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INFO EDGE
Industry-wide high attrition continues to drive growth
Revenues lower while net profits higher
Info Edge’s (IEL) Q3FY11 results reported a mixed trend with revenues lower
and net profits higher than our expectations. Total revenues for the quarter were
at INR 751 mn, up 27.5% Y-o-Y, and net profits at INR 219 mn, jumped 40.1%
Y-o-Y. EBITDA margins, at 36.6%, stood at all time high. Absence of ad
spending and reduction in operating cost led to the strong margin expansion.
Revenue from the recruitment segment grew 24.0% Y-o-Y to INR 620 mn with
EBITDA margin increasing to 48.7% from 38.0% a year ago.
Recruitment business going strong, but further innovation necessary
The company has scaled its recruitment business impressively with total resume
database of 24 mn and more than 21,000 unique customers. At the same time,
though the company continues its effort to improvise user interface, algorithms
for better job searches, it will have to integrate Naukri.com for it to be accessible
on the social platform and have mobility solution. This can help it not only
sustain but also increase its leadership position.
Scaling of real estate (99acres.com) segment some time away
Online real estate business is still at a nascent stage and offers significant
growth opportunity. To explore this, we note that it will take a lot of sales and
marketing efforts from industry players, which currently is limited. While IEL
continues to lead in terms of market share, the rising interest rate environment
will lead to slowdown in the real estate market and put revenue pressure on
99acres.com. Currently, it generates ~INR 60 mn of quarterly revenues.
Healthy uptick in deferred sales continues
Deferred sales, key indicator of future revenues, continued to grow at 7% over
the previous quarter at INR 689 mn. With continued attrition across industries,
IEL’s recruitment business will be beneficiary of the trend.
Outlook and valuations: Downside remains; maintain ‘REDUCE’
In Q2FY11 we had downgraded IEL to ‘REDUCE’ (refer to our note “Too much too
soon”, dated October 22, 2010), post which the stock has corrected 13% and
underperformed the IT index by 22%. While we continue to like the company’s
unique business model that has enabled it to expand operating margins
significantly we anticipate valuations at P/E of 33.4x and EV/EBITDA of 20.3x
FY12E to offer further potential downside. We note that Q4 (following quarter) is
a seasonally strong quarter for IEL, however, in the absence of any other
triggers we continue to maintain ‘REDUCE’ and ‘Sector Underperformer’
rating on the stock.
Company Description
IEL is amongst India’s leading online classified companies, with presence in online
recruitment, matrimony, real estate, and offline executive search. It pioneered the online
recruitment business under its flagship brand Naukri.com and operates offline
recruitment business under the Quadrangle brand. The company’s online matrimony and
real estate divisions operate under Jeevansathi.com and 99acres.com, respectively, and
are currently in investment mode. New launches include Firstnaukri.com (fresher
recruitment site), Brijj.com (professional networking site), asknaukri.com (career
guidance website), and shiksha.com (education information portal). IEL’s TTM revenue is
USD 61 mn and, employee strength of 1,816 people.
Investment theme
IEL is a long term play on the internet space in India. With lead in the online recruitment
market (through Naukri.com) and presence in the online classified space has the
potential to establish a market leading position and grab large pie of increasing online
adoption. As various businesses come out of the recent slowdown we see recruitment
industry to grow significantly as it is highly correlated to the economic health of the
growth of domestic corporate sector. We expect IEL’s earnings growth at 25% CAGR
over FY11-13E. However, we see the valuations at P/E of 33.4x and EV/EBITDA of 20.3x
FY12E as expensive.
Key Risks
• Faster than anticipated scale up of non-recruitment segments
• Strong profitability from investee companies.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
INFO EDGE
Industry-wide high attrition continues to drive growth
Revenues lower while net profits higher
Info Edge’s (IEL) Q3FY11 results reported a mixed trend with revenues lower
and net profits higher than our expectations. Total revenues for the quarter were
at INR 751 mn, up 27.5% Y-o-Y, and net profits at INR 219 mn, jumped 40.1%
Y-o-Y. EBITDA margins, at 36.6%, stood at all time high. Absence of ad
spending and reduction in operating cost led to the strong margin expansion.
Revenue from the recruitment segment grew 24.0% Y-o-Y to INR 620 mn with
EBITDA margin increasing to 48.7% from 38.0% a year ago.
Recruitment business going strong, but further innovation necessary
The company has scaled its recruitment business impressively with total resume
database of 24 mn and more than 21,000 unique customers. At the same time,
though the company continues its effort to improvise user interface, algorithms
for better job searches, it will have to integrate Naukri.com for it to be accessible
on the social platform and have mobility solution. This can help it not only
sustain but also increase its leadership position.
Scaling of real estate (99acres.com) segment some time away
Online real estate business is still at a nascent stage and offers significant
growth opportunity. To explore this, we note that it will take a lot of sales and
marketing efforts from industry players, which currently is limited. While IEL
continues to lead in terms of market share, the rising interest rate environment
will lead to slowdown in the real estate market and put revenue pressure on
99acres.com. Currently, it generates ~INR 60 mn of quarterly revenues.
Healthy uptick in deferred sales continues
Deferred sales, key indicator of future revenues, continued to grow at 7% over
the previous quarter at INR 689 mn. With continued attrition across industries,
IEL’s recruitment business will be beneficiary of the trend.
Outlook and valuations: Downside remains; maintain ‘REDUCE’
In Q2FY11 we had downgraded IEL to ‘REDUCE’ (refer to our note “Too much too
soon”, dated October 22, 2010), post which the stock has corrected 13% and
underperformed the IT index by 22%. While we continue to like the company’s
unique business model that has enabled it to expand operating margins
significantly we anticipate valuations at P/E of 33.4x and EV/EBITDA of 20.3x
FY12E to offer further potential downside. We note that Q4 (following quarter) is
a seasonally strong quarter for IEL, however, in the absence of any other
triggers we continue to maintain ‘REDUCE’ and ‘Sector Underperformer’
rating on the stock.
Company Description
IEL is amongst India’s leading online classified companies, with presence in online
recruitment, matrimony, real estate, and offline executive search. It pioneered the online
recruitment business under its flagship brand Naukri.com and operates offline
recruitment business under the Quadrangle brand. The company’s online matrimony and
real estate divisions operate under Jeevansathi.com and 99acres.com, respectively, and
are currently in investment mode. New launches include Firstnaukri.com (fresher
recruitment site), Brijj.com (professional networking site), asknaukri.com (career
guidance website), and shiksha.com (education information portal). IEL’s TTM revenue is
USD 61 mn and, employee strength of 1,816 people.
Investment theme
IEL is a long term play on the internet space in India. With lead in the online recruitment
market (through Naukri.com) and presence in the online classified space has the
potential to establish a market leading position and grab large pie of increasing online
adoption. As various businesses come out of the recent slowdown we see recruitment
industry to grow significantly as it is highly correlated to the economic health of the
growth of domestic corporate sector. We expect IEL’s earnings growth at 25% CAGR
over FY11-13E. However, we see the valuations at P/E of 33.4x and EV/EBITDA of 20.3x
FY12E as expensive.
Key Risks
• Faster than anticipated scale up of non-recruitment segments
• Strong profitability from investee companies.
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