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Despite diversification efforts, the jobs segment generates 80% of Info Edge's
revenues and all of its EBITDA. We believe the street is underestimating the
potential impact of a hiring slowdown and significant start up investments. The
stock's ytd performance leaves no room for disappointment. Downgrade to Hold.
Slowdown in lateral hiring is a key threat for Info Edge
Despite having built credible businesses around real estate and several investments in startups,
Info Edge still derives 80% of standalone profits and all of its EBITDA from recruitment.
In line with our sector thesis of a slowdown in IT sector demand in 2HFY12, we expect
companies to turn more circumspect on lateral hiring. The previous downturn suggests that
any change in lateral hiring tends to have a fairly severe impact on Info Edge. In addition, we
believe the company’s real estate broking arm, AllCheckDeals, could continue to be
impacted by legal disputes on land acquisition in Noida, its largest market.
We lower FY12/13F revenues by 9%/10% and EPS by 15%/18%
We expect yoy growth to slow materially to below 20% over the next two to three quarters
(from 32% currently), as companies adjust spending on recruitment, in tune with their lateral
hiring strategy. IT/ITES is the largest sector for Info Edge, and hence will be key to its
revenue trajectory. On the other hand, Indian GDP growth has moderated over the past few
quarters (7.7% in 1Q12), which implies domestic growth may not be able to offset the
potential slowdown in the IT sector. This is captured in the Naukri JobSpeak index (which
tracks job listing activity on the Naukri website), where 19 out of 41 sectors have reported
negative mom readings in the past four months. Hence we lower our FY12/13F revenues by
9%/10%. Given high operating leverage, we reduce our FY12/13F EPS by 15%/18%.
Stock outperformance vs IT sector does not leave any room for disappointment
Info Edge stock has outperformed the the BSE IT index by 31% ytd. Based on our earnings
downgrades, we lower our SOTP-based TP to Rs725 (from Rs864). Our FY12/13F EPS are
10%/21% below Bloomberg consensus, which we believe is underestimating the impact of a
hiring slowdown and early stage start up investments. Hence, we do not believe the stock
leaves much room for disappointment. A key metric to track will be the JobSpeak index, which
was a fairly accurate lead indicator during the previous downturn and subsequent recovery.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Despite diversification efforts, the jobs segment generates 80% of Info Edge's
revenues and all of its EBITDA. We believe the street is underestimating the
potential impact of a hiring slowdown and significant start up investments. The
stock's ytd performance leaves no room for disappointment. Downgrade to Hold.
Slowdown in lateral hiring is a key threat for Info Edge
Despite having built credible businesses around real estate and several investments in startups,
Info Edge still derives 80% of standalone profits and all of its EBITDA from recruitment.
In line with our sector thesis of a slowdown in IT sector demand in 2HFY12, we expect
companies to turn more circumspect on lateral hiring. The previous downturn suggests that
any change in lateral hiring tends to have a fairly severe impact on Info Edge. In addition, we
believe the company’s real estate broking arm, AllCheckDeals, could continue to be
impacted by legal disputes on land acquisition in Noida, its largest market.
We lower FY12/13F revenues by 9%/10% and EPS by 15%/18%
We expect yoy growth to slow materially to below 20% over the next two to three quarters
(from 32% currently), as companies adjust spending on recruitment, in tune with their lateral
hiring strategy. IT/ITES is the largest sector for Info Edge, and hence will be key to its
revenue trajectory. On the other hand, Indian GDP growth has moderated over the past few
quarters (7.7% in 1Q12), which implies domestic growth may not be able to offset the
potential slowdown in the IT sector. This is captured in the Naukri JobSpeak index (which
tracks job listing activity on the Naukri website), where 19 out of 41 sectors have reported
negative mom readings in the past four months. Hence we lower our FY12/13F revenues by
9%/10%. Given high operating leverage, we reduce our FY12/13F EPS by 15%/18%.
Stock outperformance vs IT sector does not leave any room for disappointment
Info Edge stock has outperformed the the BSE IT index by 31% ytd. Based on our earnings
downgrades, we lower our SOTP-based TP to Rs725 (from Rs864). Our FY12/13F EPS are
10%/21% below Bloomberg consensus, which we believe is underestimating the impact of a
hiring slowdown and early stage start up investments. Hence, we do not believe the stock
leaves much room for disappointment. A key metric to track will be the JobSpeak index, which
was a fairly accurate lead indicator during the previous downturn and subsequent recovery.
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