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4Q11 standalone results broadly met our high expectations. The key highlight was the sharp
uptick in deferred revenues (up 69% yoy and highest since FY07). Consolidated financials defy
comparison, given the differential accounting treatment of an associate. We remain positive of
momentum sustaining in FY12
Revenue momentum remains solid, led by recruitment and real-estate
Info Edge 4Q11 standalone revenues were up 24.9% yoy (+8.5% qoq) to Rs815m (RBS est.
Rs823m). Recruitment solutions revenues were up 21.1% yoy (+7.6% qoq) to Rs667m. Other
verticals (primarily matrimonial and real estate) were up 45.5% yoy (+13.0% qoq) to Rs148m.
This incorporates matrimonial and real estate revenue growth of 19% and 70% respectively.
EBITDA margin was up 180bp yoy (-172bp qoq) to 34.9% (RBS est 35.1%). In absolute terms
EBITDA was up 31.6% yoy (+3.4% qoq) at Rs284m (RBS est Rs289m). On a qoq basis,
margins were impacted by a 29.2% qoq rise in A&P costs, off a seasonally weak spending in
Dec-qtr. We also note the faster 31.3% yoy rise in personnel costs. We believe this is partly
due to the strong trend in collections. Sales staff receive incentives on collections, while
revenues are deferred over the life of the subscription.
Net Income pre-exceptionals was up 27.6% yoy (-0.9% qoq) to Rs217m (RBS est. Rs223m).
This builds in other income of Rs85m (Rs65m in 4Q10) and tax rate of 37.0% (36.1% in
4Q10).
There was a one off pre-tax gain of Rs55m from sale of shares in MakeMyTrip. This comes
as a pleasant surprise, as these shares were earlier owned by the Founder & Non-Executive
Chairman of Info Edge, Mr. Bhikchandani in his erstwhile capacity of Director of MakeMyTrip,
that listed on Nasdaq recently, but had transferred the shares to Info Edge at cost.
Operating metrics show improving trends across businesses
Average number of resumes modified daily on InfoEdge's flagship recruitment site, Naukri
moved up from to 73k from 70k in 3Q11 . Naukri's Job speak index, which signifies activity in
its website registered an all time peak in March 2010, which partly explains the underlying
revenue momentum.
JeevanSathi, the matrimonial portal, also showed a 13% qoq increase in average profiles
acquired daily. While number of paying customers were relatively stable (+1.1% qoq), pricing
moved up 2.8%.
Build up in deferred revenues gives us high comfort on FY12 growth
Deferred revenues surged 67% yoy (+29.3% yoy) to Rs890m. Deferred revenues as a
proportion of LTM revenues now stand at 111 days, the highest seen since 4Q07.
This implies that collections grew 38.4% yoy to Rs1.0bn. This lends more evidence to our
investment thesis that FY12 could be as good a year as FY11 in terms of revenue growth,
which underpins our revenue estimates for FY12 that are c7% ahead of Bloomberg
consensus estimates.
In line with the 40% yoy growth of the products business in FY11, management expects to
grow the segment again by 40% in FY12 versus our current estimate of 35% growth.
However, Polaris sees a slower 16-17% organic growth in services (19.3% growth in FY11),
versus our current estimate of 20%.
Polaris ended FY11 with a robust pipeline worth US$610m, more than doubling from the start
of the year at US$300m. Within this, product pipeline grew from US$180m to US$400m,
reflecting renewed uptick in demand as well as higher acceptance of the Intellect suite in the
market place. The services pipeline grew from US$120m to US$200m.
Polaris expanded its sales and marketing capabilities with the addition of 40-50 senior
executives in 4Q11 to tap growing interest for the Intellect product suite and aid better deal
conversion.
The Intellect product suite registered 16 wins during 4Q11 (including 8 transformational deals
across verticals and geographies). This includes two US$10m+ Intellect deals during the
quarter, which gives credence to our thesis of strong demand for banking products and the
Polaris products gaining broader acceptance.
Notable wins within the product business include core banking solution win from the Reserve
Bank of India (RBI), won against competition from global Tier I product vendors. Polaris
claimed that TCV of the 10-year deal is one of the largest in the global banking products
market. We believe this is a landmark deal for Polaris, which strengthens its position to
compete for other large deals going forward. During 4Q11, Polaris also signed 3 large
services deals with top global banks in US.
4Q11 margin lower; FY12 EPS guidance of Rs21.5-22
Polaris's 4Q11 EBITDA margins were lower qoq by 106bp at 12% versus our expectation of
14.5%. This decline was attributed to 1) increase in S&M costs (impact of 1.6%) due to
addition of 40-50 senior employees to sales and marketing team and 2) one time expenses of
Rs30mn (impact of 0.7%) towards evacuation of employees from Japan and Middle East
during 4Q11; and c) the inclusion of pass-through revenues in the top line. Adjusted for the
one-time Japan/ME costs and pass-through revenues, EBITDA margin was up 6bp qoq to
13.2%.
Polaris expects FY12 EBITDA margins to remain flat. It expects that operating leverage in its
high-growth product business will compensate for margin headwinds through wage inflation
and currency. Polaris has guided for wage inflation of 12-13% for offshore employees and 2-
4% for onsite employees for FY12, which will impact margins on a sequential basis in 1Q12.
Despite weaker than expected EBITDA, 4Q11 PAT at Rs576mn was 4.8% higher than our
estimate, due to higher than expected other income (including non-recurring other income of
Rs97mn from sale of surplus property assets) and lower tax rates.
For FY12, Polaris guided for EPS of Rs21.5-22 (including further one-time other income from
additional sale of surplus property assets), as healthy EBITDA growth will be more than offset
by increase in tax rate from 15% in FY11 to 27% (versus our current estimate of 25.5%). This
compares with our current recurring EPS expectation of Rs21.4.
Retain Buy; near-term margins to be volatile, but operating leverage remains
Post 4Q11 results, we expect some marginal downward revision in our operating earnings on
the back of higher than expected tax rate guidance for FY12 as well as consolidating recently
acquired company IdenTrust which is expected to make loss of US$2mn in FY12 on a
revenue base of US$11mn.
Lower than expected operating margins for 4Q11 led to material correction in stock price post
4Q11 results. Considering lumpy product business that require upfront investment in sales
and marketing, we continue to expect qoq volatility in margins. We remain positively biased
towards Polaris from a medium-term perspective, considering increasing traction and high
operating leverage in its high margin product business and its strong Tier 2 IT services vendor
status with key clients in the high-growth BFSI vertical. We re-iterate Buy.
Number of paid transactions in the real estate classified portal, 99acres, moved up by 15.3%
qoq, while the total number of paid listings improved by 22.4%. There was a continued
improvement in the proportion of paid listings to overall listings to 84% versus 80% in 3Q11
Consolidated financials not comparable due to accounting treatment of associate
Info Edge reports consolidated results only on an annual basis. For FY11, the company has
accounted for an associate company, Etechaces (operates policybazaar.com) as a subsidiary
despite a minority 49% stake, as per the advice of auditors. This has significantly skewed
comparison with our forecasts and previous year financials.
Etechaces has subsequently raised a second round of equity funding, whereby Info Edge's
stake can fall down below 40%, subject to achievement of certain business targets.
Management expects that this would result in the accounting treatment for consolidation for
this company again reverting to an associate in FY12.
Info Edge did not quantify the impact of the change in accounting treatment. We expect to
understand underlying yoy trends, once the subsidiary financials are made available.
Nevertheless, on a reported basis FY11 consolidated revenues are up 35.7% yoy to Rs3.2bn
(RBS est Rs3.1bn). EBITDA margin is down 133bp to 25.0% (RBS est 30.6%). PAT exextraordinaries
is 11.3% yoy to Rs580m (RBS est. Rs740m). We believe a significant
proportion of the PAT differential versus our estimate comes from the accounting change
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
4Q11 standalone results broadly met our high expectations. The key highlight was the sharp
uptick in deferred revenues (up 69% yoy and highest since FY07). Consolidated financials defy
comparison, given the differential accounting treatment of an associate. We remain positive of
momentum sustaining in FY12
Revenue momentum remains solid, led by recruitment and real-estate
Info Edge 4Q11 standalone revenues were up 24.9% yoy (+8.5% qoq) to Rs815m (RBS est.
Rs823m). Recruitment solutions revenues were up 21.1% yoy (+7.6% qoq) to Rs667m. Other
verticals (primarily matrimonial and real estate) were up 45.5% yoy (+13.0% qoq) to Rs148m.
This incorporates matrimonial and real estate revenue growth of 19% and 70% respectively.
EBITDA margin was up 180bp yoy (-172bp qoq) to 34.9% (RBS est 35.1%). In absolute terms
EBITDA was up 31.6% yoy (+3.4% qoq) at Rs284m (RBS est Rs289m). On a qoq basis,
margins were impacted by a 29.2% qoq rise in A&P costs, off a seasonally weak spending in
Dec-qtr. We also note the faster 31.3% yoy rise in personnel costs. We believe this is partly
due to the strong trend in collections. Sales staff receive incentives on collections, while
revenues are deferred over the life of the subscription.
Net Income pre-exceptionals was up 27.6% yoy (-0.9% qoq) to Rs217m (RBS est. Rs223m).
This builds in other income of Rs85m (Rs65m in 4Q10) and tax rate of 37.0% (36.1% in
4Q10).
There was a one off pre-tax gain of Rs55m from sale of shares in MakeMyTrip. This comes
as a pleasant surprise, as these shares were earlier owned by the Founder & Non-Executive
Chairman of Info Edge, Mr. Bhikchandani in his erstwhile capacity of Director of MakeMyTrip,
that listed on Nasdaq recently, but had transferred the shares to Info Edge at cost.
Operating metrics show improving trends across businesses
Average number of resumes modified daily on InfoEdge's flagship recruitment site, Naukri
moved up from to 73k from 70k in 3Q11 . Naukri's Job speak index, which signifies activity in
its website registered an all time peak in March 2010, which partly explains the underlying
revenue momentum.
JeevanSathi, the matrimonial portal, also showed a 13% qoq increase in average profiles
acquired daily. While number of paying customers were relatively stable (+1.1% qoq), pricing
moved up 2.8%.
Build up in deferred revenues gives us high comfort on FY12 growth
Deferred revenues surged 67% yoy (+29.3% yoy) to Rs890m. Deferred revenues as a
proportion of LTM revenues now stand at 111 days, the highest seen since 4Q07.
This implies that collections grew 38.4% yoy to Rs1.0bn. This lends more evidence to our
investment thesis that FY12 could be as good a year as FY11 in terms of revenue growth,
which underpins our revenue estimates for FY12 that are c7% ahead of Bloomberg
consensus estimates.
In line with the 40% yoy growth of the products business in FY11, management expects to
grow the segment again by 40% in FY12 versus our current estimate of 35% growth.
However, Polaris sees a slower 16-17% organic growth in services (19.3% growth in FY11),
versus our current estimate of 20%.
Polaris ended FY11 with a robust pipeline worth US$610m, more than doubling from the start
of the year at US$300m. Within this, product pipeline grew from US$180m to US$400m,
reflecting renewed uptick in demand as well as higher acceptance of the Intellect suite in the
market place. The services pipeline grew from US$120m to US$200m.
Polaris expanded its sales and marketing capabilities with the addition of 40-50 senior
executives in 4Q11 to tap growing interest for the Intellect product suite and aid better deal
conversion.
The Intellect product suite registered 16 wins during 4Q11 (including 8 transformational deals
across verticals and geographies). This includes two US$10m+ Intellect deals during the
quarter, which gives credence to our thesis of strong demand for banking products and the
Polaris products gaining broader acceptance.
Notable wins within the product business include core banking solution win from the Reserve
Bank of India (RBI), won against competition from global Tier I product vendors. Polaris
claimed that TCV of the 10-year deal is one of the largest in the global banking products
market. We believe this is a landmark deal for Polaris, which strengthens its position to
compete for other large deals going forward. During 4Q11, Polaris also signed 3 large
services deals with top global banks in US.
4Q11 margin lower; FY12 EPS guidance of Rs21.5-22
Polaris's 4Q11 EBITDA margins were lower qoq by 106bp at 12% versus our expectation of
14.5%. This decline was attributed to 1) increase in S&M costs (impact of 1.6%) due to
addition of 40-50 senior employees to sales and marketing team and 2) one time expenses of
Rs30mn (impact of 0.7%) towards evacuation of employees from Japan and Middle East
during 4Q11; and c) the inclusion of pass-through revenues in the top line. Adjusted for the
one-time Japan/ME costs and pass-through revenues, EBITDA margin was up 6bp qoq to
13.2%.
Polaris expects FY12 EBITDA margins to remain flat. It expects that operating leverage in its
high-growth product business will compensate for margin headwinds through wage inflation
and currency. Polaris has guided for wage inflation of 12-13% for offshore employees and 2-
4% for onsite employees for FY12, which will impact margins on a sequential basis in 1Q12.
Despite weaker than expected EBITDA, 4Q11 PAT at Rs576mn was 4.8% higher than our
estimate, due to higher than expected other income (including non-recurring other income of
Rs97mn from sale of surplus property assets) and lower tax rates.
For FY12, Polaris guided for EPS of Rs21.5-22 (including further one-time other income from
additional sale of surplus property assets), as healthy EBITDA growth will be more than offset
by increase in tax rate from 15% in FY11 to 27% (versus our current estimate of 25.5%). This
compares with our current recurring EPS expectation of Rs21.4.
Retain Buy; near-term margins to be volatile, but operating leverage remains
Post 4Q11 results, we expect some marginal downward revision in our operating earnings on
the back of higher than expected tax rate guidance for FY12 as well as consolidating recently
acquired company IdenTrust which is expected to make loss of US$2mn in FY12 on a
revenue base of US$11mn.
Lower than expected operating margins for 4Q11 led to material correction in stock price post
4Q11 results. Considering lumpy product business that require upfront investment in sales
and marketing, we continue to expect qoq volatility in margins. We remain positively biased
towards Polaris from a medium-term perspective, considering increasing traction and high
operating leverage in its high margin product business and its strong Tier 2 IT services vendor
status with key clients in the high-growth BFSI vertical. We re-iterate Buy.
Number of paid transactions in the real estate classified portal, 99acres, moved up by 15.3%
qoq, while the total number of paid listings improved by 22.4%. There was a continued
improvement in the proportion of paid listings to overall listings to 84% versus 80% in 3Q11
Consolidated financials not comparable due to accounting treatment of associate
Info Edge reports consolidated results only on an annual basis. For FY11, the company has
accounted for an associate company, Etechaces (operates policybazaar.com) as a subsidiary
despite a minority 49% stake, as per the advice of auditors. This has significantly skewed
comparison with our forecasts and previous year financials.
Etechaces has subsequently raised a second round of equity funding, whereby Info Edge's
stake can fall down below 40%, subject to achievement of certain business targets.
Management expects that this would result in the accounting treatment for consolidation for
this company again reverting to an associate in FY12.
Info Edge did not quantify the impact of the change in accounting treatment. We expect to
understand underlying yoy trends, once the subsidiary financials are made available.
Nevertheless, on a reported basis FY11 consolidated revenues are up 35.7% yoy to Rs3.2bn
(RBS est Rs3.1bn). EBITDA margin is down 133bp to 25.0% (RBS est 30.6%). PAT exextraordinaries
is 11.3% yoy to Rs580m (RBS est. Rs740m). We believe a significant
proportion of the PAT differential versus our estimate comes from the accounting change
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