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India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We view Info Edge, India's leader in online classifieds, as a leveraged play on economic
growth, demographics and rising internet penetration. In our view, its strong balance
sheet/margins give it an edge over VC-backed peers to invest for growth. We believe
consensus underestimates momentum for FY12. Buy.
Structural drivers in place for growth – revenue CAGR of 27% over FY11-13F
Info Edge is a provider of online classifieds with leading brands in the job, real estate and
matrimonial segments. We project a 27% revenue CAGR over FY11-13, driven by: 1) job
creation, led by domestic growth (we estimate 8%+ GDP growth for FY12-13) and continued
robust hiring activity in the outsourcing industry (we estimate net additions of 40% for FY11-13
for India’s top-four IT firms); 2) the real estate segment, which we believe has strong long-term
potential given its current small base; and 3) rising internet penetration, which appears to be at
an inflection point. We expect Info Edge to be a direct beneficiary of these trends.
Highly profitable business model operating on a negative-working-capital cycle
Info Edge operates at an EBITDA margin of around 30%. Its negative working-capital cycle
(cash collected in advance for subscriptions/advertisements) requires minimal maintenance
capex and thus generates free cash. The company’s inorganic growth strategy, struggling
matrimonial segment and facilities capex require sizeable outlay, but we view this as
adequately covered by operating leverage in its recruitment business and by rising real estate
segment margins (we see the EBIT margin rising 178bp over FY11-13). We think Info Edge’s
strong balance sheet (US$97m net cash as at 3Q11) gives it an edge to sustain investments
compared to its venture capital (VC)-backed peers.
Buy for multi-year growth prospects and a unique play on Indian internet
We project a 33% EPS CAGR over FY11-13 based on solid growth prospects (we estimate a
revenue CAGR of 27% over FY11-13F) and improving EBIT margins (up 178bp over FY11-13F).
We are 7% and 6% above Bloomberg consensus on FY12F and FY13F revenues, as we believe
the street is not fully factoring in the momentum (collections were up 37% yoy in 3Q11 vs revenue
growth of 27%). Our DCF-based target price of Rs772 (19% upside potential) implies FY12F PEG of
1.0x, near the lower end of the historical range of 0.7-2.0x (adjusted for outliers). Valuations do not
look cheap to us, but we think the high-entry-barrier business model and negative-working-capital
cycle ensure sustainable profitable growth, and we regard Info Edge as the only credible play on the
India internet story.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We view Info Edge, India's leader in online classifieds, as a leveraged play on economic
growth, demographics and rising internet penetration. In our view, its strong balance
sheet/margins give it an edge over VC-backed peers to invest for growth. We believe
consensus underestimates momentum for FY12. Buy.
Structural drivers in place for growth – revenue CAGR of 27% over FY11-13F
Info Edge is a provider of online classifieds with leading brands in the job, real estate and
matrimonial segments. We project a 27% revenue CAGR over FY11-13, driven by: 1) job
creation, led by domestic growth (we estimate 8%+ GDP growth for FY12-13) and continued
robust hiring activity in the outsourcing industry (we estimate net additions of 40% for FY11-13
for India’s top-four IT firms); 2) the real estate segment, which we believe has strong long-term
potential given its current small base; and 3) rising internet penetration, which appears to be at
an inflection point. We expect Info Edge to be a direct beneficiary of these trends.
Highly profitable business model operating on a negative-working-capital cycle
Info Edge operates at an EBITDA margin of around 30%. Its negative working-capital cycle
(cash collected in advance for subscriptions/advertisements) requires minimal maintenance
capex and thus generates free cash. The company’s inorganic growth strategy, struggling
matrimonial segment and facilities capex require sizeable outlay, but we view this as
adequately covered by operating leverage in its recruitment business and by rising real estate
segment margins (we see the EBIT margin rising 178bp over FY11-13). We think Info Edge’s
strong balance sheet (US$97m net cash as at 3Q11) gives it an edge to sustain investments
compared to its venture capital (VC)-backed peers.
We project a 33% EPS CAGR over FY11-13 based on solid growth prospects (we estimate a
revenue CAGR of 27% over FY11-13F) and improving EBIT margins (up 178bp over FY11-13F).
We are 7% and 6% above Bloomberg consensus on FY12F and FY13F revenues, as we believe
the street is not fully factoring in the momentum (collections were up 37% yoy in 3Q11 vs revenue
growth of 27%). Our DCF-based target price of Rs772 (19% upside potential) implies FY12F PEG of
1.0x, near the lower end of the historical range of 0.7-2.0x (adjusted for outliers). Valuations do not
look cheap to us, but we think the high-entry-barrier business model and negative-working-capital
cycle ensure sustainable profitable growth, and we regard Info Edge as the only credible play on the
India internet story.
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