Delayed sales strategy, pricing policy hit Q2: Just Dial

Local search engine Just Dial’s second quarter operating margins declined to 23.2 percent against 28.9 percent year-on-year. Speaking to CNBC-TV18, Ramkumar Krishnamachari, CFO of the company attributes this performance to delayed implementation of sales expansion strategy and rationalized pricing policy. “It may take a couple of quarters to see the impact of steps taken to address the growth issues,” he adds. In addition, salary hikes and and new hires on the sales side has impacted Q2 numbers, he says, adding, a reduced revenue growth hurt margins.On the Just Dial app, Krishnamachari says the company has launched a new version of Search Plus app and user engagement has significantly increased via the same. Below is the transcript of Ramkumar Krishnamachari’s interview with Sonia Shenoy and Latha Venkatesh on CNBC-TV18.Sonia: Why has the revenue growth slowed down so much for the company? I mean it is still 20 percent, but it is much lower than what you have done. What is the reason and do you expect a pickup?A: Certainly, this has not been a great quarter for us as far as revenue is concerned. Definitely, we are cognisant of this and we have taken steps to address the growth issue. It was essentially that there was some delay that we had in the sales expansion strategy, that we had over the past few quarters, but we have addressed that and also, we have rationalised some of our pricing policy right now. So, you will see that the steps that we have taken now to address the growth issue should yield results in the next few quarters. Definitely, there were delays in the expansion strategy and that is what actually has cost a slowdown, but then we have addressed this issue.Latha: You had guided for 25 percent revenue growth in FY16. In the first half, the growth is 22, will you be able to still manage 25 percent for the full year?A: We have never as a policy, we do not give guidance and right now, as we look at it, directionally, the things should start improving on the growth side, but it may take a couple of quarters. So, I would not speculate at this point of time, any growth number for the year.Latha: I know it is not an official guidance, but you have been on record saying that growth could be 25 percent in this year in any case. So, how many quarters do you think it will take for you to come back to that 25 percent mark?A: We would anticipate at least a couple of quarters for us to sort of see the impact of the steps that we have taken to address the growth issue.Sonia: What about the margins because that has also come out, there has been some disappointment. If you account for the employee stock ownership plan (ESOP) cost, your adjusted margins have fallen to 27.4 percent versus 31 percent earlier. Can you take us through the reason for the margin fall?A: Q2 is the one where the full impact of the increments that we give to the employees that take – the full impact come in Q2 and then also, the fact is that we did the hiring of sales force and other employees in Q1. The full impact of such hiring will come in Q2. So, both on the number of employees as well as on the increments also, we have as I mentioned, we are investing, we are still in the investment phase, we have invested in hiring good technology talent. So, the impact of all this has been felt in Q2. Also, you have to remember that the reduced growth in Q2 on topline has also had an impact on the margins. So, it is a combination of both on the expense side as well as on the top line side has impacted the margins. Once the topline comes into what you call normalise growth path, the margin should start looking up.Latha: You indicated that you have rationalised the pricing policy, can you explain what that means? Should we understand you lowered prices?A: We have fine tuned it to reflect what we think would be a completely system and market driven pricing.Sonia: I just wanted to ask you about Search Plus. Can you give us an update, because channel checks suggest that your app rankings have fallen quite a bit along with a reduction in download velocity as well. Is that the case?A: As you know, we launched about a month back, a new version of our app and the response has been great. We did promotional activity for download of the app, which is why you would have seen some of the increased downloads that we have had. But overall, the user engagement has gone up due to that. And we believe that once we communicate the value proposition to the consumers of having a single master app for doing all this transaction, perhaps, that is when the real comparisons should start between multiple apps or verticals versus horizontal play. So, unless and until, we do that communication, right now to do any comparison of ranking or download is actually purely academic.