Multi Baggers

Info Edge India Limited

Company Overview:

Info Edge (India) Ltd operates diversified online businesses, primarily an online job posting website (Naukri.com), that offers services for recruiters, job seekers, and employers. The company also operates an online matrimonial website (Jeevansathi.com) for prospective brides, grooms, and relatives, a real-estate portal (99acres.com) and an education portal (Shiksha.com). Info Edge also owns Allcheckdeals.com, an online real estate brokerage firm, which is run as a subsidiary company. Apart from this, Info Edge has made significant strategic investments into emerging internet companies - meritnation.com, policybazaar.com, mydala.com, Canvera.com and zomato.com. With its headquarters in Noida (NCR), the company employs over 2,700 people and operates through 48 offices in 31 cities in India and overseas.

Financial Analysis:

For Q2FY14, Info Edge reported revenue of Rs123Crs (up 15.5 percentYoY) led by continued momentum in Non-recruitment businesses (up 45 percentYoY) while recruitment revenue growth was 8 percent YoY supported by IT segment recruitment and certain market share gains. EBITDA at Rs43.6Crs increased 18.3 percent QoQ and EBITDA Margin at 35.5 percent expanded by robust 494bps QoQ (+195bps YoY) led by lower S&M Investments and better realizations.  PAT at Rs33.3Crs was up 13.1 percent QoQ led by improvement in profitability of Non-recruitment business (Jeevansaathi, 99acres) with combined losses coming down to Rs2.2Crs against Rs9Crs in Q1FY14.

Recruitment revenue at Rs.90.3Crs (up 8 percent YoY) was the highest in the past 3 quarters with stable recruitment business margin at 50.7 percent (against 50.3 percent in Q1FY14 & 50 percent in Q2FY13). Non recruitment revenue at Rs.33.3Crs (up 45 percent YoY) was highest in the past 9 quarters chiefly driven by strong growth in paid listings at 99Acres.com (Revenue up 57 percent YoY) and price hikes in Jeevansaathi.com.

Positives:

We like the stock because of the following reasons -

Capital infusion in Zomato, a key positive: Zomato, a Subsidiary of Info Edge has raised Rs.227Crs from private equity firm Sequoia capital and Info Edge. The proceeds are to be used for global expansion as the company intends to expand its presence to 22 countries across Europe, Southeast Asia, Australia and America in the next two years from the existing 11. The current deal values Zomato at 25x its FY14E revenues at ~Rs 969Crs ($154million) against $54million in February 2013 when Info Edge had initially invested $10.1million in it. Zomato's valuations have risen ~3x and Info Edge investment has outstandingly tripled in value in less than a year.

Strong results led by robust revenues and cost control: Non-recruitment businesses have shown strong revenue growth (+45 percent YoY) and are likely to register profits in the coming quarter. Owing to the cost control efforts, Advertising and promotion costs have fallen 29 percent QoQ resulting in significant EBITDA Margin expansion. Moreover, earning trajectory and valuations are likely to improve further, consequent on recovery in economic growth from 2H and declining losses from the new businesses.

Market leader in online job classifieds: Info Edge's Naukri.com is a market leader in the online jobs classifieds category. Its dominant presence and the strong potential for online classified businesses in India make us optimistic on the stock. 

Diversified strategic investments in the growing internet space to unlock huge value: Info Edge has made various strategic investments in emerging companies in the internet space like meritnation.com, policybazaar.com, mydala.com, Canvera.com and zomato.com. These companies have shown remarkable traction and offer huge potential for vast scalable businesses and unlocking tremendous value..

Valuations:

Going forward, in the near term sluggishness of the recruitment business may continue but with the improving economic scenario, the recruitment business will also see improved traction in 2HFY14. The robust revenue growth of the Non-recruitment business (especially 99acres) is likely to continue. We are particularly enthused by the promising traction in the key investee companies. Also, in light of the capital infusion in Zomato, we believe there is further scope for upside.

At the CMP of Rs 452.35 the stock trades at P/E of 54.7xFY13, 33.5xFY14E and 26.4xFY15E with the EPS of 8.4, 13.7 & 17.4 respectively. EPS growth rate of 63 percent for FY14E & 28 percent for FY15E compare very well despite the high P/E. Going forward, the valuations will get rationalised and considering Company's diversified online business, momentum in Non recruitment business and strategic investments in the growing internet space, we are positive on Info Edge and recommend Buying Info Edge (India) Ltd. with a target price of Rs.550.