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( followers) India Limited (NASDAQ:REDF)

F2Q13 Earnings Call

October 26, 2012 9:00 am ET


Anshul Rastogi – Branch Head

Mandar Narvekar – Investor Relations and Corporate Affairs

Ajit Balakrishnan – Chairman and Chief Executive Officer

Swasti Bhowmick – Chief Financial Officer

Anshul Rastogi

Good evening, ladies and gentlemen. My name is Anshul Rastogi, and I am the moderator for this conference. Welcome to the India Limited Conference Call. For the duration of the presentation, all participants’ lines will be in a listen-only mode. And after the presentation, a question-and-answer session will be conducted for the participants.

I would like to now hand over the conference call to Mr. Mandar. Thank you, and over to you, sir.

Mandar Narvekar

Thank you, and good morning everyone, and thank you for with us to discuss’s financial results for the second fiscal quarter ended September 30, 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 call 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, 2012, dated today on our website at 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 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 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 and its subsidiaries may from time to time make additional written and oral forward-looking statements. and its subsidiaries do not undertake to update any forward-looking statements that may be made from time to time by or on its behalf.

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

Ajit Balakrishnan

Good morning to everyone, welcome you all, and thank you for your continued interest in our company. As you have seen from our announcement where the overall revenues declined year-over-year, there are a number of business areas, which continued to show growth and we started to see a reversal and advertising spend in particular during the second quarter of this year.

With lower sales, our margins were low, but as I have said previously, we are aggressively managing our expenses to ensure we have the right capital structure in place to invest and the time is right. I remain focused as this entire leaders’ team on building a business for the long-term, and with that, achieving higher shareholder value for everyone.

I’ll begin today by providing some high-level updates and general comments on the India markets and some statistics relevant to our business. I’d follow up with some comments on our quarter, and then turn the call over to our Chief Financial Officer, Swasti Bhowmick who will provide a detailed financial analysis. We will then open up the call for questions.

As per ComScore, September 2012 report really commands a 21% reach in the Indian Internet market, while broadband penetration in India has not progressed as far as we would have liked, it is increasing as part of its highlights on telecom subscription data report released earlier this month. TRAI found that that broadband subscriber base increased from 14.7 million at the end of July 2012 to 14.8 million at the end of August 2012, registering a monthly growth of close to 1.4%.

However, this is small when comparing these figures to the overall India population, and there continues to be a number of real challenges that have to be overcome for wide stream adoption to succeed. Key among these are the massive capital expenditure outlays that are required to build a network of carrying traffic between cities and still maintain a certain speed, certain sufficient number of handsets at affordable prices and compelling applications requiring 3G speeds.

Just now we are starting to see the roll out of 1 Gbps ultra high-speed broadband plans and we're also seeing the continued build-out of fiber optic cable networks and lower costs handsets and smart phones.

There has been a lot of activities this year from the industry and I believe based on the developments we see in the country from telecom operators, network infrastructure companies and mobile handset manufacturers that 2013 and ‘14 will be critical years in the India’s telecommunication revolution. Despite the duration these investments have taken we’ve remained optimistic about telecom, mobility and widespread adoption of the Internet in India and we're positioning variable growth with the long-term in mind.

I’m pleased to announce in the second fiscal quarter our quarter of 2012 revenues from our core business India Online grew 7% sequentially in dollar terms amidst the prevailing economic slowdown and global uncertainty while our revenues were up, we’ve remained cautiously optimistic about the quarters ahead until we see more stability in the economy and in the advertising sectors in particular.

Our India Online advertising revenue show quarterly sequential growth of 7% in dollar terms, driven by advertisers in the IT, education, real estate, online shopping and insurance sectors. However this growth was offset by the advertising spent of our clients in online jobs, online matrimony, travel, auto, and telecom sectors. These categories historically have contributed roughly a third of our India Online revenues.

In the previous quarter we made changes in online advertising solutions offer to some key clients in the FMCG, Auto and Consumer Electronics sectors. Using various data sources ComScore Indian Readership survey et cetera, we presented a strong case to target consumers for them to add online to any print or TV campaign, in order to obtain a media multiplier and take without increasing their cost.

This of course also have within the reach of, this strategy has began to show early signs of success, and is reflected in the growth this quarter for our online revenue, online ad revenues. We plan to continue testing and rolling out these initiatives overtime, and our plan is to take it to our entire advertiser base across 23 cities. Apart from the improved performance in the core business our adjacent businesses including e-commerce, subscription and local TV are also showing positive signs.

Specifically in the quarter ended September 2012, our e-commerce revenue which includes margin and shipping recovery grew 20% on a sequential basis and 61% on a year-on-year basis. The total number of e-commerce vendors has increased some 510 in the previous quarter to 620 in the current quarter, an increase of 22%, while our product range has increased from 138,000 SKUs to 172,000 SKUs. This growth has come from improving discovery of products research functionality is also retargeting users on other properties within based on their browsing patterns.

In doing this, we have managed to maintain a positive margin of 12% in our Online Shopping business. We have invested in prior years and periods to improve the functionality of websites, and I believe as they get more scaled, the segment will have a positive impact on our long-term performance. And our local TV offering, apart from the Zoom, and NDTV Good Times channels, we have added two more channels namely Times Now and ET Now. The reach of our offering now extends to two other cities in India, Indore and Jaipur, in addition to the eight local markets, namely Delhi, Bombay, Pune, Ahmedabad, Baroda, Surat, Mysore and Bangalore.

As mentioned in my previous address our local TV advertising service enables small merchants to create low cost TV ads of their own in MPEG-2 format, and insert these ads on national TV channels at a city level, thus enabling the merchants to reach their customers on national television while paying only for the cities that they intend to target. This is another critical component of our business strategy. India has over 15 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 Cooperative Affairs, Government of India.

Our paid mail business is targeted at this addressable market, and is gaining traction. We use our popular Rediffmail NG platform to offer these clients business e-mail on their own domain along with administrative controls and e-mail on mobile phones, a feature that works across most phones available in India. The mobile mail system alerts the user every time when new mail is delivered to the inbox along with the sender name and subject.

As of the end of the current quarter, the number of corporate businesses subscribing to our paid mail business has grown 12%, from 267 customers in September 2011 to 299 at the end of the current quarter. We have recently extended the access of our paid mail platform to enable clients to synchronize their mails with Outlook clients on desktop.

Businesses using the paid mail solution now have the benefit of instant communication within employees through integrated chat facilities as well. While our mail solution works well on most phones in the market, recently we introduced an app to enable Blackberry users with regular Internet plans also to access the Rediffmail in this online devices. with approximately 14 million unique visitors according to ComScore has the leadership position in the online news category. Two quarters ago, we launched Rediff Real Time News Search, which delivers fresh, recent results relating to news, people and events as it happens within minutes of the actual news event taking place and within milliseconds of a query being made.

To further strengthen our brand, we have launched an Android version of this Rediff News app. This easy-to-use free app provides user with the latest updates on Business, Movies, Sports, Cricket, Get Ahead, Travel, Lifestyle, Careers et cetera. It has a tiled interface, which brings news, photos, videos and slideshows to the Android mobile device as soon as they appear on Users can share news with their network on Facebook, Twitter, via WhatsApp Messenger, SMS or e-mail. The app enables users to customize the setting to restrict image downloads to reduce data usage, receive notification as frequently as they want and to save news articles for offline reading. Our strategy has been obtained and I continue to believe we will be one of the primary beneficiaries of the anticipated growth in India broadband and mobile expansion over the coming years.

Our CFO, Swasti Bhowmick will now provide you with details of our financial performance.

Swasti Bhowmick

Thank you, Mr. Balakrishnan and good morning to all. Overall revenues for the second fiscal quarter ended September 30, 2012 were US$3.84 million, down 25% over the corresponding quarter last fiscal year, but also up close to 5% sequentially over first quarter. Within this, the revenues from India Online were US$3 million or Rs. 165 million, a decrease of 28% or 14% in rupee terms over the corresponding quarter last fiscal year.

Total India revenues include both online advertising revenues and fee-based revenues, these totaled US$1.99 million or Rs. 110 million and US$0.97 million or Rs. 54 million respectively in the quarter ended September 30, 2012 and declined by 39% and grew 5% respectively over the corresponding quarter last fiscal year.

Within fee-based revenue, the revenues from Online Shopping including our local deal offering showed an increase of 92% in rupee terms and revenues from Mobile VAS declined by 34% due principally to strict enforcements of the Do Not Disturb policy laid down by TRAI in September 2011.

Revenues from our U.S. Publishing business were US$0.84 million for the second quarter this fiscal year, a decrease of 9% versus the second quarter last fiscal year.

To note, the revenues from India Online business were up marginally over the first quarter of this year, which we hope is a positive sign that our businesses are stabilized, and that the steps we have taken to grow across our few key areas are beginning to gain traction, as Mr. Balakrishnan just mentioned.

Our gross margins for the quarter ended September 30, 2012 were 35% compared to 45% for the same quarter last fiscal year. This change was mainly on account of the declining revenue as a large portion of our costs are relatively fixed in nature. As revenues ramp up, we expect to see improvements in our gross profit margins accordingly. Additionally, our gross margins were 3% on a quarterly sequential basis.

The cost savings initiative embarked upon by our management team have resulted in approximately 30% lower operating expenses in the quarter ended September 30, 2012, compared to the same quarter last year. These expenses were US$3.2 million in the quarter ended September 30, 2012 compared to US$4.60 million for the same quarter last fiscal year and compared to US$3.45 million in the first quarter, down approximately US$245,000 sequentially.

We calculate our operating expenses on a non-GAAP basis, and we direct you to our earnings release dated today and July 26, 2012, which sets out a reconciliation of non-GAAP operating expenses to operating expenses under GAAP.

Operating EBITDA showed a loss of US$1.87 million for the quarter ended September 30, 2012, as compared to an operating EBITDA loss of US$2.51 million for the corresponding quarter last year, and compared to an operating EBITDA loss of US$2.27 million. It marks US$400,000 improvement on a quarterly sequential basis.

As you are aware, operating EBITDA is a non-GAAP financial measure and we direct you to our earnings release dated today and July 26, 2012, which sets out a reconciliation of operating EBITDA to net income. Depreciation and amortization expenses remains at the same level of US$0.93 million for the quarter ended of September 30, 2012 and 2011. Interest income for the quarter decreased to $0.4 million, as compared to US$0.76 million for the quarter in the previous year.

Net loss for the quarter ended September 30, 2012 was US$2.34 million, as compared to a net loss of US$2.64 million for the comparable quarter in the previous year. Net loss per ADS for the quarter was $0.085, as compared to net loss per ADS of $0.096, for the same quarter last fiscal year.

Our total cash and cash equivalents stood at US$21.60 million in rupee terms 1,140 million as of September 30, 2012, as compared to US$29.42 million or in rupee terms 1,439 million as of September 30, 2011. Our cash burn for the quarter ended September 30, 2012 was US$0.9 million or Rs. 50 million which is 50% lower compared to the average cash burn by quarter that we experienced over the specific four quarters.

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 part to continue to broaden the reach of Rediff throughout India.

That concludes our review of the results for the second quarter ended September 30, 2012.

Ajit Balakrishnan

Thank you Swasti. Our vision for Rediff still remains the same, but India like other parts of the world today is feeling the impact of global recession, and that’s clearly slowed the expected growth in some segments of our business.

With that said, however, we have always made investments and operated our business with a long-term in mind, and we have been in a position to adapt to change since our company’s founding. With the recent downturns, we have curtailed our investment focused on areas we believe spearhead growth, as such as advertising, e-commerce, news search, and local TV advertising, and the overall functionality of website, we are focused on shareholder value and on becoming the Internet solution for Indian users worldwide.

At this time, we like to open up the call for questions.

Question-and-Answer Session

Anshul Rastogi

Thank you so much sir. Participants, we will now start the Q&A interactive session. (Operator Instructions).

Ajit Balakrishnan

Anshul, if there are no more questions, we would like to close the call. And thank everyone for the participation and your continued support.

Anshul Rastogi

Thank you so much sir. There are no questions in the line. Thank you so much participants. This will conclude the conference called for today, you may all disconnect now. Thank you and have a great day.

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