumer start doing. I will now turn the call over to Swasti Bhowmick, our CFO and who will provide you details of our financial performance and then I’ll make a few closing remarks.

Swasti Bhowmick

Thank you, Mr. Balakrishnan and good morning to all. I’ll begin with our quarter results. Overall revenues for the quarter ended September 30, 2013 were $3.96 million up 3% over the corresponding quarter last fiscal year. Within this, revenues from India Online were $3.18 million, an increase of 6% over the corresponding quarter last fiscal year. Total India revenue includes online advertising revenues of $1.88 million decreased by 11% and fee-based revenues of $1.3 million increased by 33%.

Revenues from our U.S. Publishing business were $0.78 million as compared to $0.84 million for the quarter ended September 30, 2013, a decline of 6% though up 7% sequentially.

Gross margins for the quarter ended September 30, 2013 were 34% almost same as in the corresponding quarter last fiscal year. As Mr. Balakrishnan noticed our gross margins are holding strong despite continued competitive and economic pressures our industry is facing.

Operating expenses for the quarter ended September 30, 2013 were down 7% at $2.97 million as compared to $3.20 million for the same quarters last year. We’re actively and aggressively looking at to reduce our cost further and like our margins this is one of top priorities.

Operating EBITDA showed a loss of $1.62 million for the quarter ended September 30, 2013 as compared to an operating EBITDA loss of $1.87 million for the corresponding quarter last year. As you’re aware, operating EBITDA is a non-GAAP measure and we direct you to our press release dated today which sets out a reconciliation of operating EBITDA to net income, depreciation and amortization expenses were $0.75 million for the quarter ended September 30, 2013 as compared to $0.93 million for the corresponding quarter last year.

Interest income for the quarter ended September 30 decreased to $0.32 million from $0.49 million in the quarter ended September 30, 2012.

During the quarter, reporting quarter we exited some of our equity investment in Runa Incorporated and reported a one time gain of $2.74 million in the statement of operations. This resulted in net income for the quarter ended September 30, 2013 of $1.06 million, as compared to a net loss of $2.34 million for the comparable quarter in the previous year.

If this one time gain is excluded, the net loss for the quarter would have been $1.68 million. Net income per ADS for the quarter is $0.03 as compared to net loss per ADS of $0.085 for the same quarter last fiscal year. Our total cash and cash equivalent stood at $16 million, in rupee terms 1,003 million as of September 30, 2013 as compared to $17 million, in rupee terms 1,014 million as of June 30, 2013. During the quarter, we utilized approximately $1 million in our business of which approximately $0.2 million were replaced for operating and capital expenditures and the rest was adjusted for currency translations.

We believe our cash resources are sufficient to execute our strategy and our balance sheet provides us with the flexibility to do so. We continue to focus on cost control initiatives while strategically investing in our business. We are focused on maintaining our cash position to ensure that we have the resources needed to drive growth throughout our business as the market gains traction. We are also focused on top line growth and expanding our margins.

This concludes our review of the results for the quarter and the year ended September 30, 2013. I would request Mr. Balakrishnan to sum up the call.

Ajit Balakrishnan

Thank you Swasti, I’d like to make a few remarks before we open up the call for questions. Our total revenue has grown 3% in the U.S. Dollar terms and 17% in Indian Rupee terms compared to the same period last year. Our gross margins were at 34% consistent with what is reported.

In the corresponding quarter last year, amidst challenging economic environment and the subsequent sharp decline in the value of the rupee versus the dollar, we’ve held our position in the online advertising business as well, which is an encouraging sign. We’re encouraged by the growth in our enterprise e-mail business, local TV advertising business and our online shopping marketplace, where we’ve maintained a 14% product margin positive.

We’re well on course on executing our strategy positioning Rediff for growth and strategically investing in our business rather the same time maintaining a tight control on our operating expenditures and conserving cash. Again I’d like to thank you for your continued support, and at this time we’d like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you, Mr. Balakrishnan. (Operator Instructions) We have Mr.Gaurang Doshi. Mr. Doshi, your line is unmuted now. You can go ahead and ask your questions.

Unidentified Analyst

Hey good morning guys and thanks for all your efforts. I have two questions, one for Mr. Swasti and second for Mr. Ajit Balakrishnan. Mr. Swasti, can you provide more details about that one-time profit about sale of investments what was it, was it increase in the investment?

Swasti Bhowmick

Okay. We had invested in a company called Runa, which was between a period of 2009 and 2012, and we had invested close to $1.4 million and it was 10% equity in that company. That company had then sold off their investment to Staples, and we have recorded a one-time gain as on 30 September of $2.74 million, and that’s what we have reported in this quarter.

Unidentified Analyst

Thank you very much. That really helps. And one question for Mr. Ajit, thanks for all the hard work and efforts Mr. Ajit. However, as an industrialist, as you would see is that one-time profit was not included, it’s the same story, its quarter-after-quarter, year-after-year, loss-after-loss. It seems that we are doing the same thing and expecting different results. Can you provide more details that how do you plan to bring this company back to profitability and within how much time?

Ajit Balakrishnan

Okay. As you know we are not allowed to make forward-looking statements, but I’ll try and answer it to the best of our ability. I think as you may have known we’ve seem to be familiar with our operations as you may have known, a sizable portion of our revenue comes from online advertising in India, from time-to-time it’s been 60% to 80%.

Right now the online as well as all media related industries are in a deep soon. For us, the upside will come when the online advertising revenues in India take a sharp upbeat turn and I don’t know when that’s going to happen. I think it’s linked partly to the economic recession, which is going on and it’s partly also related to the steady growth of Internet access.

So I think from time-to-time, we’ll keep you updated on all those proceedings. I think the profitability of our business like in many online companies depends sizably on the advertising upturns. So I think keep watching for that event and we are keeping our cost as low as is possible as we can under the circumstances and building us our services, while we wait for that upturn in the market to happen. I hope that answers your question.

Unidentified Analyst

Yes, thanks. To some extent, definitely it gives an answer, but I understand your limitations also in making forward-looking statements, so thanks again. And one last thing, Mr. Ajit, do you think – do you foresee any events like sale of any private companies to Rediff, which can reduce the results of the company to any extent because our results are constantly reducing?

Ajit Balakrishnan

Are there any acquisitions, which you have listed?

Unidentified Analyst

Not acquisitions – yeah, acquisitions to some extent, but specifically [indiscernible] sales to Rediff reduced the results by $3.1 million that was a major chunk. Are there anything else, which is planned within the next quarter or two which can have a negative impact from the results?

Ajit Balakrishnan

There are no plans at all for the next 100 years. That answers the question here?

Unidentified Analyst

Yeah, thank you very much. Thanks.

Operator

Thank you, Mr. Doshi. (Operator Instructions) We have Ajit, its Private Investor, who wants to ask a question. Mr. Ajit, your line is unmuted now. Please go ahead and speak.

Unidentified Analyst

Hi, Ajit, congratulations or appreciate your efforts in the last quarter. My question is that there is a sequential, if you compare to the previous quarter, there is a sequential decrease in the revenue, especially the online marketplace revenue and also another question to you Mr. Ajit…

Ajit Balakrishnan

Yeah, that’s not true. That is not true. Just one second, stay on the sites, online marketplace revenue has not decreased.

Unidentified Analyst

But in India online advertising has decreased sequentially, right? I am looking at it, because I don’t have the...

Ajit Balakrishnan

We will be accurate. As you said the online marketplace revenue has not decreased, it is increased sequentially and year-over-year, what you are possibly referring to is that the online advertising business has shown a decline that is true and that is what I referred to as a deep recession in the media industries, which affect the online as well as off-line advertising revenue. Our fee based revenues today increased by 33% on a year-on-year basis and as well as sequential.

Unidentified Analyst

Sequential also?

Ajit Balakrishnan

Yeah. I will look at in our conference call Swasti’s statement will be uploaded soon. I will look at that, it gives you all the breakdowns.

Unidentified Analyst

Yeah, because we have to ask the previous question was the year-after-year quarter, the current quarter. We incur loss, the story is the same. I mean it appears that we don’t have the scale to produce here viably stream of revenue.

And why do you think what distinguish of Rediff as a different platform from the competitors?

Ajit Balakrishnan

[indiscernible]

Unidentified Analyst

Let me complete the question. You think that let me complete the question you think that going forward because we expect that, you believe that currently due to the recession. But thereafter so many years, the company has not been able to turn around and going forward because there are a lot of other internet company, who are doing better, especially into e-commerce and where the revenue will come from and do you have a clear strategy?

Ajit Balakrishnan

Is your name Matthew.

Unidentified Analyst

Yeah.

Ajit Balakrishnan

Is your name Matthew. Well, I think you asked the same question three months ago as well. I must compliment you, you seem to have a great amount of patience, so normally what investors do and they disagree with the company willing to sell their shares and move on, right?

Unidentified Analyst

Yeah.

Ajit Balakrishnan

So you seem to along be with us. So I thank you very much. So obviously you’re seeing some long-term with us, and I compliment you for having the patience to come to conference calls sequentially. I think in market such as India, practically every online player, who is serious about particularly the online advertising online marketplace parts of the business have to be patient.

I think the Indian Internet user base has taken much, much longer to evolve that any of us thought. And we cannot live in hope that it will happen. So every year, it seems to very next year that’s going to happen. But we’ve been very patient and made sure that we don’t accelerate our money. We’ve made sure that we run a company very tightly spend at least possible amount. At the same time, we keep building our services.

Right now, if you look at our business very closely, we have four different bids on the Indian market. We have an online media business, which depends on advertising, which does well during – the economy is doing well, but tends to dip when there is a slightest sign of recession.

The online, the marketplace and shopping business where I can safely say that we have another few entities, which has a positive product margin in the business and we are growing, I think as we noticed over 100% quarter-on-quarter.

If that number doesn’t look big, while you report only the margins unlike other companies which report the gross market value of the product sold. We have a strong presence with very reputed companies providing them corporate e-mail services. You read out the names of those companies, these are rarely the bluest of blue chip companies in India.

And in recent times, we have innovated in creating a business, which allows people to use the Internet technology to set ads in local markets. That business addresses a 25,000 crore market. So we are confident, I’m confident that one of these days, one of these bets will come alive and till then we request you to be as patient with us as you’ve been for the last few months clearly.

Unidentified Analyst

So you believe that enroll might happen of course, you cannot make any forward-looking statements, could happen in the coming year or next year, the broadband revolution? How much you have examine 10% because we all expected that the broadband revolution will lead us to have revenues, but that does not happened, but it is clearly it is more than…?

Ajit Balakrishnan

Yeah, I’m as impatient as you are for the broadband revolution to happen and so that’s it. I think next few questions. I think businesses are not built overnight. So please be patient and please come for our next call in three months okay.

Unidentified Analyst

All right, sure.

Ajit Balakrishnan

Thank you.

Unidentified Analyst

All right, thanks.

Operator

(Operator Instructions) There are no further questions in the queue. So I’d like to hand over the conference call back to Mr. Mandar Narvekar. Over to you Mr. Narvekar.

Mandar Narvekar

Thanks Tanmoy. I would like to thank everyone for joining us on this call and for participating in the question-and-answer session and wish you a very good day ahead. Thank you very much.

Operator

Thank you, Mr. Narvekar. Thank you all participants. With this, we conclude this conference call for today. You may all disconnect your lines now. Thank you for your participation and have a very nice day ahead.

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