Downturn led to closure of Hong Kong, China ops: Northgate

Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » Nifty BSE | NSE 25/05/12 Are Mutual Funds betting on Nifty?

Indian Internet companies are under stress as seen in their earnings. Voicing his opinion on the issue, Venkat S Meenavalli, Managing Director and Chief Executive Officer of Northgate Technologies said, "The turmoil of the downturn has really paid and we have to pull the Hong Kong and the Chinese operation--that is what we have to write off and that has incurred the loss for this quarter."

Here is a verbatim transcript of the exclusive interview with Venkat S Meenavalli on CNBC-TV18. Also watch the accompanying video.

Q: Could you take us through your business model because the stock has seen a vertical move in the past few days although your earnings have been disappointing?

A: Northgate operates through its subsidiaries across India and the globe, especially, in the Internet domain. Two key things in Northgate are advertisement of aggregating the traffic through our own properties as well as through ad network. During the boom times in 2007 and 2006 we entered into the China market especially with tie-ups with SINA and QQ.com. We have set up our infrastructure apart from London. We had a huge server reforms set-up in Hong Kong. The turmoil of the downturn has really paid and we have to pull the Hong Kong and the Chinese operation--that is what we have to write off and that has incurred the loss for this quarter.

Q: You have forayed into very interesting media properties online. You have Bharatstudent.com, Globe7 that has registered a number of hits, significant number there. What is really the problem now when it comes to the model, is it more on the advertising revenue front because at an operating level you had a major hit last time and I believe Rs 178 crore came from provision for doubtful debts? Is that the end of that or do you sense more provisioning and if you could explain the model in terms of these online media properties?

A: The media properties are really doing well. Where we had taken a hit is in the ad aggregation model where we had an ad network, we kept on signing up a lot of new partners in China, South America like US and UK regions. In the last year, when we had the crisis lot of small ad players to medium-term ad players started failing and there we had the problem that is why we have to provision doubtful debts. We have to write-off the debt where we are unable to collect for some reasons.

We signed a large contract, SINA is a largest in the whole of China and QQ.com which along we signed another student portal there. However, unfortunately after setting up all the other things, the things did not turn-up. Sometimes you make mistakes in the boom time. We went into the top of the edge and that is where we had to protect our real properties.

Q: The last of the pain has been written off and what kind of turn around you can look at from here on. Would it be in the black in the current year?

A: We will be okay. Last quarter and this quarter we are stabilizing. One thing what we had not got is the web properties. Bharatstudent, if you look at Comscore, we are rated as India's Number 3 after Facebook and Orkut with pure Indian content. Jitu.com--I am talking to the large media properties are looking at us very seriously. Jitu in photo bucket and flicker are the Number 1 file videos and hosting survey sites in US but none of them have really picked-up in Asia and Jitu is Number 1. Across the globe we are 220, In Asia we are Number 1.  Lot of large corporations who are looking at as a synergy point are acquiring some other property points and they are also looking at. The strength of Northgate today is the properties are really global and they are the top 500 web properties.

Q: When are you planning to monetize these properties?

A: Some of the properties are doing really good. The first thing, as you know, in the media business a lot of television channels are launched. It takes time. First the user base, the value of the property is not on discounted cash flow. The value of the property is counted on the user base and the number of unit page views. Jitu had 200 million page views per month. And Comscore tracked we had 25 million user per month visit our site equal to 2% of the internet population. So, normally, when the acquisition are the large companies look at it how I want to enter into the Asia pack, how much I have to spend, what is the infrastructure, what really we have to experiment. Whether I can really scale it or take a property which are already scaled that is the value proposition what Northgate is having to do.