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Q3 Earnings Conference Call

Tuesday, January 27, 2015

Moderator: Good day, ladies and gentlemen. I’m Yogesh Sharma, the moderator of this call. Thank you for standing by. And welcome to the rediff.com quarter third 2014-15 earnings conference call. For the duration of presentation, all participant lines will be in listen-only mode. And now without any further delay I’d like to hand over the proceedings to Mr. Mandar Narvekar. Thank you. And over to you, sir.

Mandar Narvekar: Thank you, Yogesh. 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, 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 Bhowmik, CFO. As mentioned earlier, all of you are currently on a listen mode only. For your immediate reference, we have also posted the earnings release for the third fiscal quarter year ended December 31, 2014 dated today on our website at investor.rediff.com. You may also call me at our Indian office at +912261820000 and will be glad to fax or e-mail 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 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: Good morning to everyone. The global internet market is in the middle of a tectonic change because of the rapid move from PC-based access to smartphone-based access. Partly as a consequence of this, display advertising which has been the mainstay of most internet media companies’ revenues is going through a challenging period both in terms of volume and in terms of pricing.

Anticipating this, we have for some quarters now been building an alternative revenue stream from our online shopping market place. We have made good progress in this as you can see that by now 28% of our online revenue comes from our market place. What is equally important is that 70% plus of this market place revenue is generated from our own users, that is, users who come out our site to enjoy a strong news, information and related services; a current user base of approximately 17 million unique users per month on the PC-based internet, this is a number from Comscore, generates a high engagement with us and they spend a total time of 403 million minutes per month, and on an average spend 23 minutes per visitor per month.

We have also found that important online shopping metrics such as the take rate (the take rate is the fee amount we charge shopping customers including the fee that we take to deliver to them); and the shopping completion rate, (that is what percentage of orders get finally get delivered to the customers), on an average, these metrics are far better for users from our own news and information services than from users who we acquired through either paid advertising or any other such services.

We also believe that our market place metrics says that we are pretty efficient. We have, as I said, the take rate is 25% on an average, and since India is a market with the very large proportion of cash-on-delivery basis, 60-70% of all shopping is done on a COD basis, we have a far lower, far better-than-industry average in terms of the percentage of goods returned. Thus, our current efforts are focused on driving our market place revenues from our own users and we believe there is significant room for growth. You will note, for example, that on a given day, less than 0.14% of our current users are shopping with us. So there’s a headroom to grow, is quite considerable and we’re spending most of our effort to make sure that that happens. We’re deploying data analytics, new algorithms to better match our users and products put on our site by merchants, and all this will we hope take our numbers up substantially.

In terms of other businesses that we’ve historically been in, the revenues from our online display business have declined 22% over this quarter same period last year. Otherwise, the rest of our fee-based businesses are doing quite well. As we had previously mentioned, our strategy is to shift towards increasing our revenue from a fee-based businesses in any case, and the numbers this quarter reflect that. Revenues from our enterprise mail services that we provide, paid e-mail services to large companies in India and local TV targeting advertising business where we use internet protocol to target television ads where the clients want them to have, compared to the same quarter previous year, grew by 12% and 1.4 times respectively. Our enterprise e-mail service today has over 25000 enterprise customers and was recently awarded the 2015 CIO choice award for the best enterprise e-mail solutions for the second consecutive year.

Moving forward, we will focus our energies on improving our market place revenues where merchants, individual professions and large businesses can offer their products sale to the approximately 17 million users who come to us every month for news, information and communication services.

Our endeavor is to increase the percentage of our users who participate in our own market place network.

I now turn the call over to Swasti for a review of our financial results.

Swasti Bhowmik: Thank you, Mr. Balakrishnan, and good morning to all. All results are for our third quarter ended December 31, 2014 and December 31, 2013, respectively.
Revenue from our fee-based businesses for the quarter ended December 31, 2014 was US$ 1.52 million as compared to US$ 1.30 million for the same quarter previous year. The fee-based revenue contributed 45% to India Online Revenue in the current quarter as compared to 38% in the corresponding quarter last year.
This growth in fee-based revenue has to some extent offset the 14% decline in advertising revenue to US$ 1.83 million in the quarter ended December 31, 2014, from US$ 2.12 million in the same quarter last year
Revenues from our US Publishing business were US$ 0.61 million as compared to US$ 0.75 million for the same period ended December 31, a decline of 19%.
Overall revenues were US$ 3.96 million for the quarter ended December 31, 2014, as compared to US$ 4.17 million for the same quarter previous year.
Gross Margins for the quarter ended December 31, 2014 were 26%, down from 39 % reported in the prior year’s second quarter.
Our operating expenses were up by 2% at US$ 3.19 million, as compared to US$ 3.12 million for the same quarter last year.
Operating EBITDA showed a loss of US$ 2.18 million for the quarter ended December 31, 2014, as compared to an Operating EBITDA loss of US$ 1.50 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 declined by approximately US$ 0.27 million, coming in at US$ 0.41 million as compared to $ 0.68 million.
Interest income declined by $0.12 million , as we reported US$ 0.22 million in interest income compared to US$ 0.34 million.
This resulted in a net loss of US$ 2.37 million for the quarter, or US$ 0.086 per ADS, as compared to a net loss of US$ 1.90 million, or US$ 0.069 per ADS, for the same quarter last fiscal year.
As of December 31, 2014, we had US$ 9.7 million of cash on hand to fund operations. We continue to manage our costs to a level where we can expect the growth in revenues to offset expenditures, in our on-going efforts to bring the business to profitability.
I would now like to turn the call back to Mr. Balakrishnan.

Ajit Balakrishnan: Thank you, Swasti. As I said, we are developing a business model for a media business where the 17 million users who come to us for news and information services every month, are given an opportunity to shop in our market place. At present, less than 1% of our users do this. And our growth plan is to take this figure higher by deploying data analytics and new algorithms to better match our users to products put on our site by 7000 merchants who are on it. Thank you very much.

Mandar Narvekar: Thank you, Mr. Balakrishnan. We would like to again remind everyone that we have posted the details of our financials for the quarter ended December 31, 2014 on our website at investor.rediff.com. And we’ll also file such details with the SEC on Form 6-K. You’re welcome to e-mail us any questions you may have and we’ll be glad to post the answers to all the appropriate question on our investor website for everyone’s reference. I once again thank you all for joining us on this call. Have a good day.

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