Info Edge/Naukri - Annual Report - 2007-2008

INFO EDGE (INDIA) LIMITED

ANNUAL REPORT 2007-2008

DIRECTOR'S REPORT

Dear Member,

Your Directors have pleasure in presenting the Annual Report together with the audited statement of accounts for the year ended March 31, 2008.

FINANCIAL RESULTS:

(Figures in Rs. Million)Particulars 2007-08 2006-07RevenueTotal sales 2,450.61 1,575.15Service tax 261.22 179.46Net sales 2,189.39 1,395.69Other income 207.25 75.94Total Income 2,396.64 1,471.63ExpenditureAdvertising and Promotion Cost 481.24 300.38Administration and Other expenses* 255.75 171.92Personnel expenses 746.28 492.36Network and other charges 60.53 58.99Finance and bank charges 11.19 6.97Depreciation 55.51 46.19Total expenditure 1,610.50 1,076.81Net profit before tax 786.14 394.82Net Profit after Tax 554.87 270.67

* Administrative expenses include traveling & conveyance; postage & telephone expenses; establishment expenses and other expenses

FINANCIAL REVIEW:

Net Sales increased by 56.87% from Rs. 1,395.69 million in 2006-07 to Rs.2,189.39 million in 2007-08. Other income increased by 172.91% to Rs.207.25 million in 2007-08 on account of accretion in surplus funds as also IPO proceeds being available throughout the year. Consequently, total income increased by 62.86% from Rs. 1,471.63 million in 2006-07 to Rs.2,396.64 million in 2007-08.

Total expenditure increased by 49.56% from Rs. 1,076.81 million in 2006-07 to Rs. 1,610.50 million in 2007-08. Much of this increase was due to the growth in advertising and promotion costs, and employee costs. Advertising and promotion costs increased by 60.21% from Rs. 300.38 million in 2006-07 to Rs. 481.24 million in 2007-08 as we invested more in Jeevansathi and 99 acres, while employee costs increased by 51.57% from Rs. 492.36 million in 2006-07 to Rs. 746.28 million in 2007-08 on account of wage revision and manpower increase.

Profit before tax increased by 99.11% from Rs. 394.82 million in 2006-07 to Rs. 786.14 million in 2007-08 and profit after tax increased by 104.99% to Rs. 554.87 million in 2007-08.

DIVIDEND:

Your Directors are pleased to recommended dividend at the rate of 7.5% (Re.0.75 per share) for 2007-08, subject to the approval of the shareholders. The proposed dividend together with corporate dividend tax would mean an outflow of Rs. 23.95 million.

OPERATIONS REVIEW:

We provide recruitment classifieds and related services through Naukri.com, Naukrigulf.com and Quadrangle business divisions. This business generated around 90% of the company's net sales in 2007-08. We also provide matrimonial and property related classifieds and related services through our Jeevansathi.com, 99 acres.com and Allcheckdeals.com divisions respectively. The combined contribution of these along with other divisions to the company's net sales increased to 10% in 2007-08. During the year the company entered the domain of professional networking services through brijj.com and completed the spadework for launching its foray into online education through Shiksha.com.

Leveraging the opportunities provided by a growing economy, the transformation of India into a younger country and the increase levels of internet penetration, your company continued to grow at a healthy rate, both in terms of the top-line reflected in total sales growing by 56.9% and bottom-line reflected by more than doubling of profit after tax to Rs.554.87 million. Consequently basic earnings per share increased from Rs.11.31 in 2006-07 to Rs. 20.33 in 2007-08. Detailed analysis of the performance of the Company and its businesses, including initiatives in the area of Human Resources, Information Technology, has been presented in the section on Management Discussion and Analysis of this Annual Report.

FUTURE OUTLOOK:

We are cautiously optimistic of the future prospects of the company. We believe that the economy will continue to grow with a demographic pattern that suits our businesses. Internet penetration and usage will also increase and we, as a company now have the platform including human talent and industry experience to build on and create businesses in the online space that will help the Company maintain its growth pattern.

SUBSIDIARY COMPANIES:

As of March 31, 2008, Info Edge has three wholly-owned subsidiary companies - Naukri Internet Services Private Limited, Jeevansathi Internet Services Private Limited and Info Edge (India) Mauritius Limited.

Particulars of Employees:

We continued to grow rapidly in 2007-08. Recruiting quality talent has been a key focus for the HR team, and the Info Edge family has grown from around 1,250 as on March 31, 2007 to around 1,650 as on March 31, 2008. Besides the different facet of recruitment, retention and development of talent, as discussed in the management discussion and analysis, an important HR initiative has been the successful implementation and stabilization of a robust Human Resource Information System that provides all kinds of reports and analysis at the click of a button and ensures that all details like personal records and employee history are easily accessible. We have also focused on strengthening internal communication by continuing to publish and distribute an internal quarterly e-magazine 'Inside Edge' which covers all major happenings in the Company, department or branch. Recently, the company launched 'I-Blog' as an internal communication medium to connect Info Edgians across all locations.

The particulars of employees required under Section 217(2A) of the Companies Act, 1956 and the rules there under, are required to be annexed to this Report as Annexure. However, pursuant to the provisions of Section 219(1)(b)(iv) of the Companies Act, 1956, the Annual Report and Accounts are being sent to all the shareholders of the Company without the above information. Any shareholder interested in obtaining such particulars may write to the Company.

EMPLOYEES STOCK OPTION PLAN (ESOP):

We had adopted ESOP scheme 2003 to include our employees in wealth sharing and in adopting a more retention oriented compensation program. As the Company was a private limited unlisted company at that time, therefore SEBI ESOP Guidelines were not applicable to our old ESOP scheme. However, with the listing of Company's shares in November 2006, the Company introduced a new SEBI compliant ESOP scheme- ESOP 2007, which was approved by passing a special resolution in the Extra-ordinary General Meeting (EGM) held on March 26, 2007. The Company made fresh grants under the new scheme in financial year 2007-08. The exercise of options would require issue of fresh capital to the ESOP Trust at appropriate times and would therefore utilize part of the limit of 818,857 new shares, being 3% of the issued and paid up share capital of the Company as on December 31, 2006 (which was 27295256 shares of Rs. 10 each), already approved for the purpose by the Shareholders in their meeting held on March 26, 2007.

The Company successfully obtained in-principle approval of National Stock Exchange of India Limited (NSE) and Bombay Stock Exchange Limited (BSE) on the new ESOP scheme in terms of the requirement of SEBI Employees Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999.

Disclosures as required by Clause 12 of the SEBI Employees Stock Option Scheme and Employee Stock Purchase Scheme Guidelines, 1999 are annexed to this report.

A certificate from M/s. Price Waterhouse, Chartered Accountants, Statutory Auditors, with regards to the implementation of the Company Employees' Stock Option Schemes, would be placed before the shareholders in the next Annual General Meeting, and a copy of the same shall be available for inspection at the registered office of the Company.

CORPORATE GOVERNANCE:

Separate detailed chapters on Corporate Governance Report, Additional Shareholder Information and Management Discussion and Analysis are attached herewith and form a part of this annual report.

PUBLIC DEPOSITS AND LIQUIDITY:

We continue to be almost debt-free, and believe we maintain sufficient cash to meet our strategic objectives. During 2007-08, your Company has not accepted any deposits or raised any fresh equity from the public.

ENERGY CONSERVATION, TECHNOLOGY ADOPTION AND FOREIGN EXCHANGE FLOWS:

Since the Company is a service sector company and does not own any manufacturing facility, the other particulars in the Companies (Disclosure of Particulars in the Report of the Board of Directors) Rules, 1998 are not applicable. However, on a proactive basis, we are disclosing the details of energy conservation and Research and Development as part of annexure-I to the directors' report. The particulars regarding foreign exchange earnings and expenditure are furnished below:

(Figures in Rs. million) 2007-08 2006-07

Foreign Exchange EarningsSales 215.56 138.03Total Inflow 215.56 138.03Foreign Exchange OutgoTravel Expenses 1.91 1.34Server Charges 36.62 38.86Advertising, Promotion andMarketing Expenses 16.53 35.33IPO related expenses - 10.96Foreign Branch Expenses 15.00 0.52Others 7.16 3.04Total Outflow 77.22 90.05Net Foreign Exchange Flow 138.34 47.98

LISTING OF SHARES:

The Company's shares are listed on Bombay Stock Exchange Ltd. (BSE) & National Stock Exchange of India Ltd. (NSE) with effect from November 21, 2006, post its initial public offering (IPO).

DIRECTORS:

During the year, the Board of Directors had appointed Dr. Naresh Gupta, as Additional Director w.e.f. October 29, 2007. Pursuant to Section 260 of the Companies Act, 1956 he holds office upto the forthcoming Annual General Meeting, where the Members would confirm his appointment as Director of the Company.

As per the requirements of Section 256 of the Companies Act, 1956, two-third of the Board shall consist of retiring directors out of which one third shall retire at every Annual General Meeting. Accordingly, Mr. Arun Duggal, Mr. Saurabh Srivastava and Mr. Ashish Gupta, retire by rotation as Directors at the ensuing Annual General Meeting and are eligible for reappointment.

INTERNAL CONTROL SYSTEMS:

The Company has in place adequate systems of Internal Control to ensure compliance with policies and procedures. Internal Audits of all the units of the Company are regularly carried out to review the internal control systems. The Internal Audit Reports along with implementation and recommendations contained therein are constantly reviewed by the Audit Committee of the Board.

AUDITORS:

M/s. Price Waterhouse, Chartered Accountants hold office until the conclusion of forthcoming Annual General Meeting and being eligible offer themselves for re-appointment.

DIRECTORS' RESPONSIBILITY STATEMENT:

The Directors confirm that:

* In the preparation of the annual accounts, the applicable accounting standards have been followed;

* They have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent, so as to give a true and fair view of the state of affairs of the Company at the end of the financial year and of the profits of the Company for the year;

* They have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956, for safeguarding the assets of the Company and for preventing and detecting fraud and other irregularities; and

* They have prepared the annual accounts on a going concern basis.

NOTES TO ACCOUNTS:

The observation of auditors and notes on accounts are self explanatory.

ACKNOWLEDGMENTS:

We thank our clients, vendors, investors and bankers for their continued support during the year. We place on record our appreciation of the contribution made by employees at all levels. Our consistent growth has been made possible by their hard work, solidarity, cooperation and support.

For and on behalf of the BoardDate : June 25, 2008 Kapil KapoorPlace: Hong Kong Chairman

ANNEXURE -I

DISCLOSURE OF PARTICULARS WITH RESPECT TO CONSERVATION OF ENERGY, RESEARCH AND DEVELOPMENT:

Particulars pursuant to Companies (Disclosure of particulars in the report of the Board of Directors) Rules, 1988

1. Conservation of energy:

Our operations are not energy-intensive. However, significant measures are taken to reduce energy consumption by using energy-efficient computers and purchasing energy-efficient equipment. Currently, we use CFL fixtures and electronic ballasts to reduce the power consumption of fluorescent tubes. We are using power factor panels at the supply level of the state grid power to achieve high energy efficiency of over 98-99%. As energy costs comprise a very small part of our total expenses, the financial impact of these measures is not material.

2. Research and Development (R&D):

We operate in the internet/information technology industry where developments happen on a continuous basis. We regularly evaluate these developments & factor their suitability to us. Accordingly, research and development of new services, designs, frameworks, processes and methodologies continue to be of importance to us. This allows us to enhance quality, productivity and customer satisfaction through continuous improvements/innovation.

a. R&D initiative

Our Technical Team works to optimize the existing software applications and to be able to optimally use the existing hardware on a continuous basis.

b. Specific areas for R&D at the company & the benefits derived there from:

Our search engine team has worked on bringing about significant improvements to the job and resume searches offered on the website by exploring newer and better ways to search.

c. Future plan of action:

We constantly keep working on finding/evaluating new technologies, processes, frameworks and methodologies to enable us in improving the quality, of our offerings and user satisfaction.

d. Expenditure on R&D for the year ended March 31, 2008:

Our Research and Development activities are not capital intensive and we do not specifically provide for the same in our books.

ANNEXURE-II

Information regarding the Employee Stock Option Scheme:

ESOP 2003- The company was not listed at the time of making this scheme and therefore SEBI ESOP Guidelines were not applicable to this scheme ('ESOP 2003'). Since the scheme is not-SEBI complaint, no fresh grant has been made under this scheme after listing of company's shares on November 21, 2006 at NSE & BSE. However, options already granted before that date continue to vest and exercise.

Particulars ESOP 2003

1. Total options in force as on April 1, 2007 424,059

2. Total number of options vested 112,435

3. Total number of options exercised 7,170

4. Total number of Equity Shares arisingas a result of exercise of options 7,170

5. Total number of options lapsed/forfeited 32,467

6. Money realized by exercise of options Rs. 1,688,570/-

7. Total number of options in force as atMarch 31, 2008 384,422

ESOP 2007: The Company made a first grant of options under the New SEBI compliant ESOP scheme ('ESOP 2007') on May 31, 2007. No options have vested/exercised under the new scheme during the year. There has been no variation of terms of options under the new scheme. The new ESOP scheme has been approved in-principle by both NSE and BSE.

Particulars ESOP 2007

1. Total number of options granted in FY 2007-08 363,142

2. Total number of options lapsed/forfeited 48,310

3. Total number of options in force as atMarch 31, 2008 314,832

Exercise price

During the year, fresh ESOP Grants were made at the following prices:

No. of Options Granted Exercise Price (Rs.)

114,442 320185,400 86030,000 8347,300 83710,000 1,1633,000 8402,000 1,0802,000 1,2005,000 1,4622,000 1,0022,000 1,062

Details of option granted to Senior Management/Directors during the year:

(i) Grant to Directors Name (Designation) No. of Options

Mr. Arun Duggal (Independent Director) 10000

Mr. Saurabh Srivastava (Independent Director) 10000

Mr. Ashish Gupta (Independent Director) 10000

Mr. Naresh Gupta (Independent Director) 10000

(ii) Any other employee who Mr. Sudhir Bhargava 25,960received a grant in any one year Ms. Sharmeen Khalid 19,740of option amounting to 5% or more of option granted during that year

(iii) Identified employees who were granted option, during any one year, equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant. N.A.

1. Earning Per share (EPS) Rs. 20.33

2. Method of calculation of The Company has calculated the employee employee compensation cost compensation cost using the intrinsic value of stock options.

3. Difference, if any, between Rs. 73,265 ('000)employee compensation cost (calculated using the intrinsic value of stock options) and the employee compensation cost (calculated on the fair value of the options)

4. The impact of this Profits would have been lower by difference on profits and on EPS Rs. 73,265 ('000) and the EPS would be of the Company Rs. 17.64.

5. Weighted-average exercise prices;

Weighted-average fair values of options whose exercise price Rs. 720.79either equals or exceeds or is Rs. 524.73less than the market price of the stock

6. Description of method & Black Scholes Option Pricing Model.significant assumptions used during the year to estimate value of options including the following weighted-average information:

(i) risk-free interest rate; 7.73%(ii) expected life (in years); 6.06(iii) expected volatility 49.02%(iv) expected dividends 7.5%

7. Impact on the profits and EPS N.A.if the Company had followed the accounting policies specified in Clause 13 of the SEBI ESOP Guidelines

Management Discussion & Analysis:

Introduction:

Info Edge (India) Limited ('Info Edge' or 'the Company') is India's premier on-line classifieds company. It focuses on creating specific domain based platforms for people to interact in virtual space. Starting out as pioneers in the on-line recruitment business in India, the Company today is active in two other business domains - matrimonial and real estate. In addition, Info Edge has also completed all the preliminary work needed for its foray into the online educational classifieds business.

2007-08 was another good year in the company's short but eventful history. It continued to record high levels of growth, both in sales and in profits. And, now with a top-line of about US$60 million and a healthy cash-flow, Info Edge has attained a base scale of operations, which can be rapidly ramped up.

As of 31 March 2008, the Company had three subsidiaries, Naukri Internet Services Private Limited (NISPL), Jeevansathi Internet Services Private Limited (JISPL) and Info Edge (India) Mauritius Limited. NISPL and JISPL own internet domain names and related trademarks used in the business. These companies form a part of the consolidated accounts of Info Edge (India) Limited. Highlights of the Company's performance on a consolidated basis are given below:

Info Edge: Consolidated Financial Highlights, 2007-08:

* Net sales increased by 56.87% from Rs. 1,395.69 million in 2006-07 to Rs.2,189.39 million in 2007-08

* Earnings before interest, depreciation, tax and amortisation (EBIDTA) increased by 90.65% from Rs. 441.49 million in 2006-07 to Rs. 841.72 million in 2007-08

* Profit before tax increased 98.93% from Rs. 395.02 million in 2006-07 to Rs. 785.81 million in 2007-08.

* Profit after tax increased by 104.76% from Rs. 270.80 million in 2006-07 to Rs. 554.48 million in 2007-08

* Return on Net Worth (RONW) increased from 12.68% in 2006-07 to 20.68% in 2007-08

* Earning Per Share (EPS), increased from Rs.11.31 in 2006-07 to Rs.20.31 in 2007-08

While on the delivery side, Info Edge mainly uses the global platform of the world-wide web, much of its success lies in its ability to understand local nuances. The virtual communities that it creates have strong regional and local preferences; and the Company continuously moulds its service offerings to meet these varying customer requirements. Thus, Info Edge is a global technology-driven organisation whose roots lie in understanding and meeting the needs of various segments of the Indian population.

Our success is best gauged by the way we established ourselves and grew over the last 13 years of our existence. In financial terms this growth has been meteoric, especially over the last four years.

* Total income. was Rs.194.72 million in 2003-04. Has increased at a compound annual growth rate (CAGR) of over 88% to Rs. 2,396.64 million in 2007-08.

* Profit after tax (PAT). Was Rs.24.35 million in 2003-04. Has risen at a CAGR of 119% to Rs.554.87 million in 2007-08.

While the growth numbers are impressive in themselves, more important is the potential that Info Edge holds for future growth. In more ways than one, Info Edge embodies all the opportunities, aspirations and characteristics of a 'new age' company.

1. We cater to the online media business segment in India, which is still at an embryonic stage in the country. Given the direction of economic and demographic development, this sector has immense growth potential. Being an industry trendsetter, we are well positioned to leverage this growth. We have gained valuable experience across different segments of this industry and are leveraging our 'early bird' advantage in the online space.

2. Our primary customer base is the rapidly growing, upwardly mobile younger population of India. Through our job and matrimonial portals, we have established relationships with millions who represent young India. This segment has strong aspirations and capabilities, and provides us with excellent customer platforms to further widen our products and service offerings.

3. We are strongly driven by innovation and technology. Our primary service delivery platform remains the internet. To stay ahead of competition, we continuously create the best customer experience on the web. This involves understanding our customers' behavioural patterns and then translating high levels of technology and research on online behaviour to algorithms that drive optimised online interfaces, backed by a state-of-the-art IT infrastructure.

4. We are driven by our young workforce. Most of our employees are in the 20-40 year age bracket. The company has the energy of the young in its work ethos. Across all our functions, each of us believe in getting results, while strongly promoting the spirit of entrepreneurship, which includes empowerment, risk taking, innovation and ownership of shares.

We are a 'new age' company. But we aren't new. Info Edge is a 13-year old company, with its oldest and largest business Naukri.com being 11 years old, that has progressed along a structured path of evolution - one that has provided it with valuable insights and experience in its business domain. In the course of this journey of learning and evolution, Info Edge has established itself as one of the leading niche service-sector entities in India.

Info Edge: The Journey So Far:

Although incorporated in 1995, our primary business - online recruitment, or naukri.com - was launched in March 1997. After proving our business capabilities for the first three years, we got our first venture capital funding in 2000, when ICICI Information Technology Fund invested in the company.

Subsequently, in November 2000, we acquired the business of Quadrangle, an offline recruitment service provider. In September 2004, we widened the business by entering the matrimonial space when we acquired jeevansathi.com.

A year later, in September 2005, we launched our real estate website called 99Acres.com. In July 2006 we launched naukrigulf.com, a jobs site focussing on the gulf market, in July 2007 asknaukri.com, a career guidance and counselling site, in August 2007 brijj.com, a professional networking site and in November, 2007 allcheckdeals.com, a property broking business.

In 2006, private equity investors Kleiner Perkins Caufield & Byers and Sherpalo LLC (an entity of Ram Shriram), both well known venture capital investors acquired through Murugan Capital and Sherpalo Mauritius LLC, respectively, 5% of our pre-issue equity share capital by means of a secondary purchase.

In November 2006, Info Edge had entered a new era through a successful IPO and on 21 November 2006 it listed on the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).

During this journey from a small start-up to a publicly listed enterprise, Info Edge has successfully overcome several challenges. Today, it is a well established company, whose achievements include:

* Successful nurturing and development of brands and businesses like naukri.com, jeevansathi.com and 99acres.com which are counted among the leaders in their respective domains.

* The coming of age in financial terms. In 2007-08, the Company recorded net sales in excess of Rs.2100 million and net profits in excess of Rs.550 million.

* Establishing a wide physical network that supports and develops it businesses. As of 31 March 2008, we maintain a network of 67 offices in India located in 41 cities, as well as three international offices (two in Dubai and one in Bahrain), which primarily engage in sales service and payment collection for the different business divisions.

* Managing employee growth. Our workforce has grown to around 1,650 persons by the end of 2007-08.

Thus, the foundations have been laid for pursuing even more ambitious growth.

We believe that there are three broad factors which will continue to define Info Edge's progress as a business enterprise. These are:

1. Developments in the business environment at the macrolevel.2. Our strategic positioning.3. Consistent and relentless execution.

Let us discuss these in some detail.

The Macro-Level Business Environment:

Our business is primarily dependent on the Indian market, and is defined by the number of people who demand services like recruitment and matrimonial support using the platform of the worldwide web.

Consequently, there are three critical factors that determine the macro-level business environment. These are:

* The overall economic climate,

* Population demographics, and

* The telecommunication infrastructure, which is a prerequisite for internet usage.

All these factors have witnessed rapid changes during the Company's brief history, especially in the last five years.

The Overall Economic Climate:

From 2003-04, the Indian economy has been growing at much higher rates than before, as Chart A shows. With real GDP growing at 9% in 2007-08, India has now had three consecutive years of over 9% GDP growth resulting in a CAGR of 8.8% for the period 2003-04 to 2007-08. Not surprisingly, it is precisely the same period when Info Edge has created its own growth story (Chart B). Clearly, the Company has benefited significantly from the quantum and direction of this sustained economic growth.

Within the framework of higher GDP growth, our business is more dependent on the growth of industry and services. These segments comprise more people who use internet to fulfil their needs. Moreover, rapid growth in these sectors create greater demand for jobs and generate more business for naukri.com.

As Chart C shows, both industry and services have grown very impressively over the last five years.

The Demographic Structure:

The demographic structure in India also augurs well for Info Edge's business. An online survey conducted in 2008 by JuxtConsult suggests that 77% of all internet users in India belong to the 19-35 age group. And, as Chart D shows, the proportion of younger people is increasing in India; and their share is further expected to rise in the next few years.

Source: Census of India

In 2001, 51% of the population was in the age bracket of 15-49. This had increased to over 53% in 2006; and is projected to reach 54.6% by 2011. In urban India, not only is this age group more tuned to using the internet, but they also constitute the target set for many of Info Edge's service verticals. jeevansathi.com caters to people in the marriageable age, i.e. primarily between 20 and 30 years of age; naukri.com caters largely to people between 25 and 45 years; and 99acres.com focuses on first or second time property buyers, who increasingly belong to the age group of 30-45 years.

Communication Infrastructure and Internet Usage:

Economic development has a positive effect on internet usage. Cross-country data for 2007 shows a 0.89 correlation or R2 between per capita income (measured in terms of purchasing power parity or PPP) and internet penetration. The data also shows that India is a negative outlier. It not only languishes at the bottom, but also has lower internet penetration conditional on its per capita income.

This creates a negative and a positive. The negative is that very low internet penetration - at about 5.3% of the population (source : www.internetworldstats.com) - limits Chart A: Real GDP growth Chart B: Our Total Income (Rs. Million) Chart C: Industry and Services Growth Chart D: Share of population, in age brackets the size of internet-based businesses. It explains why, despite so many users and strong brand recognition for naukri.com and jeevansathi.com, a company such as ours has not yet attained scales in line with some of our peers in the international market. The positive is that there is considerable headroom for future growth.

Notwithstanding the recent growth, the fact is that India lacks sufficient communication infrastructure for supporting the internet. Projections of NASSCOM had suggested a target of around 50 million internet users in March 2005 which is estimated to have been achieved only in March 2007. It is estimated that there are about 60 million internet users as of March 2008.

There are many reasons for this. Primary among them is the slow progress of PC and broadband penetration in India. Over the last decade, India has had around 20%-25% growth in PC usage over a very small base. This is insufficient. China took just five years to reach the 10 million annual PC shipment mark in 1996. India hit the 2 million mark five years later in 2001; and may achieve the 10 million in 2009 - eight years behind China. Simply put, despite sales growth, there has been no inflexion point in the market for PCs.

Similarly, the current base of 2.4 million broadband subscribers is 70% below the government's own targets.

According to industry watchers, both these issues are likely to be resolved over the next three years. With PCs getting priced at around Rs.10,000/- and broadband plans now starting at Rs.199 per month, the affordability issue may be addressed. NASSCOM's revised estimates suggest that the internet user base should grow to 90-95 million by March 2010 and the broadband-subscriber base to around 7-8 million. In India, to overcome the price and connectivity issues, a large number of internet users rely on cyber-cafes and shared access.

There is some other good news as well. According to the JuxtConsult, India Online Survey 2008, we have started witnessing a degree of democratisation of the internet. Better off socio-economic segments like the SEC A and B now account for just over 50% of all users, their share having reduced by 6 percentage points from 2006-07. In contrast, the lower SECs (C, D and E) now account for around half of all users in urban areas. It is similar in rural areas too, with the top two rural SECs R1 and R2 accounting for 41% of rural internet use, with the rest coming in from consumers in SEC R3, R4 and R5. However, there still exists an income threshold below which people do not use the internet.

Info Edge has gone through all of this. Today, economic growth, demography, changing behavioral patterns and improved communications infrastructure have started moving in synch in the right direction. We, therefore, expect a significant increase in our market potential.

Our Business Model and Strategy:

The recruitment vertical under naukri.com has been our primary business to date. In a sense, Info Edge derives much of its identity from naukri.com. And, it is naukri.com's journey from its early days to being India's top job portal that defines our business model and strategy. We are now well positioned to leverage the business learning over the years with naukri.com and extend it to other on-line verticals.

Being primarily an online media company, Info Edge has three broad revenue earning areas. These are:

* Online advertising revenue from specific and relevant Verticals, where the focus is on creating websites that generate enough traffic and quality or quantity of eyeballs to warrant a good price for companies or organisations to advertise in by providing data that is relevant and can be monetised.

* Sharing of databases or protected information. These are revenue streams that flow after the registration or subscription by online visitors.

* Value added services provided on the basic platform. Examples include the risumi development or CV push services offered by naukri.com. These services are pursued once a critical level of expertise is attained in a business space. For many of these services, a mix of online and offline approaches is also pursued which lends itself to the Indian context. Our foray into providing offline recruitment services through Quadrangle is a point of reference for this kind of growth in a business vertical.

With these as primary revenue sources, we focus on some key issues that define the contours of our business strategy. These include:

* Continuous emphasis on innovation and customisation of products and services. We regularly enhance the utility and features of our existing products and services to meet the changing needs of customers to offer a superior user experience. We also develop suites of new products and services that better meet the requirements of our diverse users. Example: In jeevansathi.com, we have increased it's the database across all segments and tagged many fields to improve matching options for the users based on several criteria such as religion, caste, region and linguistic preference.

* Focus on brand recall. The strength and recall value of naukri.com has been critical to its success. We continuously focus on brand building activities. At one level, there is the 'Hari Sadu' TV ad which has extremely high recall and association with naukri.com. At another, we use online advertising to promote brand awareness and drive traffic as also use innovative delivery mechanisms like job fairs and well targeted SMS for communicating with existing and prospective customers.

* Leverage offline relationships and associations to develop the online business. Example: in 99acres.com, we intend to build a client base of brokers who currently do not list their properties online - and then actively solicit them to list their databases on 99acres.com. This entails a high degree of evangelisation and customer education.

* Enhance and diversify revenue streams. We are looking at enhancing the attractiveness of our sites as locations for on-line advertisements; and diversifying the advertising revenue model to include sources like sponsored links.

* Develop alternate delivery models for the services. We focuses on developing multi-channel delivery models for its services - e.g. through mobile phones.

* B2B sales team. A dedicated and trained sales team in each of our businesses has been a key factor in our ability to reach out to a large number of clients, evangelise them and strengthen our relationship with customers. The sales team also provides a constant stream of feedback from customers which helps us improve our offerings.

As of today, the company has four business verticals: recruitment services, matrimonial services, real estate services and new businesses. As Table 1 shows, two of these verticals - recruitment and matrimonial - are part of the top 10 leading activities undertaken by internet users in India.

Table 1: Top ten internet activities (Juxtconsult online survey 2008 results)

Activity % of net users

1. E-mailing 91%2. Job search 72%3. Instant messaging/ chatting 70%4. Check news 63%5. Check sports 57%6. Download music/ movies 54%7. Check cricket score 50%8. Dating/Friendship 50%9. Matrimonial search 49%10. English info search engine 49%

Our Business Verticals:

While the recruitment business remains our primary service domain - accounting for 90% of the our business in 2007-08 - the other verticals including matrimonial and real estate are in a growth phase. Their share in Info Edge's total sales has increased from 8% in 2006-07 to 10% in 2007-08. Much of the preliminary work has been completed in the new businesses of providing an online forum for educational classifieds and professional networking, and revenue streams are expected to commence in the near future.

Recruitment:

Info Edge is a leader in the online recruitment and careers markets in India. Naukri.com continues to be India's No.1 job site, enjoying a 50% share of page views across the top three job sites. Revenues from the recruitment services business increased by 54% - from Rs.1277.02 million in 2006-07 to Rs.1964.26 million in 2007-08.

In this vertical, we continue to leverage our first mover advantage by building an extensive database of risumis and corporate clients (including recruitment consultants/ agencies) who are patrons of naukri.com. The large database and the comprehensive nature of our client list form a self-generating cycle that propels business growth on a sustainable basis.

It is a virtuous cycle. A large corporate clientele ensures that a large number of prospective job seekers look for jobs at naukri.com. We ensure that the applicants come in contact with the appropriate recruiters, and increase the probability of a successful fitment. Equally, the presence of a large number of job seekers ensures that companies continue to use naukri.com as a source of tapping talent. This model also allows us to consolidate our operations through a large number of repeat transactions and referrals from our comprehensive database. Here are some facts:

* Number of risumis in naukri.com's database increased from around 9 million at the end of 2006-07 to around 13 million at the end of 2007-08.

* Number of corporate clients increased from around 27,500 at the end of 2006-07 to approximately 32,500 at the end of 2007-08.

To make inroads into the Gulf job market, we launched naukrigulf.com in July 2006. We have continued to consolidate this business by setting up a new office in Bahrain in addition to the two offices located in Dubai. In order to serve prospective job seekers better and to offer them career guidance services, a specialised service called asknaukri.com was launched in July 2007.

To complement our growing online recruitment business, we also have Quadrangle, an offline recruitment solutions company. Quadrangle aims at offering offline placement services to middle and senior management, with revenues based on a success based fee model.

There are also a number of offline sales and service centres of naukri.com as well to complement the online services operations.

Recruitment continues to be an active opportunity in India. Economic growth is opening up several opportunities across various sectors, especially in services. On the supply side, India has over 330 universities and 17,600 colleges that churn out over three million graduates annually. Most of them are active job seekers; and naukri.com provides the appropriate hub. Further, as Indians continue to look at enhanced career opportunities, it leads to churn & attrition levels in organisation. Thus there is growth led hiring as also attrition based hiring across various sectors of the economy.

We believe that as companies continue to expand aggressively in India, online recruitment markets will continue to provide opportunities and increasingly drive job growth in the future. Thus, naukri.com is operating in a healthy and profitable growth segment - for today and the foreseeable future.

Matrimonials:

Increasingly, Indians are seeking their own partners for marriage. And internet is fast becoming the vehicle for this search. It is a fast growing market; it is also highly segmented - relying heavily on local, religious, regional, linguistic and caste-based factors. Winning here requires not only scale, but also a focused approach that is discovery-led, preference mapped and data constantly updated.

To take advantage of this opportunity, we acquired jeevansathi.com in 2004. Since then, we have nurtured jeevansathi.com as a focused service provider primarily addressing north and west India. Today, it is among India's top three matrimonial websites.

Jeevansathi.com continues to grow at a fast pace. The number of profiles listed increased from 1.36 million in 2006-07 to 2.36 million in 2007-08. As of now, the business is at the investment phase - and we are continuing to spend on advertisements and brand building. A new offline centre has been established in Lucknow and some more are in the process of being set up. We are also exploring the non-resident Indian market to grow this business.

Real Estate:

Over the last few years, India has witnessed a real estate boom. There has been a rise in the number of people in the middle class in India. With higher incomes and increased access to finance, more and more people have started to invest in property.

To cater to this demand and expand its footprint in the online real estate market, in September 2005 we launched 99acres.com, a property website to aid in the sale, purchase and renting of property. The site generates revenues from property listings, builders / brokers branding and visibility (micro sites, home page links, banners), other services like buyer database access and international listings.

Today, 99acres.com is the leader in the online real estate classifieds market. We have ensured that our operations have a pan-India presence, with property listings on the website covering over 25 Indian cities. And, the business has extended its reach during 2007-08 in terms of users.

* Property listings increased from around 60000 in 2006-07 to over 200,000 in 2007-08.

* Of these, paid listings increased from 15,000 in 2006-07 to 55,000 in 2007-08

The fragmented nature of the Indian real estate market ensures that a large number of developers, brokers and builders are part of the clientele of 99acres.com's operations. While the online real estate market continues to be relatively nascent, Info Edge is looking to consolidate its position by linking its operations on the internet with other conventional measures of communication in order to ensure additional business and transactions. For instance, prospective buyers can use 99acres.com and communicate with brokers and builders by telephone or SMS to further their interest, apart from e-mail and the internet.

Transactions involving either sale or purchase of real estate sometimes involve unfair practises. To encourage transparency and fair practises, we have created a website called allcheckdeals.com in November 2007 to ensure that there was fair dealing between parties involved in real estate transactions.

New Businesses:

In August 2007, we launched brijj.com, a professional networking site. In order to further cement it's standing in the online recruitment market, brijj.com has been envisaged by us as an adjunct to our recruitment brands - naukri.com and Quadrangle. brijj.com allows for professional networking between individuals; it also aims to link prospective job seekers with potential employers.

We have forayed into the potentially large online educational classifieds business through shiksha.com, which was launched on May 19, 2008

Managing People, Managing Technology, Managing Brands:

While the business model and the innovative spaces where it operates are key to the growth of Info Edge, much of the Company's success is attributable to efficiencies of its support systems as well as a highly skilled and motivated workforce.

Human Resources (HR):

Our people are our principal assets. Consequently, HR is conceptualised as a key strategic function and is actively involved in all decision making within the Company. As stated earlier, Info Edge is a 'new age' company with a young workforce that needs continuous nurturing. And we play a very proactive role in acquisition, talent growth and retention of our workforce.

Our accelerated growth necessitated a rapid growth in our employees. Our workforce has increased by around 32% from 1,250 people in 2006-07 to around 1,650 people in 2007-08. This acquisition has been necessitated by growth in existing businesses as well as for developing the newer ventures like 99acres.com, allcheckdeals.com shiksha.com and brijj.com. Each domain requires specialised skill sets; and we give primacy to finding the right skill-job profile fit.

During 2007-08, we added the strategic function of web analytics, which requires a highly skilled team to study web user behaviour and provide key inputs to the product development teams. The corporate product development team has also been strengthened with high-end technical people.

We continue to recruit from leading business schools like the Indian School of Business (ISB) and premier technology institutes like the Indian Institute of Technology (IIT), Delhi College of Engineering etc. In addition, we also hire laterally from leading global companies.

A key factor in the talent acquisition process has been the development of Info Edge as an employer brand. We actively promote this by providing a work atmosphere that thrives on empowerment and entrepreneurship. We also highlight the unique opportunities the Company provides as a leader in the web space in India.

Info Edge has a remuneration system that is totally aligned to the principles of empowerment and entrepreneurship. Performance-based variable pay comprises a large component of the pay packet. In addition, there is an attractive Employee Stock Option Plan (ESOP) for key associates which helps align individual goals with the long term growth of the Company.

To grow talent, we have invested heavily in various training programmes that include leadership development, improving personal effectiveness, key account management, sales management and technical training. While some of the training has been developed in-house, reputed external professional agencies have also been employed for this purpose. The fact that we have grown rapidly horizontally and vertically has provided immense opportunities for positioning people in important roles with strict and challenging deliverables. These have helped nurture and enhance talent growth.

We are acutely aware of operating in a business space that is very volatile in terms of employee attrition. While steady fresher-level recruitment mitigates some of the problems in junior level attrition, we have been fortunate in having low attrition at the middle and senior management levels.

Technology:

Our websites are hosted by Verio Inc., a service provider located in the US. We have high speed servers in the US which are exclusively dedicated to hosting naukri.com and its related applications. We also have two backup servers in the US. In addition, we have locally hosted servers to run backend operations at Noida.

We use open source technology such as Linux, Apache, MYSQL and PHP (LAMP stack) to develop applications and websites. The technology team continues to constantly work on improving algorithms for the web-based applications, and to accommodate increasingly larger data sets. Design and website updating and development of proprietary software is entirely done in-house. We employ a staff of web designers and technical personnel to regularly improve and update our websites, and to create micro sites for clients, updating postings and profiles on the websites as well as servicing of key customer accounts are done from our operations at Noida.

In case of a serious breakdown, it would generally take us 6-7 hours to make the websites operational. From time to time, we do experience slower internet services from the providers as a result of technical problems associated with high traffic volumes, computer viruses and the proliferation of spam. Till date, we have not been subjected to significant targeted disruptions or 'hacking'. We have various safety measures to guard against such attacks. Our websites have also not been shut-down for a significant period of time till date.

We do not believe that our businesses have been materially disrupted by technical difficulties. However, as is the case with all such businesses, we cannot assure that the businesses will not face material disruptions or damage from spam, viruses, hacking or other technical problems.

Brand Management:

As we stated earlier, brand recall is a very important component of our business strategy. Much of our brand management methodology is based on the learning from developing naukri.com, an established pan-India brand. There are four key takeaways from the naukri.com experience:

1. Give very high importance to the creative element of any communication.

2. If any advertising concept gets a bad initial response, shelve it, and start from the scratch.

3. The communication needs to make the right impact on the target group for it to succeed. Focus on a specific target group, not the entire population.

4. Senior management needs to be continuously involved in the development of any new communication stream. They must own it.

Most of our brand communication is through television and online media through Search Engine Optimisation and Search Engine Marketing. We also use the , outdoor media, radio and print selectively to promote and cross-sell our brands. While brand development is paramount, we are cautious with our marketing spends. The focus is on carefully selecting appropriate media for the target audience. Even in terms of television commercials, careful studies are done to position the advertisements in the right channels at the most appropriate times. Many of our brands have strong regional focus, so the media spends are adjusted for the specific regional bias.

We are also utilising SMS to promote our brands. In doing so, however, we have been very careful in not impinging upon the individual's personal space by carefully selecting from our database the people to whom such messages can be sent. We continue to use direct e-mails and internet cross-selling techniques through our own and associated sites.

Financial Review:

Table 2 gives the abridged profit and loss account for Info Edge:

Table 2: Abridged Profit and Loss account of Info Edge (India) Limited

Figures (Rs.million) 2007-08 2006-07

Revenue:

Total sales 2,450.61 1,575.15Service tax 261.22 179.46Net sales 2,189.39 1,395.69Other income 207.25 75.94Total Income 2,396.64 1,471.63

Expenditure:

Advertising and Promotion Cost 481.24 300.38Administration and Other expenses 255.75 171.92Personnel expenses 746.28 492.36Network and other charges 60.53 58.99Finance and bank charges 11.19 6.97Depreciation 55.51 46.19Total expenditure 1,610.50 1076.81Net profit before tax 786.14 394.82Net Profit after Tax 554.87 270.67

Net sales increased by 56.87% from Rs.1395.69 million in 2006-07 to Rs.2189.39 million in 2007-08. In order to promote its brands in the recruitment, matrimonial and real estate online space, advertising and promotional activities were increased. Advertising and promotional expenses grew by 60.21% from Rs.300.38 million in 2006-07 to Rs.481.24 million in 2007-08. These expenses largely represent the investment into our newer businesses. There was also a rise in the payment of interest and bank charges - which increased by 60.62% to Rs.11.19 million up in 2007-08 due to higher number of transactions for our consumer businesses. Cash flow from operations increased by 35.76% to Rs.705.89 million in 2007-08.

Even so, thanks to higher revenue growth, the Company's profit after tax (PAT) showed an impressive 105% increase to Rs.554.87 million in 2007-08 - up from Rs.270.67 million in 2006-07.

Table 3: Key Financial Ratios:

2007-08 2006-07PBDIT / Net Sales 38.46% 31.62%PBT / Net Sales 35.91% 28.29%PBT /Gross Total Income 32.80% 26.83%PAT /Gross Total Income 23.15% 18.39%RONW (Return on Net Worth) 20.69% 12.68%ROCE (Return on Capital Employed) 29.29% 18.47%Basic EPS (Rs.) 20.33 11.31

The company continued to generate greater returns from its assets. The return on capital employed (ROCE) increased from 18.47% in 2006-07 to 29.29% in 2007-08. Return on net worth (RONW) improved substantially to 20.69% in 2007-08 - from 12.68% a year earlier.

Risks and Concerns:

Info Edge's growth prospects are indirectly dependent on the level of economic growth of the country. The economic growth has an effect on the recruitment industry which directly affects online recruitment. There is a fairly high degree of correlation between economic growth and employment generation.

Additionally, economic growth also affects disposable income. Rising disposable incomes are linked to the demand for real estate which has a large knock on effect in terms of online demand for real estate.

Increased PC penetration allows for capture of more internet users. Increased online activity specifically in the sphere of online recruitment, matrimonials and real estate will drive Info Edge's businesses. While PC penetration has increased considerably, it still remains an area of concern. Improved PC and internet penetration will continue to remain the key cornerstones of Info Edge's growth.

Internal controls and their adequacy:

Info Edge has a proper and adequate system of internal controls to ensure that all assets are safeguarded and protected against loss from unauthorised use or disposition, and those transactions are authorised, recorded and reported correctly.

The internal control is supplemented by an extensive programme of internal audits, review by management, and documented policies, guidelines and procedures. The internal control is designed to ensure that financial and other records are reliable for preparing financial information and other data, and for maintaining accountability of assets. The function is overseen by the Audit Committee that works closely with all stakeholders to ensure any gaps are plugged effectively.

Cautionary Statement:

Statements in this Management Discussion and Analysis describing the Company's objectives, projections, estimates and expectations may be 'forward looking statements' within the meaning of applicable laws and regulations. Actual results might differ substantially or materially from those expressed or implied. Important developments that could affect the Company's operations include a downtrend in the Indian online sector, significant changes in political and economic environment in India, exchange rate fluctuations, tax laws, litigation, labour relations and interest costs.