Targeting 17-27% margins in FY16: Lycos Internet

Lycos's business being cyclical in nature, online spending increases significantly in December holiday season, he said.

“In third party advertising, we represent Facebook across the world and Microsoft exclusively in most of South America, across Argentina, all the way up to Brazil”, he said.

Below is the edited transcript of Suresh Reddy’s interview with Ekta Batra and Anuj Singhal on CNBC-TV18.Ekta: It has been a weak quarter for you. Total income down 25 percent, but you have managed to maintain your margins however, and you profit down 22 percent. Can you just tell us what happened this quarter? Which are your key segments? Which one was weak? And what might the outlook be?A: Basically, the nature of our business is a cyclical element. So, you cannot compare quarter-to-quarter, you have to look at year-on-year and because usually the third quarter which is the quarter of December, a holiday season across the world, online spending increases and hence usually we have a very strong quarter.So, the quarter following that would be very hard to match up. So, in that terms we feel that we had a very good result for the quarter and for the whole year. So, we are pleased with the overall outcome about Rs 1,957 crore for the year and about Rs 342 crore for the profit after tax (PAT) about Rs 7 odd for the earnings per share (EPS). So, these are all good numbers. We feel that it is much better than the last year. And we see consistent growth year-on-year. So, all these are in line with our overall multi-year strategy that we have put together for the company.Anuj: Your financial year was good as you said. What is your business model? What is leading to this kind of earnings before interest, taxes, depreciation, and amortization (EBITDA) margin jump from 17 percent to 27 percent? If you could explain that and is that sustainable then?A: Basically, what we did in 2013 was that we built a few platforms. We are into digital media business, a network of websites, where visitors visit and use for various purposes plus we also are third party publishers, we monetize for them.So, we do digital media and digital advertising. There is a lot of technology that we have built, we have been in business for almost 15 years now. And this year we have put together some very different new platforms and hence we are seeing the gains in the margins. Sustaining 27 percent maybe hard but we will definitely be between 17-27 percent. There has been some change in the market place in terms of advertising. There is a lot more advertising that has happened on the video which has larger margins as an industry itself.Ekta: You said your range of your margins would be 17-27 percent?A: I am talking from last year to this year, but in general we should be in 20-25 range, give or take.Ekta: Can you just tell us some of these websites that you run, maybe name a couple of them which might be your marquee websites that you have and besides that you are looking to raise around USD 100 million from private equity firms, we do understand. Just take us through the plans on fund raising as well as mentioning these websites.A: There are three divisions that we have in the business. The first part is Lycos media where we have a network of websites including lycos.com, it is an old search engine and we own Tripod and Angelfire. Then we own Gameville, we have a whole slew including Lycos Mail which used to be the old Mailcity. And so, these are all legacy websites that we have in our fold. The contribution from the entire range of these websites is about 10-15 percent of our revenue. And then the rest of the business, we do third party representation. For example, we represent Facebook across the world; we are actually located in 24 countries. So, we find advertisers for users visiting Facebook. We also do that for Microsoft. We represent Microsoft exclusively in most of South America, across Argentina, all the way up to Brazil. So, similarly, we represent a lot of third party publishers. Then on the other side we work with advertising agencies who give us the advertisement. So, that is the business model per se. The third division we are just looking to launch this year. It is called Lycos Life which would be focused upon consumer internet products. So, we are now looking to bring those products out in the next few, in a month or so.Anuj: Your promoter holding at one point used to be, not too long back, used to be 58 percent. It is coming down almost after one year or after every three or four quarters. Why is that? Why are you looking to raise further USD 100 million when you recently just raised USD 100 million?A: So far we have raised about USD 100 million from private equity. We used to be called vibrant digital and we were a private company and we raised the money through private equity and in 2012, we actually combined with LGS Global and so, during that merger, before the merger you may see 58 percent, but post merger obviously, since we have taken over it is about 40 odd percent. Because that is additional shares issued so you have to look at the base versus the total promoter holding.