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Info Edge India
On an incubation drive
We expect Info Edge to step up investments in start-ups (over Rs700m so far). As
it burns cash, medium-term PAT could be volatile but we see long-term value
creation, as evidenced by the recent raise by investee company PolicyBazaar.
Core metrics look solid despite economic growth moderating. Buy maintained
Quantum of Investment in start-ups could surprise the street on the upside
Info Edge has invested more than Rs700m in six start-ups since December 2007, of which over
half was in the past three months. Management continues to scout for investments and expects
to end up with 10-12 companies in its portfolio. Some of its current investments may require
additional funding in FY12. We model in investments of Rs650m-700m annually for FY12-14.
We expect this to create near-term earnings volatility, but drive long-term value
FY11 consolidated PAT was 28% below standalone PAT. Having to recognise some start-up
investments as subsidiaries (due to control of the boards of directors) created some onerous
losses. We expect continued pressure on consolidated financials, given management’s
strategy of investing for the long run and cash burn over the next three to five years.
However, we believe these investments, as a portfolio, can create long-term value, given Info
Edge’s track record in scaling internet businesses. For instance, we estimate the valuation of
PolicyBazaar in its second fund-raising implies positive return on investment for Info Edge.
Core business doing well: we raise our TP to Rs828, with start-up investments at book
Naukri’s collections in FY11 were up 47%, providing a tailwind into FY12. While the GDP
growth slowdown has had no perceptible impact on collections as yet (JobSpeak index at a
historical high), but we build in some conservatism going forward. Real estate momentum
continues (revenues up 116% in FY11), driven by affordable housing demand. We raise our
FY12 and FY13 revenue and EBITDA forecasts by 2-3% in each year on higher revenues in
real estate and better realisations for Naukri. However, we lower FY12F and FY13F PAT by
3% and 14%, respectively, on higher losses from investments. We shift to an SOTP valuation
(from DCF), and raise our TP to Rs828 (from Rs772) on operating upgrades, valuing start-up
investment at book value (incorporated in DCF earlier) and DCF rollover. Valuation of 35x
FY13F EPS looks expensive, but we believe it is not representative of business performance,
as reflected in the growing divergence between standalone and consolidated profitability.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Info Edge India
On an incubation drive
We expect Info Edge to step up investments in start-ups (over Rs700m so far). As
it burns cash, medium-term PAT could be volatile but we see long-term value
creation, as evidenced by the recent raise by investee company PolicyBazaar.
Core metrics look solid despite economic growth moderating. Buy maintained
Quantum of Investment in start-ups could surprise the street on the upside
Info Edge has invested more than Rs700m in six start-ups since December 2007, of which over
half was in the past three months. Management continues to scout for investments and expects
to end up with 10-12 companies in its portfolio. Some of its current investments may require
additional funding in FY12. We model in investments of Rs650m-700m annually for FY12-14.
We expect this to create near-term earnings volatility, but drive long-term value
FY11 consolidated PAT was 28% below standalone PAT. Having to recognise some start-up
investments as subsidiaries (due to control of the boards of directors) created some onerous
losses. We expect continued pressure on consolidated financials, given management’s
strategy of investing for the long run and cash burn over the next three to five years.
However, we believe these investments, as a portfolio, can create long-term value, given Info
Edge’s track record in scaling internet businesses. For instance, we estimate the valuation of
PolicyBazaar in its second fund-raising implies positive return on investment for Info Edge.
Core business doing well: we raise our TP to Rs828, with start-up investments at book
Naukri’s collections in FY11 were up 47%, providing a tailwind into FY12. While the GDP
growth slowdown has had no perceptible impact on collections as yet (JobSpeak index at a
historical high), but we build in some conservatism going forward. Real estate momentum
continues (revenues up 116% in FY11), driven by affordable housing demand. We raise our
FY12 and FY13 revenue and EBITDA forecasts by 2-3% in each year on higher revenues in
real estate and better realisations for Naukri. However, we lower FY12F and FY13F PAT by
3% and 14%, respectively, on higher losses from investments. We shift to an SOTP valuation
(from DCF), and raise our TP to Rs828 (from Rs772) on operating upgrades, valuing start-up
investment at book value (incorporated in DCF earlier) and DCF rollover. Valuation of 35x
FY13F EPS looks expensive, but we believe it is not representative of business performance,
as reflected in the growing divergence between standalone and consolidated profitability.
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