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Q4 Earnings Conference Call

Tuesday, June 30, 2015

Rediff.com India Limited Q4FY 2014-2015 Earnings Conference Call

Moderator: Good morning, ladies and gentlemen. My name is Sourodip and I am the moderator for this conference. Welcome to Rediff.com India Limited's Fiscal Q42015 earnings conference call. I would like to hand over to Mr. Mandar Narvekar. Thank you and over to you.

Mandar Narvekar: Thank you Sourodip. Good morning everyone and thank you for being with us to discuss Rediff.com’s financial results for the fourth fiscal quarter and fiscal year ended March 31, 2015.

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.

For your immediate reference, we have also posted the earnings release for the fourth fiscal quarter and fiscal year ended March 31, 2015, 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.

During this call we may also present certain non-GAAP financial measures such as non-GAAP net income, and certain ratios that use these measures. In our press release with the financial tables issued earlier today, you’ll find our definition of these non-GAAP measures or a reconciliation of these non-GAAP financial measures with the closest GAAP measures and a discussion about why we think these non-GAAP measures are relevant. These financial measures are included for the benefit of investors and should be considered in addition to and not instead of GAAP measures.

Swasti Bhowmick, Chief Financial Officer of Rediff.com, will take you through the highlights of the company’s performance this quarter and fiscal year ended March 31, 2015 and this will be followed by an address by our Chairman and CEO, Mr. Ajit Balakrishnan.

I will now hand the call over to Mr. Swasti Bhowmick, CFO of Rediff.com.

Swasti Bhowmick: Good Morning and a warm welcome to all investors on this call. We thank you for your continued interest in our Company.

Continuing with the theme in the recent quarters, we want to preserve our PC based users, reduce operational expenditure and develop new products so that we are ready for the anticipated growth as the transition to mobile internet continues.

Display advertising has continued facing a challenging time with a 19% decline in revenue on a year on year basis, and a 15% decline in the quarter ended March 31, 2015 as compared to the same quarter in the previous year. We have seen display advertising going through challenging times in the last few quarters, which is part of a longer term industry trend, and hence are focused on balancing our portfolio by growing our ability to monetize the marketplace, which will be an even more important source of revenue when the user base moves onto mobile.

I would like to give you a short account of the progress we are making in this area. In the revenue mix, the share of marketplace revenue has gone up to 27% in the fiscal year 2014-15 as compared to 19% in the previous fiscal year and on a quarter over quarter basis, we have held the share of revenues from marketplace at 25%. In absolute terms, we have seen a 35% year over year increase in marketplace revenues.

On the cost front, we are reducing total expenditures while retaining our focus on long term growth initiatives. Excluding discretionary spending on brand building activity, we have managed to bring down operational costs with our continued focus on marketplace support costs and general and admin costs.
These measures have helped us reduce the net loss for the quarter ended March 31, 2015.

Other than OPEX cost, Cost of Revenue is just as important, and more so for our marketplace business. Most other marketplaces in India have found it extremely challenging to control their cost of revenues. In our marketplace business, we have a healthy 26% take rate (defined as fees earned as a percentage of value of products transacted) at the end of the March 31, 2015 quarter.

Our gross margin has improved to 37% in the quarter ended March 31, 2015 as compared to 24% in the same quarter last year, mainly on account of improvement in our marketplace support costs and lowering the return rate. Currently, our return rate on cash-on-delivery orders is at 13%, which we believe is among the lowest in the Industry.

We continue to rollout new services for our PC based users and future mobile users. For example, we have enabled instant approval of cash-on-delivery orders and product recommendations in the market place business achieved through data based algorithms. We now provide users with a higher uptime on Rediff services, enabled through cloud readiness with implementation of next generation mailbox on top of NOSQL data stores.

Our news service has been enhanced by interactive maps which has been expanded to include world maps. This allows for data visualisation using data for countries across the world. Users can explore various data points on the world map and get a rich experience of data driven journalistic stories. We believe features like these will increase user engagement, specifically in terms of time spent on our site.

We are also experimenting with building a platform which will allow the TV advertising ecosystem to benefit from internet technologies. Today this platform can address approximately 18 million households (or approx. 73 million individuals) in India. It is being used experimentally by advertisers such as LG Asafoetida a culinary products manufacturer, real estate company Sai World Paradise Group and Sumiran Hospital, Ahmedabad among others that have not been traditional users of TV advertising in the past. The platform has the support of over 10 National TV channels. We continue to nurture this business to help the TV advertising ecosystem in India.

Our US Publishing business revolves around the print newspaper India Abroad. It faces the same challenges as any other print publication in the US. Recently the India Abroad Person of the Year 2014 (IAPOY) event was held at the National Museum of the American Indian in New York City on June 12, 2015, honouring 14 achievers in seven categories. The event was attended by Dr Vivek H Murthy, the first Indian American to be appointed United States Surgeon General, Dr Manjul Bhargava, who won the Fields Medal, the equivalent of the Nobel Prize and the highest honour for a mathematician under 40, and the distinguished poet Vijay Seshadri, who won the Pulitzer Prize for Poetry last year, Ms. Nina Davuluri who in 2013 created history by becoming the first Indian American to win the Miss America title, and Neha Gupta, who won the International Children’s Peace Price.]

Our user base as measured by Comscore Media Metrix has continued to grow 21% year on year in unique user terms and now reaches17.5 million users which is21% of all Indians accessing the internet via a personal computer. At 21 mins per user, the present user engagement on our site, is better than that of sites like Twitter (14 mins/user) as reported by Comscore Media Metrix in India. Our goal with the introduction of new services is to maintain the same reach on mobile when the expected user explosion happens. All our efforts including product development, marketing and operations are focused on driving our reach and engagement in the context of this anticipated growth in the mobile internet usage. The current take rate per approved order among our own users is better than what we get from users acquired through paid campaigns. Our goal is to drive the marketplace revenue further by increasing the order conversion among our own visitors, which is currently at 0.17% with significant room for growth.

We have published the details of our financial results for the quarter ended March 31, 2015 in the press release dated today. A quick summary of the financial performance is as follows:

1. Overall revenues for the quarter ended March 31, 2015 were $3.64 million, down 6% over the corresponding quarter last fiscal year.
2. Operating expenses for the quarter ended March 31, 2015 were down by 30% at $2.83 million, as compared to $4.05 million for the same quarter.
3. Operating EBITDA showed a loss of $1.50 million for the quarter ended March 31, 2015, as compared to an Operating EBITDA loss of $3.12 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.
4. Net loss per ADS for the quarter was $0.182, as compared to net loss per ADS of $0.173, for the same quarter last fiscal year.

Full-year comparisons: All information is for the fiscal year periods ended March 31, 2015 and March 31, 2014 respectively.

1. Total revenues decreased by 5% to $15.33 million, as compared to $16.12 million.
2. Cost of revenues was $10.83 million, as compared to $10.41 million, an increase of 4%.Overall operating expenses increased 8% to $14.49 million, as compared to $13.42 million in previous fiscal year.
3. During the fiscal year ended March 31, 2015 we have done our property, plant and equipment impairment assessment. Based on the assessment we recorded an impairment charge of $3.20 million.
4. Additionally, net loss for the full fiscal year ended March 31, 2015 was $13.88 million, or approximately $0.503 per ADS, compared to a net loss of $7.47 million, or approximately $0.271 per ADS, for the prior fiscal year.
5. Total cash and cash equivalents stood at $8.39million (Rs. 525million) as of March 31, 2015, as compared to $ 17.15 million (Rs. 1,030 million) as of March 31, 2014. We expect our cash burn to be in the region of US$ 1.2 to 1.5 million per quarter in the coming few quarters which amounts to the equivalent of 5 to 7 quarters cash.

I would now like to turn the call over to Mr. Balakrishnan.

Ajit Balakrishnan:Good morning to you all. Our strategy to decrease the Company’s dependence on display advertising and increase our fee-based revenues started to take hold in fiscal year 2015 and we are pleased to report that approximately 27% of revenue is now generated by Rediff’s online marketplace, up from 19% the prior year. We expect this trend to continue as we seek to leverage our media business customer base to increase traffic on our e-commerce platform.

Currently 0.17% of the website visitors shop on our marketplace and we hope that, with our improved recommendation algorithm and a more extended merchant base, we can continue to grow this consumer base.

We believe that deployment of our proprietary data analytics software and data driven algorithms, which improves customer service and enables quick approval of cash on delivery orders and customized product recommendations, separates us from the competition in the industry and this has resulted in a high marketplace ‘take rate’ of 26%, defined as fees earned as a percentage of total transaction, and a low return rate of 13% for cash on delivery orders.

Rediff’s Paid Enterprise Email business voted the best enterprise email solution in India by top Chief Information Officers for the second consecutive year

Our high engagement rates and the strong reputation of our email platform among Chief Information Officers, combined with the growing population and increasing technological capabilities in India, puts Rediff in a strong position to grow and expand its business.

With 17.5 million users, we have a significant reach of 21% among all internet users in India as measured by ComScore. Our goal is to maintain the same reach on mobile when the expected user explosion happens. All our efforts including product development, marketing and operations are focused on driving our reach and engagement in the context of this anticipated growth in the mobile internet usage.

I thank you all for joining us on this call.

Mandar Narvekar: Thank you Mr Balakrishnan. We would like to again inform everyone that we have posted the details of our financials for the quarter and year ended March31, 2015on our website at investor.rediff.com and will also file such details with the SEC on a Form 6-K. You are welcome to email us any questions you may have and we will gladly post the answers to all appropriate questions on our investor website for everyone’s reference.

I once again thank you all for joining us on this call.

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