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Q2 Earnings Conference Call

Tuesday, October 22, 2013

Rediff.com India Limited Q2 FY 2013-2014 Earnings Conference Call
October 22nd, 2013

Moderator: 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 Q2 2013-2014 Earnings conference Call. For the duration of the presentation, all participants’ lines will be in the listen-only mode. After the presentation, a question and answer session will be conducted for the participants. I would like to hand over to Mr. Mandar Narvekar. Thank you and over to you.

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 call will last for about 20 minutes and then we will 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 our website at investor.rediff.com. You may also call me at our Indian office at +91 22-6182-0000, 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 US 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 internet and 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 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 investor@rediff.co.in.

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.

Ajit Balakrishnan: Thank you Mandar and good morning to all of you on this call.

Our CFO Swasti Bhowmick will provide more financial details, but I’d 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 approximately $4.0 million, which represents a 3% increase in US dollar terms and a 17% increase 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 achieved despite all that we have faced in this challenging economic environment. Additionally, our gross margins for the quarter were comparable with last year’s 2nd quarter, at 34%.

Consistent with my remarks in recent quarters, we’re being patient. We’re managing our cash wisely, while continuing to invest in the areas of our business that we believe, will position us for sustainable growth. It’s well documented what’s going on in the India economy…and worldwide…so I won’t re-hash this. What’s important is that while we conserve and strategically allocate our capital, 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 adoption has taken longer than most had anticipated, I remain a firm believer in our potential. I also remain bullish on India’s long-term potential and believe India still represents one of the greatest global opportunities for Internet services, both on traditional desktops and via mobile platforms. I’ll add that while growth in India has been slower than initially anticipated because of some of our country’s’ recent economic challenges, some of the following metrics are encouraging:

- The Indian Internet market is growing at a pace of 22% year on year in unique visitor terms and is now at 80 million unique visitors as of the end of September 2013. This is as per the latest report from ComScore Media Metrix.
- In this market, Rediff.com, with 14 million unique users commands a 18% reach.
- Also, as per the latest report from TRAI, the total number of active wireless subscribers in India grew 5% over the last year to reach 731.4 million in July 2013, while broadband subscription grew 4% in the last one year to reach 15.24 million at the end of July 2013.

Moving on to our business:

During the second quarter, we saw positive momentum in our online marketplace, enterprise email business and in local TV advertising, which helped offset some of the continued weakness in the overall advertising market and pressures we, and others in our 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 the steps we’ve 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 2nd quarter, we added roughly 170 vendors, expanded 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. While a relatively small percentage of our revenue base, it’s an important element in our strategy as the more active users we have, the greater brand awareness we believe we will achieve. Through our Mail features, we are able to offer corporations, SMEs and individual professionals a secure and reliable business email on their own domain, along with administrative controls, a free domain and website, and, mobile email features that work on most of the phones and smartphones offered by India’s carriers and at retail. For reference purposes, during the 2nd quarter, we added over 150 new clients. Over 1000 large corporate businesses, including some of the most well-known brands such as Dr. Reddy’s Laboratories Ltd., Videocon Telecommunications Ltd., Edelweiss Tokyo, Bajaj Auto Dealers, HDFC Life, HDFC Sales, Bajaj Finance and RP Sanjeev Goenka Group, KFC and Pizza Hut franchises, subscribe to our Paid Mail business today.
Third: Our local TV advertising service, which enables local merchants to advertise on national television channels in specific cities, now reaches 10 million households in 16 cities. The service uses the internet to insert TV ads on national channels at a city level. Small merchants can create low cost TV ads of their own in mpeg 2 format, which, plays on television directly. The merchant can create the media plan without incurring the cost of hiring a professional media planner. The service is now available on 8 national channels and we believe we have both near and longer-term potential to expand our reach and build out this platform significantly in the coming years. I’m pleased to report that during the 2nd quarter, we saw a sequential increase in revenues from this business of 57%.

A key part of our strategy is to reach the mobile market in India and some of our more recent initiatives have been centered on mobile phones and smart phones and, developing applications and offerings that appeal to the India demographic. We have introduced mobile apps for our key services such as Rediffmail, News and Shopping. These applications are now available on all of 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 expanded use by the younger demographic. The growth we are seeing in our Online business and the continued strength of the Rediff brand has enabled us to remain among the preferred media choices for our advertising partners and for consumers throughout India.

I will now turn the call over to Swasti Bhowmick, our CFO, who will provide you with details of our financial performance and I’ll then 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 US$1.88 million, decreased by 11% and fee based revenues of US$1.30 million, increased by 33%.
Revenues from our US 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%, all most same as in the corresponding quarter last fiscal year. As Mr. Balakrishnan noted, our gross margins are holding firm, 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 quarter last year. We are actively and aggressively looking to reduce our costs further and like our margins, this is one of the 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 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 $0.75 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, 2013 decreased to $0.32 million from $0.49 million in the quarter ended September 30, 2012.
During the reporting quarter we exited from our equity investment in Runa Inc. 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 $0.038, as compared to net loss per ADS of $0.085, for the same quarter last fiscal year.
Our total cash and cash equivalents stood at $16 million (Rs. 1,003 million) as of September 30, 2013, as compared to $17 million (Rs. 1,014 million) as of June 30, 2013.
During the quarter we utilized approximately US $1.0 million in our business, of which approximately $0.2 million was utilized for operating & 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’re focused on maintaining our cash position to ensure that we have the resources needed to drive growth throughout our businesses as the market gains traction. We’re also focused on top-line growth and expanding our margins.

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

Ajit Balakrishnan: Thank you Swasti. I’d like to make just a few remarks before we open up the call for questions.

Our total revenue has grown 3% in US dollar terms and 17% increase in Indian Rupee terms compared to the same period last year, and our gross margins were at 34%, consistent with what was reported in the corresponding quarter last year. Amidst a challenging economic environment and the subsequent sharp decline in the value of the Rupee vs the Dollar, we have held our position in the online advertising business as well, which is an encouraging sign.

We are encouraged by the growth in our Enterprise Email business, Local TV advertising business and our online shopping marketplace where we have maintained a 14% positive product margin.

We are well on course on executing our strategy of positioning Rediff for growth and strategically investing in our business while at the same time maintaining a tight control on our operating expenditure and conserving cash.

Again, I would like to thank you for your continued support and at this time, we’d like to open up the call for questions.

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