INFO EDGE Too much too soon:: Edelweiss

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􀂃 Results in line with expectations; recruitment leads growth
Info Edge’s (IEL) Q2FY11 results came in line with our expectations and continue
to indicate strong environment for recruitment services. Total revenues for the
quarter were at INR 712 mn, up 29.0% Y-o-Y, and net profits at INR 179 mn, up
21.4% Y-o-Y. EBITDA margins, at 30%, were up 430bps Y-o-Y, led by strong
revenue growth. Revenues from the recruitment segment grew 28.3% Y-o-Y, to
INR 590 mn, and due to high operating leverage EBITDA margins increased to
46.3% from 38% a year ago.
􀂃 Naukri.com continues to scale up with its network effect
Strong growth in resume modification (i.e. active job seekers) has attracted
higher number of recruiters at Naukri.com, which, in turn, has been attracting
more new candidate resumes, creating a self propelling growth cycle. IEL’s
current resume database stands at ~23 mn and is growing impressively at a
pace of 13,000 new daily additions, and the more relevant average resume
modification daily at 75,000. The company’s synchronised effort to constantly
improvise user interface, algorithms for better job searches, and relevant profiles
has led to it achieving and sustaining lead in the recruitment market, and
helping it command pricing. The number of unique customer billed in Q2FY11
was at 21,100.
􀂃 Matrimonial and real estate continue to grow gradually
IEL continued to invest in matrimony (Jeevansathi.com) and real estate
(99acres.com) segments by raising its ad spent to gain traffic share. Though
traffic share for 99acres.com has increased to 50% and 23% for
Jeevansathi.com, revenue flow remains gradual with each segment contributing
only INR 50 mn per quarter, incurring a similar loss at the EBITDA level.
􀂃 Outlook and valuations: Too much premium; downgrade to ‘REDUCE’
IEL has generated 54% return since our initiation a year back. We continue to
like its unique business model that enables it to maximize earnings in an
improving environment, and also its reinvestment strategy for long-term growth.
However, we see the valuations at P/E of 38.1x and EV/EBITDA of 24.6x FY12E,
expensive for a 28% earnings CAGR over FY10-FY12. We, thus, downgrade the
stock to ‘REDUCE’ from ‘BUY’, targeting ~10% downside from current levels
and rate it ‘Sector Underperformer’ on relative basis.