Rediff.com India Limited (NASDAQ:REDF)
Q4 2014 Results Earnings Conference Call
June 03, 2014, 09:00 AM ET
Mandar Narvekar – IR and Corporate Communications
Ajit Balakrishnan – Chairman and CEO
Swasti Bhowmick – CFO
Good day, ladies and gentlemen. I am Sourodip Sarkar, the moderator of this call. Thank you for standing by and welcome to the [Technical Difficulty]. For the duration of the call all participants’ lines will be in listen-only mode and there will be an introduction to the results followed by a Q&A session.
And now without further delay I would like to hand over the conference to our first panelist, Mr. Mandar Narvekar. Thank you, and over to you.
Thank you, Sourodip. Good morning, everyone and thank you for being with us to discuss Rediff.com’s financial results for the fourth fiscal quarter and year-ended March 31, 2014. 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. The 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 fourth fiscal quarter and fiscal year-ended March 31, 2014 dated today on our website at investor.rediff.com. You may also call me at our Indian office at 91-226-182-0000 and we’ll 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 Provisions 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, 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 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 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 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 of 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 D.C. and on request by emailing us at email@example.com. Rediff.com 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.
Thank you, Mandar. A very good morning to all of you on this call. We appreciate your continued interest in our company. Our CFO, Swasti Bhowmick will provide more financial details but I’d like to first start with a few comments about our quarterly results and then provide updates on our business and the progress we have made so far this year.
Our revenue in Indian Rupee terms and the Indian Rupee is the currency in which most of our revenues and expenses happen. So our Revenue grew 10% year-on-year in a quarter which was dismal for the Indian economy. This growth was in large part due to the excellent growth that we achieved in our Online Marketplace business, a trend we believe will continue over the coming year given the steps we have taken to improve and expand our offering and the investments we are making to support this business segment.
As you must have heard there is a great deal of excitement about the Indian online shopping industry, with private equity players having invested an estimated $800 million to $1 billion in the past 12 months alone according to investment tracker, VCH. This segment of Indian Internet industry has seen excellent growth but it’s also a period where the main players are seeking dominance even if that has meant selling products below cost.
We have kept a level head in this period and have grown our business 103% year-on-year all the while maintaining our product margins of 14%. We are pursuing a marketplace model with no inventory holding of our own. We believe we rank within the top seven players in the industry as measured by daily shipments. Our key strategy has been to make a marketplace easy to participate in both for the merchants and for our customers. We now have over 1,200 merchants and over 450,000 product listings.
We believe that we have a very competitive metric for delivery days, customer returns and so on and we achieve all these by better data analytics and improvements to our platform. Our merchant center has many features which makes merchandize easier, [pick best uploads] of listings, tools to adjust prices and so on. Our customer delight center aims to respond to all customer queries within one minute and we are steadily working towards that goal by installing intelligent technologies.
All this means that for the first time in our history our quarterly revenues from online shopping marketplace business exceeded the revenues from our display advertising business. Here it is important to note that the revenue we report for the online marketplace it's only the fees that we earn and not the gross market value of goods sold as is done by many other players.
Coming to other areas of our business, we are focused on driving our fee-based businesses that provide an opportunity to generate recurring income stream. Our Enterprise Class Mail business is one such opportunity and it has continued to grow. The 2014 CIO Choice Award was given to our Enterprise Mail Solution. As we announced in May our Rediffmail Enterprise solutions was chosen as the Best Enterprise Email offering according to a survey of more than 300 CIOs across India. This is a great recognition for our company and this business in particular and it’s important for us as it opens up other channels.
We have a strong portfolio of over 1,000 large corporate clients who subscribe to our paid mail business today, including some of the best known brands in India including Bajaj, Dr. Reddy’s, PNB MetLife, Birla Sun Life Insurance, HDFC Bank, Eureka Forbes, RPG Life Sciences and many government institutions including the Government of Maharashtra Department of Sales Tax.
In the last quarter alone we added more than 85 new corporate clients to our business. Some of the notable clients who have adopted our Enterprise Class Email service this quarter are India Tobacco, Funskool Toys, Max Lubrication and Pride Hotels among others.
Moving on we continue to make progress in our media business comprising both online display advertising and our online TV marketplace business. Specifically in the online marketplace for TV advertising we are using Internet to turbo charge TV advertising through our subsidiary Vubites. In this business we’ve expanded during this quarter our relationship with local merchants both small and large all of whom are looking for cost effective ways to reach the target consumer on a localized basis.
We are the bridge that brings all parties together to leverage and maximize TV advertising opportunities for all using Internet technologies. We believe that over time this service will help differentiate us and make us one of the chosen destinations of businesses looking to reach a diverse and large Indian demographic. I am pleased to report that we saw an increase in this nascent business by about 150% compared to the same quarter last year.
One other topic to address is evolution and growth of our data analytics tools. Approximately two years ago we launched Rediff [News] a combination of data driven journalism and science backed by technology, real time news on politics, finance, celebrities and sports combined with data analytics and proprietary algorithms to track and monitor with more supported topics in India.
The latest innovation in this direction is the ethics profile to help -- which help readers decide on the choice of election candidate in the recently concluded parliamentary elections. The ethics profile is based on number of factors that is perhaps the only objective measure on such a matter about Indian politicians in the Indian market.
I will now take -- I turn the call over to Swasti Bhowmick, our CFO who will provide you details of our financial performance and then I’ll make a few closing remarks.
Thank you, Mr. Balakrishnan and good morning to all. I’ll begin with our fourth fiscal quarter results. Overall revenues for the quarter ended March 31, 2014 were $4.01 million, down 4% over the corresponding quarter last fiscal year. All figures are in U.S. dollars though in rupee I feel it's important to note that our overall revenues grew by 10%. Within this, revenue from India Online were $3.53 million virtually the same as the corresponding quarter last fiscal year.
Total India revenue includes Online Advertising revenues of $1.97 million, a decrease of 18% and fee-based revenues of $1.56 million, an increase of 38%. Revenues from our U.S. publishing business were $0.48 million as compared to $0.64 million for the quarter ended March 31, 2014, a decline of 24% though up 14% sequentially.
Gross margins for the quarter ended March 31, 2014 were 36%, down 400 basis points from the prior year’s fourth quarter. Operating expenses for the quarter-ended March 31, 2014 were up by 20% at $4.35 million as compared to $3.63 million for the same quarter last year, mainly on account of one-time expense of $0.8 million relating to write-down of cumulative service tax, Cenvat Credit. We are actively and aggressively looking to reduce our cost further and like our margins this is one of the top priorities.
Operating EBITDA showed a loss of $2.92 million for the quarter ended March 31, 2014 as compared to an operating EBITDA loss of $1.94 million for the corresponding quarter last year. As you are 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 $0.78 million for the quarter ended March 31, 2014 as compared to $0.93 million for the corresponding quarter last year.
Interest income for the quarter ended March 31, 2014 decreased to $0.32 million from $0.43 million in the quarter ended March 31, 2013. Net loss per ADS for the quarter was $0.123, as compared to net loss per ADS of $0.126 for the same quarter last fiscal year.
Moving on to full year comparisons, all information is for the fiscal year period ended March 31, 2014 and March 31, 2013 respectively. Total revenues increased by 4% to $16.25 million as compared to $15.66 million. Our revenues from India Online were $13.5 million, an increase of 8% over the corresponding previous fiscal year. Revenues from our U.S. Publishing business were $2.75 million, a decrease of 12% compared to the last fiscal year. Cost of revenue was $10.04 million as compared to $9.94 million, an increase of [$0.01].
Overall operating expenses decreased by 1% to $13.72 million as compared to $13.8 million in previous fiscal year mainly on account of one-time expense of $0.8 million in quarter-ended March 31, 2014 relating to write-down of an accumulated service tax Cenvat Credit.
Depreciation and amortization expenses decreased to $3.09 million compared to $3.67 million for the fiscal -- previous fiscal year. Interest income decreased to $1.33 million as compared to $1.95 million. Additionally net loss for the full fiscal year ended March 31, 2014 was $6.11 million or approximately $0.221 per ADS compared to a net loss of $11.43 million or approximately $0.414 per ADS for the prior fiscal year.
Our total cash and cash equivalents stood at $17.15 million as of March 31, 2014 as compared to $20.02 million as on March 31, 2013. 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 our cost control initiatives while strategically investing in our business. We're focused on maintaining our cash position to ensure that we have the sources needed to drive growth for our business as the market gains traction.
We're also focused on top-line growth and expanding our margins. This concludes our review of the results for the quarter and year-ended March 31, 2014. I would request Mr. Balakrishnan to sum up the call.
Okay. I'd like to provide just a few closing remarks before we open up the call for any questions. As you probably know and as we've been saying over several conference calls in last two or three years, a big part of our prosperity, Rediff.com's prosperity is dependent on the growth of the broadband infrastructure in India. We believe that since the national elections are behind us, everyone here is positive that these kinds of investments will resume. There is currently $10 billion fiber optic investment planned by the government of India over the next few years to layout the national optical fiber network and they've set up an institution to do that.
We hope that with the elections behind us some of these investments will start happening. So that is really the true insurance for Rediff.com's future prosperity. I am also encouraged that recent reports, for example Morgan Stanley show that India's GDP is going to resume growth by say 6.5% through March 2016. We think that these are all positive signs.
We believe that Online Shopping marketplace and the Enterprise Class Email businesses will be the near-term growth drivers of our company and with the bulk of the growth coming through Online Shopping marketplace. I feel confident that over the longer term we will see meaningful growth from our Vubites platform which aims to revolutionize TV by providing a marketplace for both channels and buyers of TV.
We have been patient over these years and so have all of you as our investors. And I want to thank you. I look forward to reporting on our progress over the coming quarters. And at this time we'll now open up the call for questions. Thank you.
Thank you so much sir. (Operator Instructions). And we have the first question from Mr. Rajeev Arora. He is an individual investor. Your line is unmuted. You may go ahead and ask your question.
Hello Mr. Ajit Balakrishnan, my question is when do you expect the company to be profitable? And my second question is in dollar terms what's the amount of Online Shopping marketplace?
Okay. I can't make a statement about future profitability and giving you a separate forecast but we're working on it. I can certainly, Rajeev tell you what are the factors which determine it. I think it depends on how we grow our revenue, how quickly we can grow our revenue to cover the operating cost. As you may have noticed we've kept our operating expenses very tightly under control, that's not moving at all. So I think the question you can answer in a quick way by just seeing what kind of lift we need to our revenues quarter-by-quarter.
I think we have not given a breakdown of our Online Shopping revenues but one day we will soon do that, one of these days, maybe in the next two or three quarters from now. I think we've grown 100% year-on-year and we have positive margins, which is at 14% which I have reason to believe is greater than anybody else in this economy working the online marketplace business.
I think our platform is a very good and efficient system. We have unlike our competitors who have 1,000, 2,000 and 3,000 people within, I think we run our whole marketplace business with a complement of about 45 people using leverage in the rest of no more than 300 to 350 people of our company. So we have one of the most efficient people inside this. So that's what we have to offer.
But is there any vision when the company will be profitable?
Well I'd love to say Rajeev tomorrow but I'll stop -- I can't say that as you know. But that certainly is a goal; it is certainly a very important goal for us. So please be patient and please come for our next conference call where you will be able to notice trend lines issuing, let say extrapolate it very quickly.
Okay. Thank you.
Thank you, Mr. Rajeev. (Operator Instructions). We have Margaret. Your line is unmuted. You may go ahead and ask your question.
Do you think the recent elections will be good with regard to the development of broadband in India?
Yeah Margaret, the person who is currently being elected as our new Prime Minster, Mr. Modi when during his previous tenure for the last 10 years he was Chief Minister of a particular state of India, a state called Gujarat in Western India, he has been known during the 10 year period to make basically clearly act on the fact that the infrastructure investment is what grows the economic growth.
So he has done that by attracting international investment as-well-as domestic investments. So I have every reason to believe that this government will take that as a priority. As a matter of fact one of the key ministers involved has pointed out quite correctly that the last time the current party, the BJP party was in power about 10 years ago, they have made their name by building the highway system which connects Bombay and Delhi and Calcutta and South India. And his recent statement was that in our last government we built the road infrastructure, in the current incarnation we're going to build the broadband infrastructure.
So I am very enthusiastic with these words coming within the first 10 days of a government being formed. I think this government seems to have focused very clearly that infrastructure investments will drive economic growth. I hope that answers your question?
Yes, thank you.
Thank you so much. (Operator Instructions). At this time there are no participants in the queue. I'd like to hand it over back to the management for any final or closing comments.
Thank you, Sourodip. I'd once again like to thank all the participants on this call. Wish you a very good day ahead. Thank you very much.
Thank you so much. We would like to thank all the investors joining the call. With this we conclude the conference for today. Wish you all a great day ahead. Thank you so much for joining.
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