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Info Edge India
Overweight
INED.BO, INFOE IN
On track to sustain revenue growth of 25%+ in FY12E;
option exists to either extract operating leverage or
invest more for growth
Info Edge reported strong 4QFY11 with 8.5% Q/Q and 25% Y/Y revenue
growth. Naukri.com, the most important segment of the company which
contributes almost all of Info Edge’s value, reported revenue growth of ~29%
Y/Y. The highlight of the quarter was the breaking even of 99acres.com, the
online real estate classified of Info Edge. 99acres witnessed robust 27% Q/Q
revenue growth, and EBITDA margins of about 20% in 4QFY11. We believe
this business is well placed to achieve 40%+ revenue growth in FY12.
• Recruitment services business is on track to achieve 25%+ revenue growth
in FY12 as economic growth and the business environment remain healthy.
The IT sector at 25% of contribution is likely to sustain traction, while other
larger sectors like Infrastructure and BFSI also continue to grow at a good clip.
Healthy revenue growth should help Info Edge maintain, if not exceed, FY11
margins as operating leverage should kick in to offset the increase in people and
advertising costs which management intends to incur. Notably, management
prefers to trade-off operating leverage in favor of investments (employee
and advertising investments) to drive revenue growth in years beyond
FY12.
• 99acres reported revenue growth of 71% in FY11, and exited the year with a
very strong quarter and positive EBITDA. The business is on track to report
30% revenue growth in FY12 only by maintaining its quarterly exit run
rate without any sequential growth. We believe 99acres has potential to grow
revenues at 40%+ for the next 2-3 years as explained in our report ‘It's not just
naukri.com; 99acres.com could well be the next big thing; this is available today
for free’ (dated April 6, 2011). Though, interest rates and macro economic
environment remain the wild cards for this business, we believe over a period of
time revenue growth tends to normalize as witnessed by similar businesses in
other geographies.
• Revenue visibility for FY12 is strong, an indicator of which is deferred sales
revenues of Rs.890 mn (up 70% Y/Y), almost all of which should be
recognized during FY12.
• We maintain our OW with a price target of Rs.845. We value recruitment
services at Rs.720/share, with the remaining Rs 125/share coming from 99acres.
We do not bake in any value for other businesses.
Valuation and price target
We rate Info Edge Overweight and our Mar -12 price target of Rs.845 is based on a
one-year forward P/E multiple of 31x, which is in line with EPS CAGR of 32% for
FY11-13. It implies ~1.0x PEG, which we believe is justified, given the leadership
position of Naukri.com, high incremental ROIC, strong growth potential of 99acres
and option value of other businesses. The target multiple is significantly below the
long-term average multiple of 41x.
Recruitment business, which is primarily Naukri.com, accounts for most of the
company’s value. We expect recruitment revenues to grow at a CAGR of 24% from
FY11 to FY13 and expect EBITDA margins to be about 48.0% for FY13. We use
19x EV/EBITDA to value the business, which we believe is justified considering
sustainable 24% top-line growth. We compute the recruitment business to be worth
about Rs.720 based on FY13 EBITDA. We value 99acres to be worth Rs.125 based
on 12x EV/FY13 sales, which is in line with early stage valuation multiple of
companies in similar business in other geographies.
Table 2: Recruitment business accounts for most of the company value, while the remaining
value comes from 99acres.com
Target Price Rs.845
Recruitment Business Rs.720
99acres.com Rs.125
Source: Company reports, J.P. Morgan.
We assign no value to other businesses including Jeevansaathi, Shiksha, Brijj and
Allcheckdeals, which are still in a nascent stage of growth.
Risks to our rating and price target
The primary risks to our rating and price target are:
1. Traffic share contraction due to competitive threat from LinkedIn and
Monster’s semantic search (Trovix) technology.
2. Increasing interest rates and inflation may hurt real estate market, impacting
99acres.com business for a relatively long period of time.
3. Naukri.com or 99acres lose their market leadership position.
4. Advertising expenses pick up in response to competitors’ actions.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Info Edge India
Overweight
INED.BO, INFOE IN
On track to sustain revenue growth of 25%+ in FY12E;
option exists to either extract operating leverage or
invest more for growth
Info Edge reported strong 4QFY11 with 8.5% Q/Q and 25% Y/Y revenue
growth. Naukri.com, the most important segment of the company which
contributes almost all of Info Edge’s value, reported revenue growth of ~29%
Y/Y. The highlight of the quarter was the breaking even of 99acres.com, the
online real estate classified of Info Edge. 99acres witnessed robust 27% Q/Q
revenue growth, and EBITDA margins of about 20% in 4QFY11. We believe
this business is well placed to achieve 40%+ revenue growth in FY12.
• Recruitment services business is on track to achieve 25%+ revenue growth
in FY12 as economic growth and the business environment remain healthy.
The IT sector at 25% of contribution is likely to sustain traction, while other
larger sectors like Infrastructure and BFSI also continue to grow at a good clip.
Healthy revenue growth should help Info Edge maintain, if not exceed, FY11
margins as operating leverage should kick in to offset the increase in people and
advertising costs which management intends to incur. Notably, management
prefers to trade-off operating leverage in favor of investments (employee
and advertising investments) to drive revenue growth in years beyond
FY12.
• 99acres reported revenue growth of 71% in FY11, and exited the year with a
very strong quarter and positive EBITDA. The business is on track to report
30% revenue growth in FY12 only by maintaining its quarterly exit run
rate without any sequential growth. We believe 99acres has potential to grow
revenues at 40%+ for the next 2-3 years as explained in our report ‘It's not just
naukri.com; 99acres.com could well be the next big thing; this is available today
for free’ (dated April 6, 2011). Though, interest rates and macro economic
environment remain the wild cards for this business, we believe over a period of
time revenue growth tends to normalize as witnessed by similar businesses in
other geographies.
• Revenue visibility for FY12 is strong, an indicator of which is deferred sales
revenues of Rs.890 mn (up 70% Y/Y), almost all of which should be
recognized during FY12.
• We maintain our OW with a price target of Rs.845. We value recruitment
services at Rs.720/share, with the remaining Rs 125/share coming from 99acres.
We do not bake in any value for other businesses.
Valuation and price target
We rate Info Edge Overweight and our Mar -12 price target of Rs.845 is based on a
one-year forward P/E multiple of 31x, which is in line with EPS CAGR of 32% for
FY11-13. It implies ~1.0x PEG, which we believe is justified, given the leadership
position of Naukri.com, high incremental ROIC, strong growth potential of 99acres
and option value of other businesses. The target multiple is significantly below the
long-term average multiple of 41x.
Recruitment business, which is primarily Naukri.com, accounts for most of the
company’s value. We expect recruitment revenues to grow at a CAGR of 24% from
FY11 to FY13 and expect EBITDA margins to be about 48.0% for FY13. We use
19x EV/EBITDA to value the business, which we believe is justified considering
sustainable 24% top-line growth. We compute the recruitment business to be worth
about Rs.720 based on FY13 EBITDA. We value 99acres to be worth Rs.125 based
on 12x EV/FY13 sales, which is in line with early stage valuation multiple of
companies in similar business in other geographies.
Table 2: Recruitment business accounts for most of the company value, while the remaining
value comes from 99acres.com
Target Price Rs.845
Recruitment Business Rs.720
99acres.com Rs.125
Source: Company reports, J.P. Morgan.
We assign no value to other businesses including Jeevansaathi, Shiksha, Brijj and
Allcheckdeals, which are still in a nascent stage of growth.
Risks to our rating and price target
The primary risks to our rating and price target are:
1. Traffic share contraction due to competitive threat from LinkedIn and
Monster’s semantic search (Trovix) technology.
2. Increasing interest rates and inflation may hurt real estate market, impacting
99acres.com business for a relatively long period of time.
3. Naukri.com or 99acres lose their market leadership position.
4. Advertising expenses pick up in response to competitors’ actions.
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