Info Edge reported a mixed quarter (1QFY14) with relatively healthy
revenue growth of 3.2% Q/Q (after delivering 10% Q/Q growth last
quarter), but meaningful contraction in gross/EBIT margins. Recruitment
services, the largest business of the company, grew 1.8% Q/Q and 7.6% Y/Y.
Naukri.com collections grew 9% Y/Y in the first half of CY13 despite weak
macro environment. However, management suggests that there is no sign of
improvement in hiring activity yet and growth might remain subdued in coming
quarters due to challenged macro environment. Notably, Recruitment Services’
revenue growth is highly correlated to domestic GDP growth and corporate
confidence in the country. Due to Info Edge’s leadership position in this
business, we believe the company is well positioned to benefit
disproportionately as and when GDP growth picks-up. The other smaller
businesses/verticals saw solid growth of 7.6% Q/Q. 99acres had a relatively
muted quarter with flat Q/Q revenues (though up 47% on Y/Y basis).
We maintain our view that Info Edge is best placed to benefit from the
increasing internet penetration and demographic profile of the country due
to its leadership position in two major verticals – recruitment services and real
estate. However, we believe it is a relatively long-term play, and the macro
environment could cause disappointments in the short term.
Info Edge reported EBIT margin contraction of 380 bps Q/Q (from 31.0%
in 4QFY13 to 27.2% in 1QFY14) primarily due to a decrease in gross
margins & increase in advertisement expenses. Gross margins contracted 260
bps Q/Q due to increase in salary costs. Management reiterated that margins are
likely to remain under pressure if revenue growth remains below 20% Y/Y.
Notably, advertising expenses increased meaningfully from 14.1% of revenues
in 4QFY13 to 16.3% of revenues as the company advertised for 99acres,
Jeevansathi.com & Shiksha. The advertisement investments point to longer-term
growth/market-share focus of Info Edge, which is encouraging in our view.
99acres (Info Edge’s online real estate classifieds) reported flat revenue
Q/Q in 1QFY14 (after 48% Y/Y growth in FY13). However, we remain
confident about the long-term growth potential of this business given Info
Edge’s leadership position in this under-penetrated market. Management plans
to continue investing in advertising/brand and product development to maintain
leadership in this business.
Investment view: Retain OW with our Mar-14 PT of INR 360. Recruitment
Services accounts for most of the value, and 99acres the remainder.
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revenue growth of 3.2% Q/Q (after delivering 10% Q/Q growth last
quarter), but meaningful contraction in gross/EBIT margins. Recruitment
services, the largest business of the company, grew 1.8% Q/Q and 7.6% Y/Y.
Naukri.com collections grew 9% Y/Y in the first half of CY13 despite weak
macro environment. However, management suggests that there is no sign of
improvement in hiring activity yet and growth might remain subdued in coming
quarters due to challenged macro environment. Notably, Recruitment Services’
revenue growth is highly correlated to domestic GDP growth and corporate
confidence in the country. Due to Info Edge’s leadership position in this
business, we believe the company is well positioned to benefit
disproportionately as and when GDP growth picks-up. The other smaller
businesses/verticals saw solid growth of 7.6% Q/Q. 99acres had a relatively
muted quarter with flat Q/Q revenues (though up 47% on Y/Y basis).
We maintain our view that Info Edge is best placed to benefit from the
increasing internet penetration and demographic profile of the country due
to its leadership position in two major verticals – recruitment services and real
estate. However, we believe it is a relatively long-term play, and the macro
environment could cause disappointments in the short term.
Info Edge reported EBIT margin contraction of 380 bps Q/Q (from 31.0%
in 4QFY13 to 27.2% in 1QFY14) primarily due to a decrease in gross
margins & increase in advertisement expenses. Gross margins contracted 260
bps Q/Q due to increase in salary costs. Management reiterated that margins are
likely to remain under pressure if revenue growth remains below 20% Y/Y.
Notably, advertising expenses increased meaningfully from 14.1% of revenues
in 4QFY13 to 16.3% of revenues as the company advertised for 99acres,
Jeevansathi.com & Shiksha. The advertisement investments point to longer-term
growth/market-share focus of Info Edge, which is encouraging in our view.
99acres (Info Edge’s online real estate classifieds) reported flat revenue
Q/Q in 1QFY14 (after 48% Y/Y growth in FY13). However, we remain
confident about the long-term growth potential of this business given Info
Edge’s leadership position in this under-penetrated market. Management plans
to continue investing in advertising/brand and product development to maintain
leadership in this business.
Investment view: Retain OW with our Mar-14 PT of INR 360. Recruitment
Services accounts for most of the value, and 99acres the remainder.
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