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Info Edge reported in-line 2Q12 revenues and operating profit. However, a dip in deferred sales
implies collections slowed down to 19% yoy vs 25% in 1Q12. A strong 26% ytd outperformance
to the BSE IT Index despite deteriorating macros does not leave room for disappointment in our
view.
2Q12 results: broadly in line with expectations operationally
2Q12 revenues were up 5.1% qoq (up 28.0% yoy) to Rs911m. This is marginally lower than
our qoq growth forecast of 6.0%.
EBITDA margin (ex-other operating income) at 35.4% was down 109bp qoq (up 538bp yoy) ,
broadly in line with our expectation of 35.6%. Higher ad expenses pulled down margins, while
other operating costs were controlled. Personnel costs were flattish qoq, as variable pay was
down qoq.
PAT was up 10.3% qoq (up 57.9% yoy) at Rs282m, better than our expectation of Rs259m.
This was driven by lower depreciation (down 13% qoq), reversal of excess provision of Rs9m
and tax rate of 28.8% (vs our estimate of Rs32.5%).
Sharp deceleration in collections over the past two quarters is a cause for worry
Deferred revenues of Rs918m were down sequentially by 3.3% qoq, for the first time in seven
quarters.
This translates into estimated collections of Rs880m, a decline of 4.4% sequentially over the
previous quarter. On a yoy basis, collections are up 18.6% versus 24.8% in 1Q12 and 39% in
4Q11.
We certainly see this as a cause of worry, as collections tend to impact revenue trajectory
with a lag. Management admitted that collections were indeed weaker than expected for the
second quarter in a row.
Recruitment business steady; some sectors are seeing pressure
Overall recruitment revenues were up 6.7% qoq (+26.6% yoy). Naukri corporate sales were
up 32% yoy.
The offline search business, Quadrange reported a 22% dip in revenues yoy, due to
slowdown in one of its key clients.
Management noted that client behaviour did not see any major change in terms of buying
activity. The company spoke of successes in adding a few large IT clients during the quarter.
Management noted that there was some weakness in select verticals like Insurance and
Telecom.
A mixed bag across other business segments
99acres revenues were up 40% yoy. Despite a challenging operating environment (slowdown
in real estate sales, legal issues in Mumbai and NCR markets), number of paid transactions
grew 43.6%, which we believe reflects growing penetration in that segment.
AllCheckDeals, the real estate broking subsidiary reported transaction volume of 370, up from
309 in 1Q12, but down from 755 yoy, impacted by the real estate market slowdown.
JeevanSathi revenues were up 18% yoy, a slowdown from 27% growth in 1Q12.
Management said that its market share has been increasing in North India, while declining in
South India.
The education portal Shiksha's revenues grew 78% yoy off a small base.
Start up investment set to spike in FY12
An analysis of the cash flow statement shows that Info Edge has invested Rs477m in start up
companies during 1HFY12, more than double of the entire investment in FY11 of Rs176m.
Management noted that the investee companies reported a total topline of Rs230m and
losses of Rs140m during 1HFY12. Based on the current trend, management expects its share
of losses from these investments to be well above Rs200m recorded in FY11.
As always, management refrained from setting any targets/limits on the investment amount
for FY12.
Stock price performance does not offer room for disappointment, in our view
Info Edge stock is up 7% ytd versus the BSE IT Index, which is down 19% ytd. As such we
see Info Edge as a leveraged play on prospects on Indian IT, as we expect cautious spending
activity should translate into sluggishness in hiring.
On the other hand, the Indian economy is seeing some slowdown accompanied by high
inflation and interest rates. Hence the domestic market may not compensate for any poential
slowdown in the IT sector, in our view.
We believe current valuations of 40x FY13F EPS do not leave much room for disappointment.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Info Edge reported in-line 2Q12 revenues and operating profit. However, a dip in deferred sales
implies collections slowed down to 19% yoy vs 25% in 1Q12. A strong 26% ytd outperformance
to the BSE IT Index despite deteriorating macros does not leave room for disappointment in our
view.
2Q12 results: broadly in line with expectations operationally
2Q12 revenues were up 5.1% qoq (up 28.0% yoy) to Rs911m. This is marginally lower than
our qoq growth forecast of 6.0%.
EBITDA margin (ex-other operating income) at 35.4% was down 109bp qoq (up 538bp yoy) ,
broadly in line with our expectation of 35.6%. Higher ad expenses pulled down margins, while
other operating costs were controlled. Personnel costs were flattish qoq, as variable pay was
down qoq.
PAT was up 10.3% qoq (up 57.9% yoy) at Rs282m, better than our expectation of Rs259m.
This was driven by lower depreciation (down 13% qoq), reversal of excess provision of Rs9m
and tax rate of 28.8% (vs our estimate of Rs32.5%).
Sharp deceleration in collections over the past two quarters is a cause for worry
Deferred revenues of Rs918m were down sequentially by 3.3% qoq, for the first time in seven
quarters.
This translates into estimated collections of Rs880m, a decline of 4.4% sequentially over the
previous quarter. On a yoy basis, collections are up 18.6% versus 24.8% in 1Q12 and 39% in
4Q11.
We certainly see this as a cause of worry, as collections tend to impact revenue trajectory
with a lag. Management admitted that collections were indeed weaker than expected for the
second quarter in a row.
Recruitment business steady; some sectors are seeing pressure
Overall recruitment revenues were up 6.7% qoq (+26.6% yoy). Naukri corporate sales were
up 32% yoy.
The offline search business, Quadrange reported a 22% dip in revenues yoy, due to
slowdown in one of its key clients.
Management noted that client behaviour did not see any major change in terms of buying
activity. The company spoke of successes in adding a few large IT clients during the quarter.
Management noted that there was some weakness in select verticals like Insurance and
Telecom.
A mixed bag across other business segments
99acres revenues were up 40% yoy. Despite a challenging operating environment (slowdown
in real estate sales, legal issues in Mumbai and NCR markets), number of paid transactions
grew 43.6%, which we believe reflects growing penetration in that segment.
AllCheckDeals, the real estate broking subsidiary reported transaction volume of 370, up from
309 in 1Q12, but down from 755 yoy, impacted by the real estate market slowdown.
JeevanSathi revenues were up 18% yoy, a slowdown from 27% growth in 1Q12.
Management said that its market share has been increasing in North India, while declining in
South India.
The education portal Shiksha's revenues grew 78% yoy off a small base.
Start up investment set to spike in FY12
An analysis of the cash flow statement shows that Info Edge has invested Rs477m in start up
companies during 1HFY12, more than double of the entire investment in FY11 of Rs176m.
Management noted that the investee companies reported a total topline of Rs230m and
losses of Rs140m during 1HFY12. Based on the current trend, management expects its share
of losses from these investments to be well above Rs200m recorded in FY11.
As always, management refrained from setting any targets/limits on the investment amount
for FY12.
Stock price performance does not offer room for disappointment, in our view
Info Edge stock is up 7% ytd versus the BSE IT Index, which is down 19% ytd. As such we
see Info Edge as a leveraged play on prospects on Indian IT, as we expect cautious spending
activity should translate into sluggishness in hiring.
On the other hand, the Indian economy is seeing some slowdown accompanied by high
inflation and interest rates. Hence the domestic market may not compensate for any poential
slowdown in the IT sector, in our view.
We believe current valuations of 40x FY13F EPS do not leave much room for disappointment.
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