Info Edge (India) Limited Q1 FY16 Results Conference Call. July 27, PDF

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Info Edge (India) Limited Q1 FY16 Results Conference Call MANAGEMENT: MR. HITESH OBEROI MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER, INFO EDGE (INDIA) LIMITED MR. SANJEEV BIKHCHANDANI VICE CHAIRMAN, INFO EDGE (INDIA) LIMITED MR. CHINTAN THAKKAR CHIEF FINANCIAL OFFICER, INFO EDGE (INDIA) LIMITED Page 1 of 20 Ladies and Gentlemen, Good Day and Welcome to the Info Edge (India) Limited Q1 Results Conference Call. Joining us on the call today are Mr. Hitesh Oberoi Managing Director and CEO; Mr. Chintan Thakkar CFO; and Mr. Sanjeev Bikhchandani Vice Chairman. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing * then 0 on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Hitesh Oberoi. Thank you and over to you, sir. Good Evening and Welcome to our First Quarter Results Conference Call. As always, we will first take you through the Quarterly Financial Performance of the Company, and then we will cover Each Business in more Detail, in the end, we will be happy to take Questions. Moving on to the Financial Highlights for the quarter, for the standalone company, net sales in Q1 were Rs.172 crores Vs Rs.145 crores in the same quarter last year, an increase of 18.5%. For Q1, operating EBITDA was at Rs.24 crores, having declined 51% year-on-year; operating EBITDA margin was at 14% Vs 33.5% in Q1 last year. This is mainly due to the increase in investment in 99acres, mostly in advertising, but also investments in data quality and our platform. Marketing spend was up in Jeevansathi as well. This is in line with our long-term strategic goals. Other income is higher given the larger corpus and income from some FMPs which matured in this quarter. Going forward, the other income maybe lower given the decline in interest rates. PAT was at Rs.28.7 crores, down 28%, operating PAT was at Rs.11 crores, down 60% year-on-year and operating PAT margin was at 6.6% Vs 20% in the same quarter last year. Deferred sales revenue has increased to Rs.187 crores as of June 30 th 2015 Vs Rs.175 crores as of 30 th March Moving on to the Recruitment business: As you are aware, now onwards, since we have moved to segmental reporting, we would be giving out PBT margins. The Data Sheet with this change since Q1 of last financial year will be uploaded on our website. Moving on to the Financial Highlights for the Recruitment business: In Q1 of this year, Recruitment top line grew 20% to Rs.125 crores. PBT margins in Recruitment were at 51.25% Vs 51.7% in Q1 of last year. We had mentioned in the last call that given the expected hike in service tax rates, collections growth in Q4 was much higher than expected. Our average revenue growth for Q4 and Q1 in Naukri is about 23%. In Naukri in Q1, we added an average of about 12,600 fresh CVs every day and the Naukri database grew to about 42 million CVs. CV Modifications in Naukri went up to 166,000 per day. In Q1, we serviced 33,700 unique customers in Naukri Vs 31,000 in Q1 of last financial year. We are happy with the recovery we are seeing in Naukri India Domestic Corporate sales thanks to the recovery in IT markets like Bengaluru are growing at around 30% while the non-it markets like Mumbai and Delhi are growing at about 16-17%. As the Indian economy accelerates, we are hopeful that growth in the non-it sectors will pick up as well. Thanks to Page 2 of 20 our gain in traffic share 70% for the last quarter. Our successful transition to mobile which is now 55% of our traffic. Our growing customer base and our new products and services like the Career Site Manager, the referral hiring platform and e-hire which are helping us tap into new revenue streams, Naukri Corporate business to do well for the next few years if the economy continues to improve. Margins should improve in the Naukri business if the business starts to grow at more than 20% p.a. Moving on to the Real Estate vertical: In 99acres, top line grew by 12% year-on-year in Q1 to Rs.25 crores. For Q4 and Q1, we averaged around 20% growth, again, important because this is more representative of the market since some collections got preponed in Q4 due to an expected increase in service tax. In Q1, 99acres made a loss of about Rs.35 crores, up from Rs.4 crores in Q1 of last year. This loss like I mentioned is mostly on account of increased investment in our platform, data quality and advertising. The Real Estate market, as you know, continues to be very-very depressed. Demand for new homes, especially in markets like Noida, Gurgaon, Mumbai and Hyderabad continues to be very weak, transactions are down year-on-year, new launches in most markets are down 80% and unsold inventory in most cities is between 2 to 4-years at current sale rates. At the same time, the activity in a portal market continues to be at an all-time high. Real Estate portals continue to spend aggressively on marketing every quarter. As some of you may have noticed, we have also scaled up our marketing spend substantially; we expect losses to go up in this business therefore for the next few quarters. Having said so, we are well capitalized and continue to be super-capital efficient compared to other competitors in this space. We see a great opportunity in the market in the long run and will continue to defend and in fact try and improve our leadership position in this business. In Jeevansathi, net sales in Q1 grew 14% to Rs.11 crores while in Shiksha net sales grew 25% and reached Rs.11 crores in Q1. We had pointed out in the last call that we have consciously scaled down our investment in the Jeevansathi business in the last 2-years. Since then we have made reasonable progress on the mobile platform in Jeevansathi; about 65% of our traffic is now on the phone. We had also said that we plan to experiment with a few marketing ideas in Jeevansathi over the next few months and losses will go up in the short-term as a result. Revenue growth will follow but with a lag. As a result of these experiments, if we hit upon a new and more efficient business model to grow our business faster in the long run, we may up our investments significantly in the business going forward. We will keep you posted on the developments on this front. As far as the Education vertical goes, we continue to work hard on the product. Over the last 12-months we have substantially improved our content and our SEO. This year we continue to focus on user-generated content, student tools and the Mobile App. Our user base in engagement continues to grow at a healthy rate. We do not expect to lose a lot of money in the business and continue to be a leader in this market. Page 3 of 20 Moving on to our Investee Companies: Our Investee Companies continue to witness solid growth. During Q1, we invested about Rs.152 crores in Zomato in April 2015 and maintained our stake at 50.1%. We invested about Rs.25 crores in Meritnation and our stake now is around 59%. We invested in Rs.2 crores in Happily Unmarried and our stake now is around 37%. The total amount invested in investee companies till June 30 th 2015 is now around Rs.760 crores. Additional funding by existing investee companies may be required from time-to-time and we will evaluate each on its own merit. We continue to evaluate new investment opportunities as well. To Summarize: As the economy improves, we expect to benefit in the Recruitment business. Our competitive position in Naukri is being further strengthened through improvements in products and our continued focus on client needs. We will continue to invest more in this business mainly in product development to help strengthen our leadership position. The underlying Real Estate market is in a slump in more cities. The competitive intensity has changed a bit but the existing players expected to continue to burn cash. We remain committed to this market and will continue to invest more in this business. Mobile Sites and Mobile Apps have witnessed improved traction with more and more users accessing our sites through them. This continues to be a focus area for the company. We are now ready for any questions that you may have. Thank you so much. Thank you very much. We will now begin the Question-and-Answer Session. Our first question is from the line of Sachin Salgaonkar from Bank of America. Please go ahead. Sachin Salgaonkar: I have three questions: First question on Real Estate. Just wanted to understand the competition in this space, how has that changed since you pushed up your marketing spend, how have competitors reacted? Are you seeing also any shift away from offline advertising to online given the slowdown in general revenues? Question #2 is, how should we look at the marketing spend for 99acres, how much did you spend this quarter, any guidance you could give in this direction? Third question is, in light with the improving economy, would you consider 20% as the steady state growth for Naukri Pr is there room to move up to 25% or more? To answer your first question, our competition in Real Estate continues to be sites like Magicbricks and Commonfloor. Magicbricks of course is a strong competitor and they upped their spend significantly last quarter, especially on marketing. The other competitors like Housing and CommonFloor, India Property have also been aggressive in terms of marketing. We continue to maintain share. So, I do not know whether this intensity will increase or decrease going forward, but we are committed to maintaining our share in this vertical. Sachin Salgaonkar: But, if there is any change you saw since you upped the marketing spend, did they also spend more or nothing changed from there? Actually, Magicbricks was very aggressive on television in April and May, they sponsored IPL. We have also made a new commercial; we have been on TV for the last few weeks. Page 4 of 20 Competitive intensity has sort of decreased a little bit in the month of July and towards the end of June. But, who knows? People maybe working on new strategies. CommonFloor has become a little more aggressive than they were last quarter; Housing is a little less aggressive, but this would all change in the next 2 or 3-months, we do not know how this will pan out. So, our marketing spend on 99acres went up significantly, we are not giving out the exact number, but, our losses in this vertical were around Rs.36 crores this quarter, most of it was on account of advertising spend going up, of course, we continue to invest in our platform and improving our data quality as well. To answer your question on Naukri, our average collection growth for the last 2-quarters has been about 23%, some collections got preponed in the last quarter, because of an expected increase in service tax, the same happened in 99acres as well. Going forward, a lot will depend on what happens to the economy. If the economy improves from here on and sectors like non-it start hiring then our growth rate in these sectors should go up. Right now, while we are growing at 22-23%, it is because the IT sort of companies are growing or markets like Bengaluru which are predominantly IT, are growing at a faster rate than markets like Delhi and Mumbai which are growing at about 16-17%. To your question of shift from offline ad to online, we are not seeing any shift as such. Most companies have a sort of basic plan for online performance advertising. So, even we continue to spend on performance advertising everyday and that is true of all our competitors as well. Those spends have also gone up because people are bidding more for key words than they were earlier. And the branding spend you see on television is sort of off and on. So, sometimes companies are on television, sometimes they are off television. So, my sense is that a base level of performance advertising from all competitors will continue. And TV advertising which is a little more expensive and does not translate into a sort of immediate traffic will be a function of what companies want to invest in the business in the long run. And whether they want to build a brand right now or whether they want to wait it out when the market recovers. Thank you. The next question is from the line of Parag Gupta from Morgan Stanley. Please go ahead. Parag Gupta: Just two questions: Firstly, on Real Estate, you did mention that your losses have gone up in this quarter and are likely to go up in the following quarters as well. So, if you could just give us a sense of, is this going to be again a lot more aggressive advertising or are the spends happening on other counts as well? And where do you see some of these investments kind of tapering off? Second is I know that you guys have the QIP fund still left with you. But, is there any sense of additional fundraising by any of your other investee companies and how do you see your cash flow positions emanating from that? To answer your first question on 99acres, we continue to invest in marketing and brand building, that is of course just one of the pillars but we continue to invest aggressively in data quality, in user experience, in improving our platform. So the user experience and data quality and platform investments will continue. The marketing investments will to an extent be determined by what happens in the market out there, whether competition is aggressive or not. So what happened last quarter was that not only that we invest more but some certain markets slowed down because Real Estate is very-very depressed, so for example, Delhi NCR, Page 5 of 20 transactions are down, maybe 20-30% compared to last year and maybe 50-60% from their peak and new launches in markets like Delhi NCR are down 80-90%. So, that impacted our business. While we grew at a reasonably healthy rate in Mumbai, Bengaluru and Pune, but growth slowed down considerably in the Delhi NCR region. So, if the market starts to improve from here on, then that should sort of positively impact our top line and if competition is not very intense going forward, then we would not have to spend as aggressively on advertising as we did last quarter, but it is the wait-and-watch situation. So if both these happened, of course, our losses will go down, but if we are forced to invest aggressively and top line growth also does not follow, then of course, losses will continue to be heavy. Sanjeev Bikhchandani To your second question, several of our investee companies are contemplating raising more money. Our sort of brief to them has been to get other investors, and if we need to participate in order to make it all happen, we will look at it. But in general, we are saying that, look, augment our sort of money with external investors money because given the size of our balance sheet, given the requirements of 99acres and our other internal businesses, it would be useful to get external investors in to those of our companies looking for money. Thank you. The next question is from the line of Gaurav Malhotra from Citigroup. Please go ahead. Gaurav Malhotra: Just a couple of questions on the Property side. One is, Hitesh, you mentioned that the strategy is to retain market share or the strategy will be to increase market share, if you could just give us some details on that. No-no, I said, ideally we want to grow our market share unless of course this is very expensive to grow it and marketing is not the only sort of thing that we are doing to grow market share, we are investing in our platforms, we are working on data quality, we are improving our mobile experience. So, we are doing a host of things to improve our market share, but in the short term of course market share depends a lot on marketing activity and we are committed to at least defending our market share, and, of course, in the long run we would want to grow it but not just through marketing, but through the other sort of things we are doing earlier. Gaurav Malhotra: Any sense on how much traffic share has changed in the last 2-3-quarters? So we have been averaging at about 34-35% share if you go by comscore; in the month of April, we dipped to about 29% because competition was very aggressive, in the month of June, we are back at 38%. This is if you take the market to be 99acres plus Magicbricks and CommonFloor plus India Property plus Makaan plus Housing. So in a market of six sort of sites, we are at 38% in June and 35% if we average over the last quarter. Gaurav Malhotra: Again, on this whole market share. During the slowdown even Recruitment top line had slowed, you were still continuing to invest to gain market share, there the competition was quite less compared to what it is in Property, so that market share which you sort of got you manage to retain it. However in Property, the market share seems to be fluctuating and the Page 6 of 20 competitive intensity is much higher. So would it not make strategically more sense to wait for the improvement in the Property market as a whole and then invest rather than invest now in any which ways once the property market invest, the other guys will also start investing for market share, any thoughts on that? The investment in products, investment in the platform, investment in mobile, investment in data quality, user experience, I think these should continue because I do not think we can afford to sort of relax in these areas. So, this is a major part of our strategy in 99acres. So, this will continue irrespective whether market is slow or not. Yes, marketing spends in a slow market do not make a lot of sense, but we are not the leader as far as these spends are concerned, we are not going to be stupid about spending in this market to gain market share, but we would want at least defend our market share even in a slow market. Thank you. The next question is from the line of Arya Sen from Jefferies. Please go ahead. Arya Sen: Firstly on 99acres in FY15, what proportion of your revenues came from Delhi NCR region? About 30%. Arya Sen: What is your sense on your market position or market share across the different major cities which is Delhi NCR, Mumbai and Bengaluru, how different would it be in these different cities? And to what extent would that determine the mix in terms of different growth rates in the different cities determine your overall growth rate? We believe we are leaders in Delhi NCR, Mumbai, Chennai, and Hyderabad, these are the four markets where we are leaders. We are not a very clear leader in our view in markets like Pune and Bengaluru. We are like I said even though we grew at about 10-12% in Q1, we saw a slightly higher growth in markets like Mumbai, Pune, and Bengaluru. So, these are the markets we will continue to invest in aggressively; in Delhi NCR, we are seeing a serious slowdown in the market, which also impacted our growth rate. I do not know if that answers your question. I cannot give you exact numbers, but our strategy is to continue to invest aggressively in the markets which are still growing. Arya Sen: Is there a substantial difference in the growth rates in Delhi NCR versus Mumbai and Bengaluru? For us, yes, because we were already a leader and we were in fact a dominant player in Delhi NCR, so we have been hurt by the slowdown maybe more than our competitors, but in the markets like Mumbai, Pune, Bengaluru, where we can still gain share, we are still growing well. This can all change, it all depends on what happens to these markets; today, Delhi NCR is in a very bad shape, tomorrow, if things slow down considerably in Mumbai and Bengaluru also, things could change, but as things stand today, we still have some scope to grow in these cities. Page 7 of 20 Arya Sen: Is it possible to give the share of revenues coming from Mumbai specifically and Bengaluru? For competitive reasons, we would not like to disclose this informati
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