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Steady state
Improving competitive position in the recruitment and property segments
is being balanced by flat-lining of hiring and moderation in real-estate
transactions. This will likely limit upsides to Info Edge’s near-term
financials. Jeevansathi will likely take a back-seat even as a new phase of
investment begins in Shiksha. Investee companies hold a lot of potential
but Info Edge will need to absorb losses in the interim as these
businesses scale-up. While we maintain an Outperform, lack of upsides in
the core business implies a dull phase for the stock in the near term.
Some moderation in business momentum
Conversations with Info Edge management indicate some moderation of
business momentum in the recruitment and real estate segments. Hiring
numbers seem to be flat-lining after the surge over the last 12 months and
Info Edge’s deferred revenues line (cash received but revenues not booked
and indicator of future revenues) could potentially trend down sequentially
after the QQ increase over each of the past 5 quarters. While real estate
transactions remain impacted by the rising interest rates, the latest Supreme
Court order quashing the acquisition of farmers' land in Greater Noida is a
further sentiment dampener. Noida Extension region remains a key revenue
driver for 99acres and uncertainty here will likely impact performance.
Shiksha likely to be a key focus area in FY12
Jeevansathi has been unable to break-in into the top-2 in the matrimony
segment despite significant investments and we now expect management to
focus its attention elsewhere. Shiksha (portal for education advertising) will
likely remain the key investment avenue at Info Edge through FY12 and a big
push through TV commercials indicates Info Edge’s intentions here. The
online business is also being supported by 12 offices across India. Meanwhile,
Info Edge’s leading market position in recruitment and real estate continues.
Naukri has consolidated its leadership even as 99acres manages to maintain
its #1 position despite stiff competition from Magicbricks.
Investee companies retain option values
Investments in Mydala (daily deals website), 99labels (e-commerce for
fashion merchandise) and Nogle Technologies (content aggregator) continue
Info Edge’s inorganic expansion into new areas. We expect increased activity
on this front with the Founder devoting his entire time to scout for such
opportunities. This also implies that there could be some volatility on the net
margin front, especially as losses of some of these ventures are absorbed.
Barring Naukri, Info Edge has so far been unable to scale-up any other
venture and success in some of these new investments remains critical for
sustainability of Info Edge’s stock performance. Past experience suggests
mixed results on this front and onus of proof remains on Info Edge.
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