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99Acres posts an EBITDA profit in Q2FY18; demand shifts to resale, rentals

99acres, the real estate portal from Info Edge, reported an EBITDA level profit of Rs 40 lakh for the quarter ended September 2017 (Q2FY18). 99acres had posted an EBITDA loss of Rs 13.1 crore in Q2 of last year. Info Edge CEO Hitesh Oberoi said that this was helped by a writeback of Rs 3 crore in the preceding quarter.

99acres had revenues of Rs 32.65 crores, up from Rs 31.71 crore reported last quarter, and Rs 30.81 crores reported last year. However, billings declined 4% year-on-year to Rs 33 crore in the quarter. Oberoi mentioned that this was due to the continued sluggishness in the real estate market. The situation was exacerbated by the changes in Real Estate Regulatory Agency (RERA) rules. However, he did mention that RERA situation is improving.

“As far as RERA is concerned, in all major states, with a significant level of residential real estate activity, RERA
rules are being notified as we speak. In certain states, there is still no RERA website like in Telangana, AP, and in some states like West Bengal, Goa, RERA rules have not been notified. There is also a varying degree of application automation for securing the RERA registration number – while in some states like Maharashtra, the entire process including document submission can be done online and it is pretty seamless, in another state like Tamil Nadu, it is
still a paper process and is very cumbersome,” Oberoi said. “Now, the confusion around RERA seems to be abating, it has been a few months now and some states have got their act together, others are in the process of getting their act together, projects are getting registered, not at a pace at which we would want them to get registered, but they are getting registered. The situation is expected to improve with every passing month. So we are sort of confident that on the RERA side, at least the worst is already behind us and things will get better going forward.”

During the quarter, Oberoi said, that Info Edge “launched some new products, so that is helping,” and “we have been slowly taking pricing up in 99acres and price per listing up in 99acres, so that is helping. Lot of the growth is coming
on the resale side because that is where the action is, the new home side sales have been sort of slow because of the confusion around RERA, that is broadly it.”

Traffic share and ad spends

99acres’s traffic share was in the mid-40s based on the time spent on the website. Oberoi said that this was despite cutting the advertising expenditure. Meanwhile, Oberoi commented that 99acres traffic was 40% larger than their nearest competitor and has “traffic leadership in almost all major markets”.  Note that in 2014, 99Acres and Times Internet’s Magicbricks were sparring over website traffic. Magicbricks contented that total visits matter more than unique visitors, because it’s easier to buy UVs by spending on Search Engine Marketing and getting people to visit one time and that repeat visits and engagement with the user matter more.

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During the quarter advertising and promotion, costs stood at Rs 17.57 crores, significantly lower than the Rs 25.42 crore reported last quarter. Ad expenses accounted for 12.39% of the total expenditure this quarter. For context, advertising expenditure used to be typically around 20% of total expenditure for the company, but has been lower for the last few quarters.

Ad spends were lowered as there was consolidation in the space with Quikr and CommonFloor’s merger and Housing’s reduced advertising.  In Q1 FY16 ad related expenses shot up and represented 30% of the total expenditure primarily for 99Acres. This was due to the increased competition in the online real estate space.

However, Oberoi said that this is a one-off on pulling back on advertising, largely owing to the confusion around RERA, because of which “there was no point on advertising last quarter which is why we stopped advertising and so did our competitors, but we expect advertising spend to pick up again, in fact, we will be on TV starting tomorrow in
99acres again. If the market shows site of improvement, then we will invest aggressively advertising in 99acres going forward.”

Demand shifting to affordable housing, resale and rentals

Oberoi commented that the demand for the luxury projects has hit an all-time low and now that demand is shifting to affordable housing. “Affordable Housing on the other hand seems to be seeing more supply and the ad spend in this
segment is expected to increase going forward. This is good news for us because a lot of the demand on our site is for low cost in affordable housing,” he said.

“On our site, we get hundreds of thousands of enquiries every month and most people are sort of looking the sweet spot. As far as people are concerned, they are looking to buy a property in the sub-60-70 lakh segment. In the past, there used to be not enough supply in that segment. But what we are anecdotally hearing from our sales team is that there is some action in that space, new launches are picking up in the Affordable Housing segment,” Oberoi added while answering a question.

The company has seen a slowdown mostly on the new-home front, which is around 70% of the revenue. “The price increase we have taken is mostly on the resale and rental side which is where the action is. Demand has actually moved from new homes to resale and rental and that is where we took a slight increase in prices, not on the new homes side that much.”

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