Hitesh Oberoi, CEO & MD, Info Edge is convinced that 99acres’ long term story is good. If the economy start picking up, he believes Info Edge is well placed to grow all its businesses at 20 percent plus "and the company as a whole could grow at 25 percent".
In an exclusive interview with CNBC-TV18, Oberoi said that the real estate market is very tight, particularly in Delhi and Mumbai. Transactions are down to an all time low. But competition in real estate portal space warrants continuous investment which is why losses have gone up. "I don’t expect to make a profit in this business for the next few quarters at least," he said.
Below is the transcript of Hitesh Oberoi's interview with Sumaira Abidi and Reema Tendulkar on CNBC-TV18.
Reema: January to March was a good quarter for you all. You had a revenue growth of 25 percent. It is the highest you have seen in the last 12 quarters. How is the Q1 been so far the months of April, May and June? Has this revenue momentum sustained?
A: I can’t say that right now because a lot of our sales happen in the month of June. We have a lot of renewals which are due around quarter end. I will able to give you a better picture around quarter end itself. It is very hard for me to comment on how this quarter is going to be like right now.
Sumaira: I was reading the UBS report; they say that while everything is going to be fine with real estate portal or you can say 99acres.com. The performance there is going to be the key driver going forward for your company. Over a medium-term or the longer term or perhaps the second half of FY16, by when can we expect 99acres.com to be EBITDA breakeven or perhaps even show a profit?
A: Not for the next few quarters at least. The truth is that while there is big opportunity in the real estate, the market for real estate is very tight. Real estate is not selling in markets like Delhi and Mumbai. Transactions are down to an all time low. There is a lot of competitive activity in this space as well.
All the portals which are in this space continue to invest aggressively in the business. The long-term story is good, medium-term story should also be great but we don’t expect to make a profit in this business for the next few quarters at least. In fact losses could go up substantially in 99acres going forward.
Reema: I was listening in to your conference call post the earnings where you indicated that competition has spent close to about Rs 250 crore in advertising in the real estate market over the last three segments. Can you share us your number? How much have you invested in 99acres so far till date and what is the plan with respect to FY16 investments in 99acres? Any number?
A: We are a public company so we give out our numbers. We invested about Rs 37 crore in 99acres last year. Our losses in 99acres business was around Rs 35-40 crore. And even before that we have been investing, but not such large sums.
In fact we almost broke even about five or six quarter back. But since then we have upped our investments substantially in the business.
Going forward we are investing aggressively. Like I said, we just raised Rs 750 crore to invest in the 99acres business. We see a big opportunity in this space. It is a billion dollar category. In most countries, the real estate sites are actually bigger than job boards. So, a lot for this investment is going in product development and sales expansion.
It is going into building up our brand. How much we invest will ultimately depends upon our competition. We believe we can run a good business, and we do not have to invest too much but if competition is very aggressive, that will force us to also invest substantially in the business going forward.
Sumaira: Market dynamics, true. But, you said that your losses right now in the business are about 35-40 crore. If the expectation is that while it is in this stage of actually getting propped up, how much could the losses increase to?
A: We have raised Rs 750 crore to invest in the 99acres business. We are not going to be shy of investing. If this means losing even Rs 100 crore or Rs 150 crore a year, we are prepared for that. A lot will depend on what the competition does. About Rs 35-40 crore is what we lost last year. This year, like I said, we are planning to lose a lot more.
We are planning to invest a lot more in the business. A lot depends upon the top-line growth. If the market for real estate recovers then top-line growth is high, then losses of course go down. But if the market for real estate continues to be tight and competition continues to be aggressive, then of course the business could lose significantly more than what we lost in the last year.
Reema: Can you give us a sense of what the company’s market share in the online real estate market is for 99acres and how has it changed?
A: On traffic we averaged about 35 percent last year. In terms of revenue, revenue share is also likely to be in the same range. Say about 35 percent give or take a few percentage points.
Reema: But have you lost any market share considering that competition has gone up so much? How would your market share compare, say a year ago or two years ago?
A: We haven’t lost here because what has happened is that there are some other players who have exited the market. If you look back, five years ago, we were competing with the likes of Makaan, India Property, Magic Bricks. There are some new players now but some older players have lost out. So, our traffic share has sort of more or less remained intact. But yes, we have newer competitors.
Sumaira: On a company level, are you likely to sustain this 20-25 percent revenue growth rate well into FY16?
A: We have been very happy with the way the Naukri business has been doing. So, we grew at 25 percent last quarter after a long time. We have done a lot of innovative work on Naukri, we have launched some new products. Our traffic share is at an all-time high. The market for hiring seems to be getting better with every passing quarter. Last year we had a very good year for example, thanks to IT hiring. We expect the other sectors to also pick up going forward. So, if the economy continues to be good and we continue to innovate and maintain our traffic share, Naukri will can do very well.
And we know Naukri has a very high earnings before interest, taxes, depreciation and amortization (EBITDA) margin business. Naukri has very high operating leverage, if the Naukri business starts growing at 25-30 percent per annum, our profits from the Naukri business will start growing at 30-40 percent per annum. So far so good, as far as the Naukri business is concerned.
We are confident of being able to grow our Shiksha and Jeevansathi businesses at a reasonable rate. We do not expect them to hit the ball out of the park, but we expect that these businesses to grow at a healthy rate going forward. Of course, if they require more investment, we are willing to invest. But they do not require the kind of investment that 99acres will require. 99acres is where it is very hard for me to predict what is going to happen.
Even if the market for real estate continues to be tight, we should be able to grow the business at, at least 25-30 percent. So, chances are that if the economy continues to be strong we should be able to grow all our businesses at 20 percent plus and the company as a whole could grow at 25 percent. But we are still keeping our fingers crossed. The recovery is still, it has been just one or two quarters since we have seen massive growth come back to Naukri and like I said, a lot will depend on the economy going forward.
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