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Q3 Earnings Conference Call

Thursday, January 23, 2014

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 Q3 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 third fiscal quarter ended December 31, 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 third fiscal quarter ended December 31, 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.

Let me begin by saying our business is growing, albeit not at the pace we had hoped…but we are growing, and the initiatives we launched a little more than a year ago are all showing signs of both improvement and upside in the quarters ahead.

For the most recently completed fiscal quarter, we reported total revenues of approximately $4.17 million, which represents a 4% increase in US dollar terms and a 19% increase in Indian Rupee terms over last year’s comparable third 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 39% compared with last year’s 3rd quarter, at 38%.

Over the past few quarters, the strength in our online marketplace, which includes our Online Shopping Marketplace, Enterprise Email business and Online TV Marketplace, has helped offset some of the weakness, we and others in our industry have felt, due to the economic pressures and in the advertising market in particular.

In our online advertising business, we are early to market with content marketing and native ads. These are yielding higher Cost per Thousand impressions or CPM [] than normal. Some of the top clients in our online advertising business are Samsung, LIC, Amazon, Makemytrip, Taboola, Sharekhan among others. This quarter we added over 150 new clients, such as Zapak Digital, Ingram Micro, HDFC Mutual Funds, Pidilite and Mahindra Holidays to our business. We are a resource for these local and global leaders and we are making an aggressive push to expand in this area.

For the quarter, our marketplace for online shopping revenue grew 59% year on year, following last quarters’ growth of 82% year on year. Consistent with my remarks on last quarters’ conference call, we have placed an increased emphasis on improving the user experience, expanding our offerings and increasing our reach throughout India. We are being patient and managing our cash prudently. At the same time, we have been opportunistic, investing resources in areas we believe hold great potential for Rediff.

In our Marketplace for online shopping, our vendor base now stands at over 1,000 and we are adding accounts by the day. Last quarter, we had over 800 accounts and we continue to expand in this regard. This quarter we made a conscious effort to include a wide range of branded products on our online shopping marketplace. Our platform now showcases a good mix of branded and unbranded products across a wide range of categories. Some of the most well-known brands such as Burberry, Converse, Flying Machine, Puma, Addidas, Haier, Esbeda and Pepe Jeans among others are available through our vendors. In this quarter, we added American Swan, Fast Track, Portico and Bombay Dyeing to this list. 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.

We are working to ensure quality of service by developing two key projects namely, a Merchant Centre which will make it easy for merchants to manage the inventory and prices on the platform and a Customer Delight Centre which will enable users to keep track of their orders and delivery schedules. Both projects are in the final stages of being launched, and we expect full roll out by February, 2014.

This quarter we have put a special emphasis on improving the usability of our mobile site for online shopping by making an optimum use of the key functionalities provided by smartphone interfaces to enable a seamless experience. We are witnessing a fast uptake of our online shopping service on mobile with 10% to12% of our user base visiting on mobile.
Differentiating Rediff from the competition through new services and providing a seamless user experience through improved online functionality will help. I will add that we are enforcing strong product margins. We have maintained a positive margin of 14%, consistent with past quarter and this, despite increased competitive pressures. Here it is important to note that we report only the margin and not the Gross Market Value of goods sold, which is the industry standard.

We have a strong offering in the Enterprise Class Email business and it continues to grow and it’s with great pleasure that I announce that our service has been voted as the most preferred choice in the Enterprise Email Segment by top CIOs in India as we received the 2014 CIO Choice Award for Enterprise Mail Solution. While a relatively small percentage of our revenue base today, it’s an important element in our strategy as the more active users we have, the greater brand awareness we believe we will achieve.

We have a strong portfolio of over 1,000 large corporate clients who subscribe to our Paid Mail business today, including some of the most well-known brands like, Fedders Llyodd, Bajaj, Dr. Reddy’s, PNB MetLife, Birla Sun Life Insurance, HDFC Bank, Eureka Forbes and the Government of Maharashtra Dept. of Sales Tax. In the last quarter alone we added more than 160 new clients to our business. Some of the notable clients to have adopted our Enterprise Class Email Service this quarter are Zoetis, RedBuz, Mother Dairy, RPG Life Sciences, Berger Lifestyle, D. Pauls’ and the Jasubhai Group (Zdnet India)

Apart from the secure and reliable enterprise class email service, which offers administrative control features, the main draw to our service has been the availability of our service on almost all mobile operating platforms. Almost 15% to 20% of our email users now access the service on mobile phones.

Our Online TV Marketplace business is essentially a marketplace for TV advertising for local merchants and channels which enables the merchants to advertise on national television channels in specific cities. The service is fully deployed in 16 cities and now reaches over 10 million households. Through Online TV Marketplace, a new initiative for us over the past year, we are helping to offset the decline in overall advertising dollars that we generate. We believe that over time, a diverse offering and reach will help differentiate Rediff and make us one of the chosen destinations for businesses looking to reach a diverse and large Indian demographic. I’m pleased to report that during the 3rd quarter, we saw an increase in revenues from this business of 151% as compared to the same quarter last year.

I’ve talked in the past about making some of our computer-based offerings more applicable to the mobile market and we continue to drive this home throughout our organization. With Rediff mail, our real-time news service, our social media offerings, we are developing user-friendly applications. Out Online Shopping Marketplace, is an area we are focused on. In August, we announced the launch of our free app, Rediff Shopping…an app that lets users in India check prices of books by simply scanning the barcode and making direct purchases from their mobile device. While this started with books, this will roll out soon to other categories, such as apparel, accessories and bags, mobile phones, sports and fitness equipment, electronic devices, home décor and furnishings, among others. Our goal is to provide current and targeted users with an online shopping experience that is unmatched in our territories and we’re targeting the growing, younger demographic. All of our apps are available on all of the leading mobile operating systems including iOS, Android, Blackberry, Windows, Java and Symbian.

Another highlight for the quarter that I’d like to cover is our initiative to provide advanced data journalism tools to our users to enable them to make informed views on socio-political events based on their own inference drawn from data available in the open source. An example of this effort is our new product - The Sentiment Meter. This is a new product we’ve been working on for a while, which I’m quite proud of. It’s a three-party Sentiment Meter that allows users to share their views and see the impact of public sentiment on an election outcome. By sliding over an area, users were able to see public sentiment scenarios in their respective regions and then watch the results reflected on dynamic seat distribution histograms and an interactive map. It was created especially for the December 2013 Delhi elections and is a tool we believe can be widely used in future elections.

We used data journalism to publish an insightful analysis on the political chatter in social media prior to the Delhi Assembly Elections. The analysis was based on re-tweets as a re-tweet is seen as an endorsement, and presented a visual network of twitter users actively re-tweeting famous politicians and journalists. Why I raise this is that we are developing tools now that leverage the immense power of data analysis. We expect that more will come in this area over the coming years.

I’d like to make a few brief remarks on the industry now before turning the call over to Swasti.

The economic and political climate in India is well documented throughout the world, so I won’t rehash a lot of that information. I would however, like to talk about the internet and broadband infrastructure and some recent initiatives by government and industry to drive growth in 2014 and beyond.

First, as per the latest report from ComScore Media Metrix, the Indian Internet market is growing at a pace of 16% year-on-year in unique visitor terms and is now at 82 million unique visitors as of the end of December 2013. Rediff.com, with 16.5 million unique visitors, commands a 20% reach. Additionally, as per the latest report from TRAI, the total number of active wireless subscribers in India grew 6% over last year to reach 744.3 million, while broadband subscription grew 1% in the last year to reach 14.91 million at the end of October 2013.
Second, while the market is growing and our country’s infrastructure is being built, in my opinion and in many industry and media reports, you will see that adoption has been slower to materialize than initially thought. Much of this has been due to the economy.

In a recent interview, TRAI chairman talked about low speeds on our mobile phones and other devices and how broadband connection growth has been poor. I believe that there is now a renewed focus to make more spectrum, or radiowaves available to operators so they can deploy newer technologies for increased broadband speed. As he noted, you have to build the core infrastructure, and increase penetration of devices. After a few delays, on February 3rd, the DoT is set to formally auction 403 Mhz in 1800 Mhz and 46 Mhz in the 900 Mhz bands.

Let’s remember that with over 173 million internet users today, India is expected to become the second-largest internet base in the world. (Source: ComScore Extended Universe estimates for 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 December 31, 2013 were $4.17 million, up 4% over the corresponding quarter last fiscal year. Within this, revenues from India Online were $3.39 million, an increase of 6% over the corresponding quarter last fiscal year. Total India revenue, includes online advertising revenues of US$2.10 million, decreased by 4% and fee based revenues of US$1.30 million, increased by 28%.
Revenues from our US Publishing business were $0.75 million as compared to $0.76 million for the quarter ended December 31, 2013, a decline of 2%, though up 13% sequentially.
Gross Margins for the quarter ended December 31, 2013 were 39%, allmost the 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 December 31, 2013 were down 11% at $3.12 million, as compared to $3.52 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 $1.50 million for the quarter ended December 31, 2013, as compared to an Operating EBITDA loss of $2.0 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 $0.68 million for the quarter, ended December 31, 2013 as compared to $ 0.93 million for the corresponding quarter last year.
Interest income for the quarter ended December 31, 2013 decreased to $0.34 million from $0.51 million in the quarter ended December 31, 2012.
Net loss per ADS for the quarter was $0.061, as compared to net loss per ADS of $0.109, for the same quarter last fiscal year.
Our total cash and cash equivalents stood at $17.93 million (Rs. 1,108 million) as of December 31, 2013, as compared to 21.12 million (Rs. 1,155 million) as of December 30, 2012.
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 and year ended December 31, 2013. I would request Mr. Balakrishnan to sum up the call.

Ajit Balakrishnan: Closing Remarks

Thank you Swasti. As noted above, our overall revenues for the 2013 third fiscal quarter increased 5% in US dollar terms and 20% increase in Indian Rupee terms while our EBIDTA loss declined 25% and net loss declined 37% compared to the same period last year.
Further we are fully embracing the move of online users from PC to Mobile and have now strong mobile phone offerings for Online Shopping Marketplace, Enterprise Email and News. We are also leading the world-wide efforts in data journalism and you can see some examples of our work using Bayesian techniques on our homepage under the Rediff Labs link.

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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