Q2 Earnings Conference Call

Moderator: Good morning, ladies and gentlemen. My name is Sourodip Sarkar and I am the moderator for this conference. Welcome to Rediff.com India Limited’s Q2 2014-2015 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 second fiscal quarter ended September 30, 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 second fiscal quarter ended September 30, 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 warm welcome to everyone joining us 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 and the progress we have made in the last quarter.

As I mentioned in the quarterly earnings call, we are witnessing a definite shift in our revenue streams, signaling the emergence of a new internet media business model where the revenues from our fee-based businesses are playing a leading role supported by traditional display advertising revenue.

Revenues from such fee-based businesses contributed to over half (54%) of the India Online Revenue in the immediate past quarter. Such fee-based businesses for the second quarter grew 31% compared to the same period last year, and helped to some extent offset a decline of 22% in advertising revenue in the second quarter compared to the same period last year.

Our diligent focus on analytics helped us achieve industry metrics for these businesses in the most recently completed quarter, such as a 26% take rate (fees earned as a percentage of value of products transacted), a 14% positive product margin and a merchandise return rate as low as 14%, thus helping us keep our business performance on the growth path.

Our reach in India as reported by ComScore Media Metris has grown 17.5% on a year on year basis to 16.5 million in September 2014, faster than the market which grew just 1% in the same time period. We believe our strength lies in our ability to grow and monetize this 16 million + unique user base coming to our site every month through various offerings for consumers and small and medium enterprises.

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

Swasti Bhowmick: Thank you Mr. Balakrishnan and good morning to all.

All results are for our second quarters ended September 30th, 2014 and September 30th, 2013, respectively.

As Mr. Balakrishnan mentioned, our revenue streams are shifting towards increased contribution by our fee-based businesses. Revenue from our fee-based businesses for the quarter ended September 30, 2014 was US$ 1.71million as compared to US$ 1.30 million for the same quarter previous year. The fee-based revenue contributed 54% to India Online Revenue in the current quarter as compared to 41% in the corresponding quarter last year.

This growth in fee-based revenue has to some extent offset the 22% decline in advertising revenue to US$1.46 million in the quarter ended September 30, 2014, from US$1.88 million in the same quarter last year

Revenues from our US Publishing business were US$0.48 million as compared to US$0.78 million for the same period ended September 30, a decline of 39%.

Overall revenues were US$3.65 million for the quarter ended September 30, 2014, as compared to US$3.96 million for the same quarter previous year.

Gross Margins for the quarter ended September 30, 2014 were 25%, down from 34% reported in the prior year’s second quarter.

Our operating expenses were up by 27% at US$ 3.77 million, as compared to US$ 2.97 million for the same quarter last year.

Operating EBITDA showed a loss of US$ 2.87 million for the quarter ended September 30, 2014, as compared to an Operating EBITDA loss of US$ 1.62 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$0.31 million, coming in at US$ 0.44 million as compared to $ 0.75 million.

Interest income declined slightly, as we reported US$ 0.26 million in interest income compared to US$ 0.32 million.

This resulted in a net loss of US$ 3.02 million for the quarter, or US$ 0.109 per ADS, as compared to a net loss of US$ 1.06 million, or US$ 0.038 per ADS, for the same quarter last fiscal year.

We have US$ 12.5 million of cash on hand to fund operations and remain comfortable with our capital position. We are confident of managing our costs to a level where we can expect the growth in revenues to offset the expenditure, in our continued efforts to bring the business to profitability.

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

Summary:
Thank you Swasti.

We believe we are in an enviable position in the Indian Internet market with over 16.5 million engaged consumers and small and medium enterprises, accessing our digital platform across devices and growing at a fast pace. Further a significant portion of our overall revenues are now contributed by fee-based revenue. With our focus on analytics driving key business performance metrics, we are well positioned for growth in the Indian Internet market.