Q4 Earnings Conference Call
Moderator:Good morning, ladies and gentlemen. My name is Sourodip Sarkar and I am the moderator for this conference. Welcome to the Rediff.com India Limited 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 Sourodip. Good morning everyone and thank you for being with us to discuss Rediff.com’s financial results for the fourth fiscal quarter and year ended March 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 fourth fiscal quarter and fiscal year ended March 31st, 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: Good morning and a very warm welcome to all of you. We appreciate your continued interest in our company. It’s no secret that the environment we’ve been operating over the past several years has been challenging. On the one hand, we’ve seen a massive influx of capital from government and industry to generate growth in the India economy and build our telecommunications infrastructure. On the other hand, we’ve seen an economy that continues to feel the impact of the slower global economic market while battling its own inflationary pressures.
I believe that Rediff finds itself in an enviable position…in that when the economy does turn, and as both rural and urban areas are further developed, we should be one of the prime beneficiaries. We have, and continue to be patient.
We have managed our capital spend prudently to ensure our balance sheet remains healthy and that we have the necessary resources to spend when the time is right. While for the comparable years, both our top and bottom-line performance is down, I’m pleased to announce that 1) we were successful in lowering our overhead by more than 15%, with more savings to come this year. And more importantly, 2) the core businesses we have placed greater emphasis on, continue to grow on a sequential basis.
Our strategy over the past year, as I have discussed on prior calls, has been to expand the reach of the Rediff brand across India…and really, for all Indians, worldwide…becoming the online destination for information and lifestyle-type communications. We focused on building our online portfolio, on expanding our e-commerce platform… and on the news delivery mechanisms of our site. We set out to improve the functionality of our site, as well as the look and feel. And…we moved beyond just online advertising with localized TV marketing added to our mix.
The areas we have focused on more aggressively, such as our online and e-commerce businesses, have now grown now, for the 3rd consecutive quarter. This is a testament that our strategy is working and I expect that we will continue to see sequential gains and over time, meaningful growth as India grows. We have a relatively fixed overhead structure, and as we grow, much of that growth we anticipate will benefit our bottom-line. My goal, and that of the entire Rediff team, is to bring this company to profitability and to ensure it remains a market leader for years to come.
I’d like to discuss briefly some of the developments we have seen in the Indian internet market as of late, and what I believe it means for our company. This will be followed by an update on the progress we have made in our operations and some of the more recent launches in to our 1st quarter. Our CFO Swasti Bhowmick will then discuss our financial performance in greater detail, before we open up the call for questions.
As per the latest available statistics from ComScore April 2013 report,, the Indian Internet market is now at 75 million active users with a growth rate of 31% year over year. Additionally, with 14.6 million active users, Rediff commands a 20% market share in the Indian Internet market. These figures are as per April 2013 ComScore report.
Additionally, according to a May 2013 report from the Telecom Regulatory Authority of India, the total active mobile subscriber base in India was 864.7 million as of December 2012, which was down from the prior quarter. However, the number of internet subscribers and broadband subscribers continued to increase – registering a quarterly growth rate of 5.5% and a little over 2.0%, respectively. Internet subscribers which are approximately 160-170 million, depending on which report you read (168 million – India Education Bureau), are expected by surpass 380 million by 2017 according to the TRAI report. Also according to TRAI, broadband subscribers accounted for almost 15 million as of year-end, which shows there’s still a long-ways to go to reach all of India’s 1.27 billion people.
In regard to mobile, of the total number of broadband mobile subscribers, it’s estimated that approximately 9% of them or 79 million had accessed the internet on their mobile phone. This data is from October of last year (as reported by IMRB in its I-Cube 2012 report), a figure believed to be higher today. That same report showed that monthly bills of users using the internet on their mobile device is about Rs. 460 (USD 8.40) of which nearly 40% is towards internet access.
What does this all mean? We believe it means that despite the economic issues impacting India and most of Europe, we are making strides in our infrastructure and the demand is there. The growth is visible in our business and in related internet and broadband subscriber growth. We’re seeing it every day. We have and continue to transition our business model from online only via the desktop to all forms of mobile devices and operating systems and we’ll continue to do so.
We remain optimistic about the growth potential of the Indian Internet market and our strategy aimed a positioning Rediff for growth is being pursued in anticipation of these changing environmental factors.
Moving on to our business:
Our core business, India Online, grew 9% sequentially in dollar terms over the past fiscal quarter. This is the third consecutive quarter that this segment has registered revenue growth. During the fourth quarter, we saw an increase in spending by our clients primarily in the Banking, Financial Services and Insurance sectors, as well as in Telecom, Education, Tourism and Real Estate sectors. Levels are still well below pre-recession days, but we’re seeing momentum and modest increases in overall spend.
Besides the growth in our quarterly India online revenue, our adjacent businesses, namely Ecommerce, Subscriptions and Local TV also showed continued signs of expansion. For example, our Ecommerce business in the quarter ended March 31, 2013 increased 105% year on year as compared to the 95% year on year growth we announced in the previous quarter. The total number of merchants on our online marketplace has increased from 620 to 670 to 701 over the past two quarters, while our SKU range has also increased from 172,000 to close to 184,000 SKU’s to 214,000 over the same time period. This equates to over 24% growth in our vendor base and 13% growth in SKUs over the past six months. Additionally, we have successfully grown our ecommerce business while maintaining a positive margin of 12%. We expect this margin rate to increase over time as our ecommerce generated revenues increase.
In our Local TV offering, where we enable local businesses to advertise on National Channels in specific Cities, we have added three more channels. Apart from Zoom, NDTV Good Times, Times Now, ET Now, UTV Movies, Bindaas and ABP News, our service has been extended to include three more channels – namely UTV World Movies, UTV Stars and Aaj Tak. The reach of our offering covers 13 local and strategic markets for us - Delhi, Mumbai, Pune, Ahmedabad, Baroda, Surat, Mysore, Bangalore, Indore and Jaipur, and 6 cities in the Indian state of Punjab, namely Chandigarh, Amritsar, Ludhiana, Jalandhar, Patiala and Bhatinda. With this, our Local TV advertising business now has a potential reach of 86 million individuals across these 16 cities. 257 local merchants from these 16 cities have taken advantage of the opportunity of being able to advertise on National channels using our Local TV advertising service.
Our Paid Mail business offers Corporates, SMEs and individual professionals business email on their own domain, along with administrative controls, a free domain and website and email on mobile feature that works across most phones. In this quarter, we have added two corporate clients namely MetLife and TCL Logistics to our existing base of 234 corporate clients in this business.
In our print publication business in the US our focus is to drive revenues through conferences. Our strategy has not changed and I continue to believe Rediff will be one of the primary beneficiaries of the anticipated growth in India broadband and mobile expansion over the coming years. We are being patient. We are managing our business in anticipation of a coming growth cycle. We had hoped we’d be there, but the realities of the global economic environment have delayed this next wave of telecom evolution. I’m very confident in our future and we will stay focused on:
1) driving growth across our businesses
2) increasing margins
3) lowering our cost structure and
4) driving our bottom-line performance,
Equally important: We have a long-term vision to make Rediff the destination of choice for online news, entertainment and communications throughout India and we’re operating our business with the long-term in mind. We want to build a sustainable business and provide India’s home and mobile communicators with the solutions they need. This will help us extend the reach and value of the Rediff brand and enable us to achieve our most important goal for you, which is increasing shareholder value.
Swasti Bhowmick, our CFO will now provide you with details of our financial performance.
Swasti Bhowmick: Thank you Mr. Balakrishnan and good morning to all.
I’ll begin with our quarter results.
Overall revenues for the quarter ended March 31, 2013 were $4.18 million, down 10% over the corresponding quarter last fiscal year. Within this, revenues from India Online were $3.54 million, a decrease of 5% over the corresponding quarter last fiscal year. Total India revenue, which includes online advertising revenues of US$2.33 million declined by 18% and fee based revenues of US$1.13 million increased by 26%. As Mr. Balakrishnan noted earlier however, we are making progress sequentially.
Revenues from our US Publishing business were $0.64 million as compared to $0.91 million for the quarter ended March 31, 2012, a decline of 30%.
Gross Margins for the quarter ended March 31, 2013 were 41%, compared to 49% for the same quarter last fiscal year. The decline in gross margin was due to lower overall revenues and we do expect improvements as we continue to grow our online initiatives and as advertising spend from our customers, increases, though we are diversifying our business so as not to be as dependent on just advertising. I’d also like to add that our gross margins are up sequentially – 41% vs. 38% we reported in the third fiscal quarter…35% in our second fiscal quarter…and 32% in Q1.
Operating expenses for the quarter ended March 31, 2013 were $3.63 million as compared to $3.49 million for the same quarter last year. Much of this increase is due to increased expenses in support of our e-commerce initiatives.
Operating EBITDA showed a loss of $1.92 million for the quarter ended March 31, 2013, as compared to an Operating EBITDA loss of $1.20 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 increased to $0.93 million for the quarter, compared to $0.82 million for the same quarter last fiscal year. This increase was due primarily to higher capital expenditures over the past two years. Interest income for the quarter ended March 31, 2013 and 2012 were $0.43 million and $0.48 million, respectively.
Net loss for the quarter ended March 31, 2013 was $2.32 million, as compared to a net loss of $1.42 million for the comparable quarter in the previous year. Net loss per ADS for the quarter was $0.08, as compared to net loss per ADS of $0.05, for the same quarter last fiscal year.
Moving on to full-year comparisons: All information is for the fiscal year periods ended March 31, 2013 and March 31, 2012 respectively.
Total revenues decreased by 21% to $15.66 million, as compared to $19.94 million.
Our revenues from India Online were $12.53 million, a decrease of 23% over the corresponding previous fiscal year. Revenues from our US Publishing business were $3.13 million, a decrease of 16% compared to the last fiscal year.
Cost of revenues was $9.92, as compared to $10.77 million, a decrease of 8%. Similar to my remarks for the quarter, we anticipate future increases in our gross margins as some of the newer initiatives we’ve rolled out begin to gain more traction in the market and our revenues show a corresponding increase.
To combat lower sales, and as we’ve discussed on prior calls, we have implemented aggressive cash management programs throughout our business this past year. As a result, overall operating expenses decreased by 16% to $13.80 million, as compared to $16.41 million in previous fiscal year. We are working to lower our overall costs further and as of now, expect to see further reductions in overhead in the upcoming year in the range of $1 million to $1.2 million. Depreciation and amortization expenses increased to $3.67 million, compared to $3.50 million for the previous fiscal year, again due to higher capital expenditures over the corresponding year. Interest income decreased to $1.95 million, as compared to $2.58 million.
During the quarter ended December 31, 2012, we exited from one of our equity investments and recorded a one-time gain of $1.4 million under the heading other income.
During the quarter ended December 31, 2012, we recorded a non cash goodwill impairment charge of Rs. 2.00 million. This is related to our acquisition of India Abroad in the year 2001.
Additionally, net loss for the full fiscal year ended March 31, 2013 was $10.28 million, or approximately $0.373 per ADS, compared to a net loss of $7.55 million, or approximately $0.275 per ADS, for the comparable fiscal year.
Our total cash and cash equivalents stood at $20 million (Rs. 1087 million) as of March 31, 2013, as compared to $24 million (Rs. 1249 million) as of March 31, 2012. During the year we utilized approximately US $4 million in our business, of which approximately $3 million was utilized for operating & capital expenditures and approximately $1 million of which 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.
As Mr. Balakrishnan stated earlier, we are reducing our costs while continuing to invest in our business…strategically. We are maintaining a healthy cash position however to ensure that we have the resources needed to drive growth throughout our businesses as the market gains traction.
That concludes our review of the results for the quarter and year ended March 31, 2013. I would request Mr. Balakrishnan to sum up the call.
Ajit Balakrishnan: Closing Remarks
Thank you Swasti. In closing, the pace of broadband growth has been slower than I personally, had anticipated several years back, but much of this, is due to the struggling global markets and the impact in India in particular. I feel confident about our market position and our opportunities and I believe the strategy we have embarked on is the right one. While our sales year-over-year are down, as I mentioned earlier, our core online initiatives are growing sequentially and I believe the rate of growth, will pick up over the coming year. We are being smart in the interim – managing our cash position very closely – and making changes to our site and to our online offering that will help us attract and retain users. As the market continues to expand, I believe Rediff will be in a stronger position to post meaningful growth in sales, margins and our bottom-line performance.