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Q1 Earnings Conference Call

Tuesday, July 30, 2013

Rediff.com India Limited Q1 FY 2013-2014 Earnings Conference Call

Moderator: Good evening, ladies and gentlemen. Thank you for standing by and welcome to the Quarterly Earning Call for Quarter One of 2013 Rediff.com. I am Tanmoy, the moderator of this call. At this point of time, all participants' lines are in listen-only mode. After the presentation by honourable speakers this evening, we will have a question and answer session. I would like to now hand over the conference to Mr. Mandar Narvekar. Over to you, Mr. Narvekar. Thank you.

Mandar Narvekar: Thank you, Mr. Tanmoy. Good morning, everyone and thank you for being with us to discuss Rediff.com's financial results for the first fiscal quarter ended 30th June 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 listen-in mode only. This conference will last for about 20 minutes and then we will glad to answer any questions that you may have. For your immediate reference, we have also posted the earnings release for the first fiscal quarter ended June 30th, 2013, dated today on the website at investor.rediff.com. You may also call me at our Indian office at 91-22-61820000 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 Harbour Provisions under the US Private Security 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 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 IT sectors worldwide, competition, to success or failure of a 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 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 20F and other reports filed by the Rediff.com with the US 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 investor@rediff.co.in. Rediff.com and its subsidiaries may from time to time make additional return or forward-looking statements. Rediff and its subsidiaries do not 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.

Ajit Balakrishnan: Good morning. Thank you, Mandar. I would like to welcome you all to this Conference Call and thank you for your continued interest in our company. Our CFO, Swasti Bhowmick, will provide more financial details. But I would first like to 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 $4.1 million which represents a 12% increase over last year's comparable first quarter with the increases driven by our India online operations. The new initiatives that we embarked on in 2011, namely, expanding our online market place and enterprise email business, and our focus on local TV advertising are all showing positive signs of growth. Additionally, our gross margins for the quarter of 44% marked the fourth consecutive quarter of growth and are the highest that they have been since the quarter ended March 31st 2012.

Coupled with the focus on lowering our overhead, losses are declining and our near-term goal remains to bring Rediff to profitability. I am pleased with the progress we are making but we believe we can and will do better in the coming years. A strategy of positioning Rediff continues to show positive results as evident from the progress we saw this quarter in online market place, enterprise mail and local TV advertising.

The economy still remains challenging. The advertising and overall business market place continue to experience the effect and we are feeling the pressure of a weakening rupee versus the US dollars. That said, we are being patient, managing our cash, lowering our capital expenditure and our day-to-day spend so that we have the resources to execute and grow as the economy improves and as the broadband revolution fully materialises.

I will add that economy has got about factors outside our control. But I remain bullish given the success we have had across the new initiative. Growth in the market has slowed but we believe India still represents one of the greatest global opportunities for Internet services both on mobile and desktop platforms.

For example, Indian Internet market is growing at the pace of 26% year-on-year in terms of unique visitors and is now at 7 million unique visitors according to ComScore media matrix. In this market, Rediff.com with 14.6 million unique users commands a 19% reach. As for the latest report from TRAI, the total number of active wireless subscribers in India was 725 million in April 2013 while broadband subscription grew 8% in the last one year to reach 15 million at the end of April 2013.

Moving on to our business, our online advertising business is directly linked to our reach in Indian Internet market. As I said, we will focus on growing the reach of the Rediff.com while we are also keeping tab on the cost in achieving this growth. Our flagship services, mail and news are now available on almost all mobile phones and we have apps for almost all of the major operating systems like Android, IOS, Blackberry, Windows, Symbian and J2ME.

This quarter we introduced a Rediff Shopping App for Android platform. This app enables users to purchase products and books from our online market place platform and is well integrated with the payment gateway we employ.

Video is one of the key categories that is gaining traction in the India Internet market; and video sharing platform, iShare, is ready to cater to the needs of consumers as well as the advertisers.

Recently, we introduced high a definition video playing facility on the platform which had had some experience on video viewing. Our 15-second pre-roll advertising mechanism has received a favourable response thus far and both from consumers as well as advertising partners. Additionally, e-commerce category in India continues to be vibrant and we see significant opportunities for our company to grow here especially as we continue to expand our online market place, the content and services offered and displays to which the market created by the 3rd product.

In this market, we are witnessing a steady growth and building a position of being a market place, which offers smart products at smart prices. Our online market place business has grown 78% year-on-year and 12% sequentially while maintaining a positive product margin of 12%. As a result of early success, we continue to attract potential vendors and partners.

We have grown our vendor base by nearly 72% from 400 to 690 in a year's time. In the last quarter alone, we have added 30 vendors to support this business. The product listing on our site now features prominent international brands such as Daikin, L'Oreal, Dove, Garnier, Benetton, Diesel, Nike, and Lacoste among others. Our flagship Rediffmail product powers the enterprise email business. Variety of large corporates including this quarter which includes Pfizer, the pharmaceutical company, Skoda, Ceat, CCI, DNA the newspaper and Bangalore Chemical and Fertilizers among others. The service rests on a stable and secure email platform complete with the administrative control and email on mobile facilities among a host of other utilities.

I believe our enterprise mail service has become a preferred option in the consideration of many large companies, especially those who are using On-Premise Hosted Email solution with high maintenance requirements. I am pleased to report that we have recently entered into an agreement with Reliance Communication to resell that offering through the sales network, a significant channel for that offering.

Lastly, our local TV advertising service that offers facility of local merchants to advertise on national television channels in specific cities now reaches 8 million households in 16 cities. The service is now available on 8 national channels namely Zoom, NDTV Good Times, ET Now, UTV Bindaas, ABP News, UTV Movies, UTV Stars and Aaj Tak in major Indian cities including Delhi, Bombay, Poona, Ahmedabad, Baroda, Surat, Mysore, Bangalore, Indore and Jaipur and the state of Punjab which includes Chandigarh, Amritsar, Ludhiana, Jalandhar, Patiala and Bhatinda. I will now turn the call over to Swasti Bhowmik, our CFO, who will provide you the details of our financial performance.

Swasti Bhowmik:Thank you, Mr. Balakrishnan and good morning to all. I will begin with our quarter results. Overall revenues for the quarter ended June 30th 2013 were $4.11 million, up 12% over the corresponding quarter last fiscal year. Within this revenue from India Online were $3.37 million, an increase of 21% over the corresponding quarter last fiscal year. Total India revenue which includes online advertising revenues of $2.19 million increased by 14% and free-based revenues of $1.18 million increased by 27%.

Revenues from our US publishing business were $0.74 million as compared to $0.88 million for the quarter ended June 30th 2012, a decline of 16%, so up from the prior sequential quarter. Gross margins for the quarter ended June 30th 2013 with 44% compared to 32% for the same quarter last fiscal year. As Mr. Balakrishnan noted, we have seen consistent increases in our gross profit margins for the last five quarters.

We believe our margins could fluctuate within a few 100 basis points in any given quarter, and this should be a good range near term. And enhancing our margin structure remains one of our key priorities.

Operating expenses for the quarter ended June 30th 2013 were $3.28 million as compared to $3.45 million for the same quarter last year. And also came in lower versus the $3.63 million we incurred in our fiscal fourth quarter, a decline of close to 10% sequentially. 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 $1.47 million for the quarter ended June 30th 2013 as compared to an operating EBITDA loss of $2.27 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 for the quarter ended June 30th 2013 were $0.88 million. Interest income for the quarter ended June 30th 2013 decreased to $0.35 million from $0.52 million in the quarter ended June 30th 2012. Net loss for the quarter ended June 30th 2013 was $1.87 million as compared to our net loss of $2.62 million for the comparable quarter in the previous year. Net loss for Rediff for the quarter was $0.063 as compared to the net loss per ADS of $0.095 for the same quarter last fiscal year.

We are focused on growing our top line, improving our gross margin structure, lowering our fixed expenses and discretionary spending and of course bringing our company to profitability. Our total cash and cash equivalence stood at $17 million (in rupee terms 1040 million) as of June 30th 2013 as compared to $20 million (in rupee terms 1086 million) as of March 31st 2013. During the quarter, we utilised approximately $3 million in our business, of which approximately $1.5 million was utilised for operating and capital expenditures and the rest was adjusted for currency transition.

I have mentioned on the last conference call, we are on track in our efforts to save $1.2 million on a yearly basis based on our savings of US $300,000 in the quarter ended June 2013 as compared to quarter ended March 31, 2013. This saving has impacted our gross margin, operating EBITDA and net loss. We believe our cash resources are sufficient to execute our strategy and our balance sheet provides us the flexibility to do so.

We continue to focus on cost control initiatives while strategically investing in our business. We are maintaining a healthy cash position to ensure that we have the resources needed to drive growth throughout our business as the market gains traction.

That concludes our review of the result for the quarter and year ended June 30th 2013. I would request Mr. Balakrishnan to sum up the call.

Ajit Balakrishnan: Thank you, Swasti. Amidst continuing challenging economic conditions and the pressures of a weakening rupee vs the US dollar to maintain the strong market presence throughout India We have seen our four new initiatives grow, particularly our online and local TV advertising business as well as online marketplace and enterprise Email. Our gross margins this quarter were 44% compared to 32% for the same quarter last fiscal year. Additionally, our online market place business maintained strong growth as well as 12% positive product margin for the quarter and we continue to add market place participants as well as SKUs to our offering.

I believe our concentrated efforts in conserving cash will take us a step closer towards profitability especially as our margins increase and the top line grows. Again I would like to thank you for your continued support. At this time we would like to open up the call for questions. Thank you.

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