Q4 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 Q4 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 Sourodip. Good morning everyone and thank you for being with us to discuss Rediff.com’s financial results for the fourth fiscal quarter ended March 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 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 31, 2014, 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. A very good morning to all of you on this call. We appreciate your continued interest in our company.

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 and the progress we have made in the last year.

Our revenue, in Indian Rupee terms, grew 10% year on year in a quarter which was dismal for the Indian economy. This was in large part, due to excellent growth that we achieved in our Online Marketplace, a trend we believe should continue over the coming year given the past steps we’ve taken to improve and expand our offering, and, the investments we are making to support this business segment.

As you must have heard, there is a great deal of excitement about the Indian online shopping industry with private equity players having invested an estimate $800 million in the past year alone, according to investment tracker VCCEdge. This segment of the Indian internet industry has been seeing excellent growth but it is also a period where the main players are seeking dominance even if that has meant selling products below cost. We have kept a level head in this period, and have grown our business 103% year on year, all the while maintaining our product margin of 14% .We are pursuing a marketplace model with no inventory holding of our own. We believe we rank within the top 7 players in the industry in daily shipments.

Our key strategy has been to make our Marketplace easy to participate in both for merchants and for customers. We now have over 1400 merchants and over 450,000 product listings.

We believe we have very competitive metrics for delivery days, customer returns and so on and we achieve all this by better data analytics and improvements to our platform. Our Merchant Centre has many features that make the merchant’s life easier: quick batch uploads of listings, tools to adjust prices and so on. Our Customer Delight Centre aims to respond to all customer queries within one minute and we are steadily working towards that goal by installing intelligent technologies.

All this means that for the first time in our history, quarterly revenues from our Online Shopping Marketplace exceeded the revenue from our display advertising business. Here it is important to note that the revenue we report is only the margin and not the Gross Market Value of goods sold on our Marketplace

Moving along to other areas of our business:

We are focused on driving our fee-based businesses that provide an opportunity to generate a recurring income stream. Our Enterprise Class Mail Business is one such opportunity and it has continued to grow. The 2014 CIO Choice Award our Enterprise Mail Solution received has put us in good stead. As we announced in May, our Rediffmail Enterprise solutions was chosen as the best enterprise email offering according to a survey of more than 300 CIO’s across India. This is great recognition for our company and this business in particular, is important for us as it opens up other channels for potential growth.

We have a strong portfolio of over 1000 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, RPG Life Sciences, Jasubhai Group and the Government of Maharashtra Dept. of Sales Tax. In the last quarter alone we added more than 85 new corporate clients to our business. Some of the notable clients to have adopted our Enterprise Class Email Service this quarter are SriRam Life, Indian Tobacco, Funskool Toys, Maax Lubrication, KC Securities and Pride Hotels among others.

We continue to make progress in our Media business comprising online display advertising and the Online TV Marketplace business for local merchants and TV channels. Specifically in the online market place for TV advertising, we are using the Internet to turbocharge TV advertising. Through Vubites, we have expanded relationships with local merchants and both small and large enterprises, all of whom are looking for cost-effective ways to reach target consumers on a more localized level. We’re the bridge that brings all parties together to leverage and maximize TV advertising opportunities for all. We believe that over time, this service 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 we saw an increase in revenues from this business of 150% as compared to the same quarter last year.

One other topic to address is the evolution and growth of our data analytics tools. Approximately two years ago, we launched Rediff Labs, a combination of data-driven journalism and science, backed by technology. Real-time news on politics, finance, celebrities and sports, combined with data analytics and proprietary algorithms to track and monitor the most reported on topics in the Indian marketplace.

The latest innovation of this direction is the ethics profile which helped readers decide on the choice of election candidate, in the recently concluded parliamentary elections. The ethic’s profile is based on a number of factors and it’s perhaps the only objective measure on such matter about Indian politicians in the Indian market.

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 fourth fiscal quarter results.
Overall revenues for the quarter ended March 31, 2014 were $4.01 million, down 4.0% over the corresponding quarter last fiscal year. All figures are in US $’s, though in Rupees, I feel it’s important to note that our overall revenues grew by 10%. Within this, revenues from India Online were $3.53 million, virtually the same as the corresponding quarter last fiscal year. Total India revenue, includes online advertising revenues of US$1.97 million, a decrease of 18%, and fee based revenues of US$1.56 million, an increase of 38%.
Revenues from our US Publishing business were $0.48 million as compared to $0.64 million for the quarter ended March 31, 2014, a decline of 24%, though up 14% sequentially.
Gross Margins for the quarter ended March 31, 2014 were 36%, down 400 basis points from the prior year’s fourth quarter.
Operating expenses for the quarter ended March 31, 2014 were up by 20% at $4.35 million, as compared to $3.63 million for the same quarter last year mainly on account of one-time expense of $ 0.8 million relating to write down of an accumulated Service Tax Cenvat credit. 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 $2.92 million for the quarter ended March 31, 2014, as compared to an Operating EBITDA loss of $1.94 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 $0.78 million for the quarter, ended March 31, 2014 as compared to $ 0.93 million for the corresponding quarter last year.
Interest income for the quarter ended March 31, 2014 decreased to $0.32 million from $0.43 million in the quarter ended March 31, 2013.
Net loss per ADS for the quarter was $0.123, as compared to net loss per ADS of $0.126, for the same quarter last fiscal year.
Moving on to full-year comparisons: All information is for the fiscal year periods ended March 31, 2014 and March 31, 2013 respectively.
Total revenues increased by 4% to $16.25 million, as compared to $15.66 million.
Our revenues from India Online were $13.50 million, an increase of 8% over the corresponding previous fiscal year. Revenues from our US Publishing business were $2.75 million, a decrease of 12% compared to the last fiscal year.
Cost of revenues was $10.04 million, as compared to $9.94 million, an increase of 1%.
Overall operating expenses decreased by 1% to $13.72 million, as compared to $13.80 million in previous fiscal year mainly on account of one-time expense of $ 0.8 million in quarter ended March 31, 2014 relating to write down of an accumulated Service Tax Cenvat credit. Depreciation and amortization expenses decreased to $3.09 million, compared to $3.67 million for the previous fiscal year. Interest income decreased to $1.33 million, as compared to $1.95 million.
Additionally, net loss for the full fiscal year ended March 31, 2014 was $6.11 million, or approximately $0.221 per ADS, compared to a net loss of $11.43 million, or approximately $0.414 per ADS, for the prior fiscal year.
Our total cash and cash equivalents stood at $ 17.15 million (Rs. 1,030 million) as of March 31, 2014, as compared to $ 20.02 million (Rs. 1,089 million) as of March 31, 2013. 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 March 31, 2014. I would request Mr. Balakrishnan to sum up the call.

Ajit Balakrishnan: Closing Remarks

I’d like to provide just a few closing remarks before we open up the call for questions.

As you probably know and as we’ve been saying in several conference call for the last two or three years, a big part of the Rediff.com’s prosperity is dependent on the growth of the broadband infrastructure in India. We believe that since the national elections are behind us, everyone here is positive that this kind of investments will resume. There is currently a 10 billion dollar fibre optic investment plan by the Government of India over the next few years to lay out the national optical fibre network. And they have set up an institution to do that. We hope that with the election behind us, some of these investments will start happening. But that is really the true insurance for Rediff.com’s future prosperity. I am also encouraged that recent reports, for example, Morgan Stanley showed that India’s GDP is going to resume growth, 6.5% through March 2016. We think that these are all positive signs. We believe that our online shopping marketplace and our enterprise class email businesses will be the near-term growth drivers of our company. And with the bulk of the growth coming to the online shopping marketplace. I feel confident that over the longer terms we will see meaningful growths from our View Byte’s platform which aims to revolutionize TV by providing a marketplace for both channels and buyers of TV. We have been patient over these years and so have all of you as our investors and I want to thank you. I look forward to reporting on our progress over the coming quarters. Thank you.