Worst is yet to come Info Edge:: Centrum

Worst is yet to come
Info Edge posted Q4FY13 results below our expectations with revenue growth of 9.9%YoY with mere 4.4%YoY growth in recruitment business, 621bps fall in EBIDTA margin and 11.5%YoY de-growth in Adj. net profit. The company has also written-off Rs293mn investment in 99labels.com in the quarter. We expect challenges ahead for its core recruitment businesses and hence maintain Neutral view on the stock.
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Results below expectations: Info Edge posted Q4FY13 results below expectations with topline at Rs1171mn (v/s est of Rs1182mn), up 9.9%YoY on the back of mere 4.4%YoY growth in the recruitment vertical while new businesses grew by 35% YoY. Operating profit was down by 7.1%YoY on the back of 621bps drop in margins as the company had 44.7%YoY increase in admin and other expenses and 15.7% increase in A&P and employee cost. During the quarter, the company wrote off Rs293mn investment in 99labels.com impacting profitability. Adjusting for it, PAT was at Rs356mn (v/s est. of Rs388mn), down 11.5%YoY.
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Recruitment business continues to be under pressure: During the quarter recruitment business growth was mere 4.4% as the company serviced 26K unique customers against 25K in Q4FY12. Also for FY13, the company added mere 2K unique customers while pricing was flat in the past 15 months as the company could not hike prices due to the economic slowdown. Margins for the recruitment business during the quarter were at 49.1% (down 580bps YoY) on the back of low revenue traction. Though collection growth for the quarter was 3.8% YoY, for Naukri corporate sales continued to remain flat. The management continued to maintain caution and did not expect the business to improve over the next two quarters unless economic sentiments improved drastically.

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New business continues to gain traction: New business grew by 35%YoY during the quarter to Rs285mn with operating loss at Rs44mn. For FY13, 99acres posted revenues of Rs512mn (up 48% YoY) with operating loss of mere Rs8mn on the back of an increase in the number of paid transactions even though competition was aggressive in Q4FY13. We believe going forward the company will need to invest significantly in brand building as the competition is gaining market share. In jeevansaathi.com, the company posted revenues of Rs322mn (up 27% YoY) with an operating loss of Rs75mn in FY13. The management believes they have started to gain traction in North India due to its focus on the area in the past 3-4 quarters.
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Investee companies in red: During the quarter, the company has written-off Rs293mn investment in 99labels.com. Total amount invested currently is Rs2.5bn in 7 companies with zomato.com (57% stake) and meritnation.com (54% stake) becoming subsidiaries in the quarter with ~59% of total investment. For the first time the company shared the financials of all 7 investee companies with a total revenue at Rs1.07bn and operating loss at Rs0.77bn for FY13.
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Estimates lowered; Maintain Neutral: We have lowered our FY14/FY15 revenues by 3% and 1.8% on the back of slowdown in recruitment demand while operating profit has been lowered by 11.2% and 11% respectively on the back of higher A&P spends & other expenditure and lower revenue growth on the back of fixed cost model. PAT has been reduced by 6.2% and 5.8% respectively on the back of higher other income. The stock currently trades at 26.1x FY14E and 21.6x FY15E and we maintain Neutral rating for the scrip with a revised target price of Rs380 by rolling forward our 23x multiple to FY15E EPS of Rs16.5.