Visit http://indiaer.blogspot.com/ for complete details Info Edge (India) Ltd.
Lack of Material Acceleration
in Earnings Growth
Trajectory; Move to EW
What's Changed
Rating Overweight to Equal-weight
Price Target Rs537.50 to Rs675.00
Investment conclusion: We are lowering our rating on
Info Edge to Equal-weight with a new price target of
Rs675. The stock has done well over the last 12 months
and is up 40% over the last three months. Post the steep
run up in the stock price, the stock is trading toward the
upper end of its historical trading range. The Sep10
quarter did not offer any indications of a material
alteration in the revenue or earnings growth trajectory
for Info Edge, in our view.
For the Sep10 quarter, for the standalone entity,
revenue was marginally ahead of our expectations.
EBIT margin was 28% and net profit of Rs179mn was
marginally ahead of our forecast. We note that in F2010,
consolidated financials reflected a loss of Rs50mn,
which we believe increase to Rs80-90mn in F2011e.
What's new: We now expect revenue and net income
growth of 26% and 47%, respectively, in F2011 for Info
Edge with revenue and net income CAGR of 26% and
28%, respectively for F2011-13. Historically, Info Edge
has improved margins in F2H. So far in F1H, ad
expense as percentage of revenue is 13.8% and should
be ~15% for 2H. We expect margin to improve to ~29%
in 2H with FY EBIT margin at 28.8% (+600bp YoY).
Valuation approaching limits: Info Edge is trading at
46x F2011e EPS and 34x F2012e EPS for earnings
CAGR of 28% over F2011-13e. The stock has traded in
a band of 20-77x one-year forward EPS with an average
of ~36x over the last few years. At current levels, with
limited scope for earnings revisions, we believe the riskreward
is no longer as attractive for investors to warrant
an Overweight rating for the stock.
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