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“Geodesic Limited Q4 FY 2010 Results Conference Call”
May 12, 2010
MODERATORS: MR. KIRAN KULKARNI – MANAGING DIRECTOR, GEODESIC LIMITED.
MR. PRASHANT MULEKAR – EXECUTIVE DIRECTOR, GEODESIC LIMITED.
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Moderator Ladies and gentlemen, good evening and welcome to Geodesic Limited Fourth
Quarter FY10 Post Results Conference Call. As a reminder for the duration of this
conference all participant lines are in the listen‐only mode and there will be an
opportunity for you to ask questions at the end of today’s presentation. Should you
need assistance during this conference call, please signal an operator by pressing *
and then 0 on your touchtone telephone. Please note that this conference is being
recorded. At this time I would like to hand the conference over to Mr. Kulkarni –
MD, Geodesic Ltd. Thank you and over to you.
Kiran Kulkarni Thank you and welcome to all of you. We just announced the fourth quarter
2009/2010 quarter results and would like to welcome all of you and thank you for
taking time out to listen to us. So just wanted to quickly run through the highlights
of the fourth quarter and then we will open for questions.
I will just give you a brief background on the financial highlights first and then move
onto the functional highlights. Geodesic reported revenues of about 175 crores in
the fourth quarter ended March 31st. We also reported a profit of 69 crores that is
up 4% year on year and grown more than 10% quarter on quarter. EPS for fourth
quarter stood at about 7.53. We paid the dividend that was announced in January to
the extent of Rs. 0.75 per equity share. We are pleased to announce that the Board
of Directors have approved buyback of 5% at Rs. 150 per share.
During the last quarter, Geodesic also added about 35 new employees in various
departments including technology, business services and sales, marketing and a new
product line that we have developed and I will speak about that.
We will also look at several operations wise – We have launched the web console
which is a advanced desktop application offering, investment and portfolio analysis
in depth. We are proud to inform that Geodesic is one of the few companies in the
world and possibly the only company in Asia to have launched four applications on
the App Store. Knowing the stringent norms set by the App Store, I think it is a
proud achievement for all of us. I would like to thank you guys for all the support.
Again, in the fourth quarter, we also launched an online anti‐piracy software that is
going to be used for films, for products or free goods, and during the course of this
quarter we have already run our anti‐piracy software for a movie called Housefull. I
will talk about that.
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Again, in terms of rewards and recognition as possibly all of you know that
Geodesic’s GeoAmida, the world’s first integrated mobile handheld device won the
NASSCOM Social Innovation honor for 2010 beating TCS. I am not sure of the third
name, but TCS was definitely one of the companies. Mundu IM was awarded the
best internet service by GSMA Asia and was ranked 3 in GSM Global Mobile Awards.
We have added about 8 new enterprise customers during the course of the last
quarter. We have also highlighted the names in the notes. We have added about
270,000 new users for Mundu products. Spokn clocked at average of 195,000
minutes, is almost up by 10% quarter on quarter. We have almost got more than
225,000 text messages sent using SMS as an application. The nice thing is, we have
had a diverse range of customers, right from the BFSI segment to telecom operators
to oil companies to the government. The diversification of the customer segment is
getting bigger and bigger.
Our subsidiary in Uruguay is working brilliantly. Getting possibly into every telecom
operator not only in South America but now we have moved onto Europe and also
Far East Asia. We are also making inroads into Far East Asia. We have already made
the inroads into Europe. Dialogue again from Sri Lanka now has two products out of
Geodesic, one is the IM which was delivered to them through our subsidiary and the
radio product that was launched out of Geodesic. We are open to questions now.
Again, thank you for joining us. The floor is open for questions.
Moderator Thank you very much. Ladies and gentlemen, we will now begin the question and
answer session. At this time participants who would like to ask questions may press
* followed by 1 on their touchtone telephone. If your questions have been
answered and you wish to withdraw your question from the queue, please enter *
followed by 2. You are requested to please use your handsets while asking a
question. To ask a question please enter * followed by 1 now. Our first question is
from the line of Satish Jain of HDFC Mutual Fund, please go ahead.
Satish Jain Hi Kiran, congratulation on a good set of numbers. Can you give us what you think
will happen in FY2011 in terms of growth across verticals and broadly as a company
as whole?
Kiran Kulkarni Satish, let me quickly explain what we have done. During the course of the last year
when the economy was down, we have really revamped our entire range of
products. To start off with what we have done. We have changed the way the CRM
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product works. We have integrated a whole lot of things in that. We have revamped
the entire IM suite and the radio suite and the television suite. The GeoAmida is
doing extremely well. We have signed off with about 80% of all the system
integrators that provide eGovernance solutions in India. It is only in the fourth
quarter that we have started getting into the positive zone. If you look at the
second and the third quarter, we had a negative growth in terms of turnover as well
as in terms of the profitability, but that has turned during the fourth quarter. What
is going to really click during 2010‐2011 are the following products. One is
GeoAmida. There is huge pent up demand every bank is also rolling out a mini‐ATM
kind of a thing and Geodesic’s GeoAmida is the specification that is absolutely in
sync with what the banks really want. We are expecting a large chunk of revenues
to come out of GeoAmida and we hope to sell at least a 100,000 plus units there.
That is one. Second is, we are very bullish about the online anti‐piracy software that
we spoke about. In fact, I did speak about Housefull as a movie that we tested our
product on and to our satisfaction and to the distributor’s satisfaction, we have
pulled down 92.36% of all pirated movies that existed online. That is a huge
segment. India produces almost about 300 odd movies. Hindi movies plus the South
Indian movies in fact could be more, but we are targeting a market of about 50 to
55 films and each film signs a contract with us for about 8 weeks, 4 weeks initially
and 4 weeks later and then we get rates per month. So that is what is happening
online. Overall, these two products will definitely work. The enterprise segment is
going on well. The telecom segment, the mobile network operators, in fact last year
we did not have any, this year when we finished the year, we have 19 and we hope
to add at least 5 more during this year. In terms of mobile handset vendors we have
got a bulk of them right now. Right from the Nokias of the world to the HTC to
BenQ to Acer and Mytek, and we have also added the Korean giants now and we
will soon make those announcements. If you look at the distribution of the products
for each channel it will be big. Spokn is getting bigger, so overall I can go down
through each and every product but 2011 seems to be a good year for Geodesic and
it is possibly a turn around in terms of all these products kicking through. So Satish I
have answered your question.
Satish Jain Yeah, but then if you can give us a sense, what we can expect in terms of growth of
numbers like that and also in terms of margins like top line growth and what we can
get in terms of?
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Kiran Kulkarni Satish, I will tell you what we are aiming to do. We are aiming to grow atleast about
and in terms of the profit margins we are possibly talking about….
Prashant Mulekar Top line would probably be around 25% to 30% growth things stand now. We will
probably deliver it on quarterly basis or even monthly basis because lot of activity is
happening simultaneously. On the profit, we would probably look at the same level
but given the way dollar has been fluctuating, we wouldn’t like to comment as of
now, how much the margins would change, but we would probably have the same
levels of margins. Probably for a new product the margins could be slightly lower to
begin with, and as the product stabilizes, the margins would improve with the new
products.
Satish Jain Okay, that is helpful. Thanks.
Kiran Kulkarni Thanks Satish.
Moderator Thank you. Our next question is from the line of Haripreet Batra of Kim Eng India,
please go ahead.
Haripreet Batra Congrats on a great quarter. I just wanted to understand in this specific quarter,
which are the segments that have led to this growth?
Kiran Kulkarni Okay, very quickly running through a segment growth, so give me a second, and I
will pull that up, so that I will tell you exactly where we have grown. We have been
distributing the segment wise breakup and I will just go by the segment alright,
okay. In terms of system integrators, these generated 32 licenses this quarter which
is two more licenses in the last quarter. The revenue that we generated out of the
system integrators is about $5.1 million. In fact, we are valid about 2000 more users
across 75 enterprise(10:35) customers now and that has given us revenue of about
$6.2 million. In terms of portals, the number of unique users has gone up to about
11.5 million that gives us a revenue of about $4 million having approximate price of
about 30 cents per user per year on an average. In terms of handset manufacturers
we have signed up with six people who started giving us revenue, then the number
of phones that got distributed last quarter was about 3.35 million with our products
and taking an average price of 60 cents we have generated about roughly $2
million. In terms of retail IM we reduced the prices. We experimented with the
price point of $3 and $11 and taking an average of $6 we have generated about
$1.6 million as the priced during the last quarter. In terms of telecom operators, we
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have added 2.2 million subscribers which is up by almost about (?), quite so last
time it is about 1.75 so we have added substantial number of users there at an
average price of $3.3 and the revenue that we generated was about 7.6. In terms of
web services we have got $515,000 per enterprise and we have got about 14
enterprise customers so other things what we have also done with these web
services we have taken an aggregate, or even if there is support cost and upgrade
cost we have included that as part of the revenues that we generate out of this. In
terms of VOIP we have got 195,000 minutes and we have got 124,000 users at this
point in time, so it has grown by about 30,000‐35,000 over the last quarter. The
average price is gone to about $4.2. In terms of SMS we have got 370,000 users
almost 70,000 new users who subscribed. We have also subscribed to enterprises.
We are keeping them as one single user. There are lots of enterprises who are using
the SMS for example India Mart is using it and there are a lot of other enterprises
have started using the product. In terms of GeoAmida we have signed on 12 new
customers now and we have sold 5660 hand‐held terminals this quarter as against
4500 last quarter and the average price is about $425 it gave us about $2.4 million
and Chandamama almost steadied there at about $0.34 million. That is how the
segment breakup is.
Haripreet Batra Thank you. On the CAPEX side have you changed over model on the handset device
because earlier we were thinking that we will not do any CAPEX and it will be
outsourced to other manufactures and we will only do the software. So now are we
going in for CAPEX setting of this manufacturing plant?
Kiran Kulkarni Yes we are. We have already started that. If you look at what is happening during
this quarter, it is not the full capacity we got to understand that we are not
manufacturing 100% as yet we are doing about 7 to 10% of the entire
manufacturing if you take 100% as the unit. Rest of it is still outsourced but we have
started undertaking a lot of things that need some amount of so we do not want to
let that goal go out anywhere(13:45). It is proprietary and we want to integrate
those chips ourselves. So that is what we do and then we bundle in the software so
it is about 10% of the work that we really do and we have set up a plant because
setting up a plant also helps us in saving income tax on the products that are sold
from this factory.
Haripreet Batra On our custom made services side, how are we looking in terms of next year
because that is a significant segment for us?
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Kiran Kulkarni Absolutely, in fact, if you look, the web services segment is growing because we
have now created modules; if you look at all the customers, if you look at an
Edelweiss or if you look at Axis Bank or if you look at even HDFC Securities, the one
whom we signed with, now all of these people are using our web services, but we
are also providing products as part of these modules. So we do not need to really
develop these products over and over again, right so the products are getting
integrated. The web services are becoming profitable because we are using
modules and not just giving away web services as in a typical service. It is a product
based service that we are providing at this point in time.
Haripreet Batra Okay. Sir, some bookkeeping questions. Our depreciation has gone up significantly
this quarter. So what has led to that increase?
Prashant Mulekar There is segmentation on amortization so development expenses have been written
off which has been our process of plan which we have been doing for the last few
quarters. Trying to get into the IFRS mode as early as possible.
Haripreet Batra Okay, so this will also help us save tax and we can shift the new versions to SEZs, am
I correct on that?
Prashant Mulekar Yeah.
Haripreet Batra Okay, fine that is it from my side. Thank you so much.
Moderator: Thank you Mr. Batra. Our next question is from the line of Prateek Agarwal of Bharti
AXA, please go ahead.
Prateek Agarwal Hi sir. I just wanted some clarity on the thoughts behind buyback. The 5% kind of
the buyback is the smallest buyback on my mind. If the cash surpluses are not
there, then why are we attempting this kind of a buyback? Why just a 5%? Is it
something that the management is trying to indicate? What is the cost thought
process behind this?
Prashant Mulekar We initially started with a much bigger buyback plan and then getting approvals
from SEBI took quite some time and the process got delayed to such an extent that
we could not implement that at all.
Prateek Agarwal Sir, we have announced a 25% buyback.
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Prashant Mulekar Approval from SEBI took almost 10 months.
Kiran Kulkarni Sir, another thing that you are allowed to do Prateek is obviously you can get the
board of directors’ approval and without going to the shareholders you can do up to
10%. Right now doing 10% we were not very sure as to whether it would happen or
not because what we can now do is with 5% we can safely say that there is a chance
this will happen. You also got to understand that during this entire buyback process
there is no employee stock option that can be wrested which is very critical for
employees of Geodesic because we are in a space where stock options matter more
than the salary. We have got a high power team and you are there critical about
their stock options and you do not want to lose out on all these staff. We have
announced 10% buyback and if does not go through we are simply waiting for a
year without doing all of these things. There is a chance that we can do 5% and may
be 5% goes through we can always extend that to 10% so that is the maximum that
one can do. That is the thought process behind, it is predominantly the stock option
plan that led us to say that led us to 5% and then extend it to another 5% if at all 5%
goes through.
Prateek Agarwal Sir, go through meaning the (?), you are saying you are buying back up to 150. The
market prices are very low.
Kiran Kulkarni Sure, sure.
Moderator Our next question is from Jigar Shah of Kim Eng Securities, please go ahead.
Jigar Shah My question was regarding buyback, once we have taken it in the board meeting,
when exactly are you going to start implementing that?
Kiran Kulkarni No, there is a process which says if we have to do a public announcement and then
it is being done, or it is done. Okay, public announcement you need to get the
approvals from BSE and NSE and SEBI for the public announcement. I think the
process takes about 7 to 8 days.
Jigar Shah 7 to 8 days, okay, alright. Technically we can say that in the next week it would be
active.
Prashant Mulekar No, it will, because the public announcement has come today and we have
participated with everyone today it will take around 7 days so next Thursday to
Friday is what we expect the SEBI approvals or the no‐objection to come. If there is
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any change in the public announcement we will have to make those changes and
publish it again. We feel that probably on the week starting on 24th we will be able
to hopefully start buying back.
Jigar Shah Okay, and the second question is, how are you hedging your currencies as, what is
your current outstanding and how exactly are you going to manage that?
Prashant Mulekar We are taking some hedge products to protect the refusals and given the volatility
which happened last year we have increased the hedging percentage by almost 5 to
10% in the last one week.
Jigar Shah No, currently since your revenue is a little over $150 million how much is exposed
against Dollar and Euro if you can just give a basic explanation of that that how
much you hedge?
Prashant Mulekar Imports are mainly in Euro and Dollar. 95 to 98% of the sales exports and we are
covered to the extent of 30 to 40% as of now.
Jigar Shah Okay. You do it for what, is it for one or two quarters or you are hedged longer than
that?
Prashant Mulekar We are hedging longer to get better rates so we hedge anywhere between six
months to two years.
Jigar Shah Okay, currently you are hedged at what Rupee‐Dollar parity?
Prashant Mulekar Rupee, average rate we should probably get now is above what is the rate going on
as of today.
Jigar Shah Okay and how much would be the Euro exposure and how much would be the
Dollar exposure?
Prashant Mulekar Euro exposure is not high. It is not more than 3% to 4%. Most of it is really in
dollars.
Jigar Shah Okay, most of it is in dollar. How much amount you said, I am sorry I missed it I
guess?
Prashant Mulekar 95% of our sales is exports, 95% to 98%.
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Jigar Shah No, that is right, so how much on that sort of, on an average basis at the moment
what must be the total exposure which is hedged I mean on as a monthly basis or
quarterly basis?
Prashant Mulekar We are hedged around 30% to 40%.
Jigar Shah Okay, sorry I understand. So $40 million kind of hedge, $40‐$50 million. Is it correct
to say that?
Prashant Mulekar Yes.
Jigar Shah The other aspect was about the CAPEX, what kind of CAPEX and employee addition
that you will have this year?
Kiran Kulkarni We are very aggressive on getting more people on board this year and in terms of
CAPEX we have a couple of plans. Now if these plans do go through then our CAPEX
will rise to the extent of about $30 odd million. These are the projects that we have
envisaged goes through, if it does not go through, then we will not invest that, but
in the regular sense if that project assuming that the project does not go through it
will be between $12 and $14 million.
Jigar Shah Okay, $12 to $14 million is as of now visible. You said in last quarter you added
some 30‐35 people, do you think similar number of people addition will happen like
every quarter or what is the kind of outlook on that?
Prashant Mulekar That would be slightly different because we are no so much of services company as
we are a products company so we are not looking at a number game in that sense.
If we find people who match our skill sets and the perspectives, then we would
probably hire much more than 30 also in a given quarter but if we do not find the
right kind of people it is not necessary for us to go ahead because you are not
looking at having x number of heads in the company.
Kiran Kulkarni I am trying to shift your perspective right, we are very confident that we will
possibly add about a 100 people very safely through the next year.
Jigar Shah Through the year, okay that is good enough in understanding. What kind of average
salary increase will take place and when?
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Kiran Kulkarni The average salary increments will come in during this quarter and the next quarter
depending upon how people have joined and the average salary increase again has
no bar, in some cases there is a 100% rise. So the minimum salary rise that we have
is about 15%.
Jigar Shah Okay, so does that impact the margins in the coming two quarters?
Kiran Kulkarni Not really because Jigar, we are also innovating on the products that we have
already had. For example, Adept is now being converted into the anti‐piracy
software. It was the same technology. Even if we add people, there is revenue
coming in from that new product development and the new product launch that is
happening.
Jigar Shah So you think it will offset even if there is a, I mean there will be salary increase
because that is important but it will help the offsite.
Prashant Mulekar Margin percentage it would really impact.
Jigar Shah Sorry, I did not follow what Prashant said.
Kiran Kulkarni What Prashant is trying to say is margins would not be impacted majorly because of
this.
Jigar Shah Yeah, I mean little bit here and there is fine but no major impact.
Prashant Mulekar If you look at the salary as the percentage of the total revenue, it is not a huge
numbers whereby 25%‐30% growth is which would affect the margins dramatically,
obviously it would affect the margins but that would be a compensated by more
business, more revenue coming in simultaneously.
Jigar Shah Okay, I understood and currently what is the cash position before doing this buy
back?
Prashant Mulekar Cash and cash equivalent is around 975 to 990 crores.
Jigar Shah 990 crores of which how much would be on account of the FCCB proceeds that are
lying with you and how much would be your like your own generation?
Prashant Mulekar FCCB proceeds would be around 50% to 60% of that.
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Jigar Shah 50% to 60% of that and that is as I understand is still lying outside India right?
Prashant Mulekar You cannot get it anyway.
Jigar Shah I mean for whatever acquisition that you want to do?
Kiran Kulkarni Right now we have been negotiating really hard with one company that we have
identified and negotiating right now and we definitely see that acquisition
happening during this quarter.
Jigar Shah As regard we know the exposure to like for example your (26.30),etc I mean recent
bout of credit crisis that we have seen any kind of remote impact that you see, any
slow down or any issues?
Kiran Kulkarni Yeah, the BFSI segment is very cynic about this right, so if there a moment upwards
or downwards they take a stand of approach and things do get delayed in terms of
the sales cycle, in terms of having more number of users that could definitely
impact to a certain extent but that is the only segment that possibly gets impacted
and to a certain extent industry but if you look at the balance of products at this
point in time Jigar, the GeoAmida product is doing extremely well in India. We have
also signed up with a large company in Nigeria now. We have just got the contract
for GeoAmida. We are close to signing with a couple of states at this point directly
not necessarily going through the system integrators. So its being offs even if there
is a dip somewhere, we are comfortable because we are balancing it out within
India and the other developing nations where the inflow of money is going from UN
or these kinds of bodies of the World Bank.
Jigar Shah Prashant, what would be the average receivables as of end FY10?
Prashant Mulekar Average receivables have certainly come down from what it was last year about 115
days we are expecting it around 105 days.
Jigar Shah Okay that is great. Other than that, Kiran was that there are many things written
along with your result release and when you say you signed up with America Movil
or you signed up with Mexican Company, you signed out with so many other
handset and operator companies. Now, what does this sign up mean, the sign up is
excellent but does that mean revenue, does that mean some minimum guarantee,
does that mean that you will start receiving after some fourth months or may not
happen at all. Can you throw light on that?
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Kiran Kulkarni So Jigar, America Movil has already started revenues for us, okay now there is no
minimum guarantee kind of concept here, you see. There is a lot of over‐the‐line
and below‐the‐line product marketing that takes place for the products that would
be useful for the users okay. One is that America Movil has about 220 million users,
now out of which the product has been launched for about 60 million people and
there is a phase of approach, so the next quarter you would see the next two other
same companies that we have that would get launched, America Movil is an
aggregation of about six telecom operators through South America, all six telecom
operators will then obviously install our product. So, now the whole thing is we get
a per user per month revenue, if the customer signed us, so we are not expecting
220 million users or 60 million users to sign up, what we are seeing is we obviously
are signing up, we are assuming that 1.5% to 2% or 3% would come but not more
than that.
Jigar Shah I understand now that is fine, I have exhausted good amount of your time, thank
you very much and all the best.
Moderator Thank you. Our next question is from the line of Rohit Gajare of UTI PMS, please go
ahead.
Kiran Kulkarni Hi Rohit.
Rohit Gajare Hi Kiran. One question I wanted to ask you is the other expenses phase and
marketing expenses have gone up sequentially, could you give me a break up of
why the margins have come down sequentially? What were the expenses about,
and other expenses?
Kiran Kulkarni Rohit can you repeat that question, you broke in the middle?
Rohit Gajare I am sorry. Okay, the margins have come down on a sequential basis; can you give
me an explanation of why those margins have come down sequentially?
Kiran Kulkarni Are you talking about profit margins?
Rohit Gajare No, the operating revenue margins.
Prashant Mulekar So, one there is an increase in depreciation, what has happened is we had to reduce
the rates and maintain the client base and to maintain the business we had to
reduce, as Kiran had pointed out in the previous quarters, analysts calls also that we
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had to reduce the rates given that that is one of the main reasons as the expenses
do not come down the sales which could have been much higher at the rates level
was maintain at the previous years phase and we would have got a better margins.
Rohit Gajare Are you saying there was a pricing decline between the December ’09 and March
end quarter?
Prashant Mulekar Quarter‐on‐quarter.
Rohit Gajare Yes, between December ’09 quarter and March ’10 quarter, you see I am trying by
the expense other than depreciation and then staff cost and…..
Kiran Kulkarni Just a second.
Rohit Gajare I see I have to talk about significantly at different times, another question I had is
regarding tax rate, if we currently understand how long do we expect to get
current, almost zero tax rate?
Prashant Mulekar We will be on this current zero tax rate for the next three years.
Rohit Gajare For the next three years? Can you tell us how we will meet zero percent tax for next
three years?
Prashant Mulekar First, we are in SEZ which has first 5 years zero tax rate, then it comes to 25% and
then it goes to 50%.
Rohit Gajare Okay, so we are already two years in to a SEZ and there are three years to go, right?
Prashant Mulekar And that is assuming that the government policy does not change, yes so if the
government policy changes then it would be slightly difficult for us.
Kiran Kulkarni Right, and Rohit in fact even on the GeoAmida sales because the factory is being set
up in Uttaranchal, there is no income tax against till 2013‐14 so March 31st 2014.
Rohit Gajare 2014 no taxes for‐
Kiran Kulkarni No income tax and no sales tax for any sale that we want to‐
Rohit Gajare Okay another thing is, what is the current level of debt on the books?
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Kiran Kulkarni Pardon.
Rohit Gajare Debt levels?
Prashant Mulekar We have FCCB debts.
Rohit Gajare Just the FCCB and the outstanding is $111million?
Kiran Kulkarni Yes, 111, Rohit.
Rohit Gajare Right $111 million it is outstanding same as last quarter okay so the interest cost we
have in the P&L this should just be YTM on the FCCBs right?
Kiran Kulkarni Right.
Rohit Gajare Okay that is it, thanks.
Prashant Mulekar And operational you are talking of if you look at the marketing expense has
increased substantially‐
Rohit Gajare Where is this marketing expense and where are we channelizing this, as in
international marketing or domestic?
Kiran Kulkarni In international market – last year we have hired good agencies to take care of the
products that we have and there is a lot of experimentation that is going on so we
looked at online marketing it was spread very well for Spokn in Mundu and that is
one of the results that we have seen, the growth has been substantially increased
and even if you look at the numbers’ jump that has happened last time we had
215,000 Mundu IM user this time it is 270,000, so it is growing in a crowded market,
so products are getting cluttered. Second, we have done there was a drop in the
pricing yes, if you look at the IM pricing, Rohit it was $11 but now the same product
was priced at an average of $6, we had a mix of $11 including and so if you look at
the sequential decrease even in terms of the pricing, it is only for the retail product
though. We have dropped our price from 11,000 to 60,000 because IM as a product
in getting cluttered is getting commoditized. Now, we are experimenting with and
we have been seen as leaders we have to do something that is extremely different,
so now we are taking an approach where we might just go ahead and give the
product for free but get add revenues in, so that is the thought process and we are
also going ahead with and including social media into the IM products and then
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making them pay for the product so the whole concept is that you have two
products, one is the premium product, one is the basic product. What we have also
done is Mundu Radio which was the free product is now price product because we
have priced the product at $2.99, okay previously it was a free product and people
have responded to it very positively so the radio product if you look at the App
Store it is rated very highly at this point in time.
Rohit Gajare Okay and the other thing that you said that then you launched the television right
on mobile, how is that going through?
Kiran Kulkarni You will see it in India now, we have done launches with telecom operators at this
point in time, we first decided that we will also build a base with the 3G network
providers and we signed two deals at this point in time and you will see a spate of
marketing exercises in India during the course of the next month.
Rohit Gajare Okay so today – revenue?
Kiran Kulkarni There is no revenue from the TV product.
Rohit Gajare Okay Ajay taking up the questions.
Ajay Hi Kiran, hi Prashant.
Ajay Coming back on interest as Rohit asked you, he was saying that the interest cost
pertains to mark to market or rather the YTM of the FCCB right, now Prashant this
year that should have been a favorable impact because the rupee has really
appreciated, so am I reading something incorrectly here or?
Kiran Kulkarni No, you can see that last year it was almost 40 crores and this year it is 35 crores.
Ajay Yes, so I am saying between last March and this March rupee would have
appreciated, so why should there be a further, okay sorry yeah I understand, you
are saying you are amortizing the YTM over a period?
Kiran Kulkarni Yes.
Ajay Over the life of the bond?
Kiran Kulkarni Yes.
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Ajay And the mark to market of the FCCB which is the fluctuation in the foreign
exchange rate that is not included that is taken elsewhere?
Kiran Kulkarni Yes.
Ajay This is only the YTM?
Kiran Kulkarni Yes.
Ajay Okay perfect so that is one. The second is that on the net profit margins, though
you said that you hope to hold them at the same level, if you are talking about the
fact that there is stability coming back to the business and also assume for a minute
that rupee does not significantly appreciate from these levels, should not we be
logically talking about the margins which have at the net level which have dipped
down to 37% or 38% should start to climb up and inch closer to our earlier days of
40% plus?
Prashant Mulekar Okay we are trying to put in is that because we are launching new products typically
new products have lower margin at the beginning of the life cycle and if these are
going to become a substantial portion of the portfolio the overall profit margin
would not grow to the extend we would likely to grow and as the products
acceptability rises and the volumes grow then the margins for those products will
improve.
Ajay Okay so does this also mean that as a growing company and as a product company
we would keep launching products every year and hence all the new products that
are launched could perhaps lead to the margins being pushed down at least in the
ramp up phase?
Prashant Mulekar Yes but then I do not know, ideally if I am able to launch 2‐3 big products every year
it will be a dream come true for all of us and I would not mind my margins dipping
by 3‐4 percentage if in absolute numbers I am going to have huge profits.
Ajay No, why I am asking this question is that from a more long term and strategic
perspective see we are sitting here at 50% EBITDA margins and even in a bad year
like the present year at 37% net profit margin, so obviously there are very, very few
companies in this country.
Prashant Mulekar Well, there more thanks to the zero tax regime, which we are there.
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Ajay No, but okay so that helps your net margins but 50% operating margins are also
very high so, from a longer perspective are we saying that‐
Kiran Kulkarni Well Ajay let me, as I have understood the question that you are trying to ask, so let
me just interrupt and say this right, we are launching products and we are taking
the products to a level where the marketing push and trials and free trials are given
during the course of the initial period, but as the product becomes more
acceptable, we started hiking the pricing to its natural and if you look at a dip from
product A during year one is a substantially rising, in year two and in year two may
be we have launched yet another product, so the cycle will keep on continuing, and
nice thing about Geodesic is the products are being churned out, out of the
products that has been built in the past, I was giving an example of ad ups which is
the context based engine for text, advertising which was the whole segment that
we were trying to judge, it has now taken on the different shape and the different
term, we are using that same tool to combat piracy for movies, initially when we
launched the product obviously during people the price benefit because they do
not know how to quantify and here do we know how to quantify, how much would
a film have lost if it was fully pirated. We are also in a phase where we are
experimenting, we have done one film very successfully, the producers of the film
are very, very happy with what we have done for them. So, now we know what kind
of pricing one should expect in terms of how to price this, we have done a fair bit of
analysis so I will just give you some statistics, you pull down some 3,900 movie links
for household. Now, each link has close to 16,000 on an average request which
means there would be a huge amount of, obviously all of these requests would not
have materialized even if I take a 10% snapshot of this. We are seriously talking
about some, seriously large number. Okay, now if you take this large number and
even say okay I have lost $1 so just not the ticket but even the DVD sale that they
would have indulge in, you are saving x amount dollars so gives part of that is what
we are trying to say and there is a fixed fee to run the services, there is fixed
infrastructure and if you recollect, all our servers that we have installed are also
being used for the same purpose. Now, the way Bit Torrent works, there is a seeder
which means that I have a file on my computer and I want to distribute it to people,
now 35 people can log on to my machine and start downloading the film from my
machine. Now, with the power that we have, when we have close to 2800 servers
all around and we are using almost 50% of this service to also combat this so
wherever there is a need for that. So, nice thing is we can swarm this person with so
many requests, if there is one request, one authentic request we will send 100
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spoofed requests which means that if I was downloading the file in 3 hours, I will
take 300 hours now, so that deters me from downloading. See, piracy cannot be
stopped completely, right? W e are just trying to reduce it to a great extent and so
effectively I will just give you an example of what we are trying to do but you are
saying that every year in which launched new products there will be marketing
thrust but the product that has been developed last year would now start giving us
money so we are seeing 2% or 3% here and there and we would be there.
Ajay So, which means that we are not sitting sanguine and complacent about the fact
that we are at 50% operating margins, but we are saying that as a way of life for
Geodesic we should see the margins in these bands let us say between 45 to 55.
Kiran Kulkarni Ajay, one more thing that I want to talk about it before, so one thing that we
wanted to see was this year we plan to launch significant products, we have already
spoken about OLAI to a great extent right, and we are definitely going to launch this
during the course of this year and that is a substantial change we have seen the
iPad we have seen a whole lot of tablets that have come to the market and by far
the products that we have are superior and it is for a focused segment we are not
talking about a very generic product like iPad is and we want to spend money on
this and we want to create a global brand out of this particular product from India
because there is none such product in the world.
Ajay Okay fine, couple of more questions. See, on the cash generation side I was just
noticing that our cash quarter‐on‐quarter has been rising, so has this been a very
healthier in terms of free cash flow generation for us?
Prashant Mulekar One of the reasons is that we have been able to reduce the receivable days that has
helped us in maintaining the cash position.
Ajay Okay right, because where I am coming from is that correct me if I am wrong, I think
the acquisition in South America was consummated in the previous financial year
FY10, correct so the payments were also made in FY10?
Prashant Mulekar Yes.
Ajay Despite that we have seen an increase in the cash position?
Prashant Mulekar Yes.
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Ajay Okay fine and the last question is that. How do we intend to put this cash to use
because you have become self‐sustainable in terms of cash flows?
Prashant Mulekar That has initiated the buyback program.
Ajay That is fine, but still it will not consume‐
Prashant Mulekar But then you have been listening to what Kiran’s ideas about new products and one
never knows when your in the global market to which product would work in what
way, we always need to have a strong buffer for but at the same time, the global
economic scenario at the moment on the surface looks stable but one bubble here
and there and there is a question mark about the stability the global stability itself,
even that that could affect our plans and our potential client’s plans that is the
reason why we would like to.
Ajay Any acquisition which is actively pursuing right now or?
Prashant Mulekar Yeah we are, we always look out for companies and products which complement
our growth, our products, our ideas and we do come across such ideas and
companies once in a while, we are actively talking to 2‐3 companies as of now,
hopefully we should work out some thing and along in coming months.
Ajay Okay thanks a lot gentlemen that is it from our side, all the very best.
Moderator Thank you. Our next question is from the line of Rajesh Prabhudesai of Dipan Mehta
Share & Stockbrokers, please go ahead.
Rajesh Prabhudesai Yes my question has been partly asked and answered; again it is about usage if your
cash flows are strong, now where to you intent to use that apart from say
acquisitions and also from your routine‐?
Kiran Kulkarni We are also talking about a substantial marketing spends so I spoke about OLAI, just
to give you an example of obviously we are not, one of the drawbacks that I have
seen not only for Geodesic but a lot of Indian companies and we hesitated to spend
money on marketing and creating a brand, we have a product that is world class we
have no doubts about that, we have verified it with several large hardware
manufacturing companies, there is no such product. Now, iPad did manage to
spend almost $10 million in a day during the launch now one question that we have
to ask ourselves is we have that bandwidth, in terms of money yes we have, but do
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we have the guts to do it, maybe the answer is no because we have been
conservative right, we also want to break those shackles and say let us give it a
serious shot and see how we can create a brand, so we do understand money on
marketing this year. Want to really break through the shackles and say okay, we are
spending $10 million or $15 million in spends on a single product but there is a
chance that it might completely fails but there is a fair chance that this will really,
really reap dividends for Geodesic and stakeholders.
Prashant Mulekar As we get into more retail space, marketing spend would keep on increasing so it is
like Tata Motors, Tata Motors are still 15 years back was only commercial vehicles
and they did not really have to advertise and as they got into the passenger
segment you can see the change in the profile of the company. We are going to see
the similar thing because we are more on B2B basis and as we take steps towards
being B2C you have to invest I won’t say spend you would have to invest creating a
name for Geodesic and the brand of Geodesic.
Rajesh Prabhudesai If I have heard you correctly you mentioned about some $30 million for that, you
were talking about the same thing or there is something else?
Kiran Kulkarni It was something else, Rajesh.
Rajesh Prabhudesai That could be also relatively incrementally, I mean apart from disposing?
Kiran Kulkarni That would be CapEx because that would not get completed by 2011 so we have to
go through the project then obviously the project would see the light of the day
only in 2011.
Rajesh Prabhudesai Yes, but that project will be in line with what we are currently doing?
Kiran Kulkarni Yes absolutely, but it will change the way we communicate.
Rajesh Prabhudesai Because the question I am asking you if you have strong cash flow you do not need
that so much for your regular routine CapEx, you are going into all these new
projects like lot of hardware related projects.
Prashant Mulekar Yes, but it is not the cash flows which is driving the project, it is the project which is
getting the cash flows so we are not getting into ideas or consult because we have
cash flows but because we have the ideas and concepts we want to use this cash
flows.
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Rajesh Prabhudesai Okay sir, thank you very much.
Moderator Thank you. It appears that there are no further questions from participants at this
time, I now hand the conference over to the management to add closing
comments.
Kiran Kulkarni I would like to thank each one of you for supporting and rising Geodesic at every
step or love to continue on this occasion and assure you that we are working really
hard and trying to get all these products altogether trying to create a new sense of
retail product band from the country end, I look forward to your constant support
and guidance, going forward thank you very much.
Moderator Thank you very much. Ladies and gentlemen on behalf of Geodesic Limited, that
concludes this conference call. Thank you for joining us on the Chorus Call
Conferencing Service and you may now disconnect your lines. Thank you.