Info Edge:: Centrum

Low A&P spends boost margins
We maintain Hold rating on Info Edge given the uncertainty in the recruitment
business, continued losses in non-recruitment vertical and expectations of further
investment in Zomato. Q2FY14 results were above expectations on the back of
strong 44.8% growth in non-recruitment vertical and A&P mere 11.2% of sales (2nd
lowest in 30 quarters) helped the company post 19.3% YoY (13.5% above
expectations) increase in operating profit with PAT being flat on the back of lower
other income and high taxes. We believe the growth in the recruitment vertical was
due to an increase in market share and healthy demand from IT services vertical
even though the environment continues to remain challenging.

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 Q2FY14 results above expectations: While revenue growth was marginally stronger
than we anticipated (up 14.6% YoY; 1.4% above expectations), we were surprised by
44.8% YoY growth in non-recruitment businesses even though recruitment business
growth was mere 8.3% YoY, in-line with expectations. Operating profit was up 19.3% YoY
on the back of 141bps expansion in operating margins on the back of just 1.1% YoY
increase in A&P spends during the quarter. Lower other income (down 18.5% YoY)
coupled with higher tax rate (31.8% vs 26.9%) resulted in flat PAT.
 Recruitment business continues to grow in single digits: In an uncertain market, the
company was able to gain market share from competitors both in terms of traffic (64-
65%) and value which helped the recruitment business grow by 8.3% YoY during the
quarter with collection growth for Naukri in 9MCY13 being ~9% YoY. Management
believes that the competitive position of Naukri continues to remain strong with healthy
demand from IT services during the quarter with IT share at ~26.5% (up from~25.5% in
Q2FY13).
 Lower losses in non-recruitment business help in margin expansion: A&P spends at
mere 11.3% of sales (2nd lowest in last 30 quarters) helped the company reduce losses in
non-recruitment businesses to Rs22mn and expand blended margins by 141bps. Entry
into new cities and investment in sales force helped the company post 57%YoY growth in
99acres.com with an operating loss of Rs10mn. Management continues to remain upbeat
on this business as online accounts for less than 10% of Rs20bn print market for real
estate. Revenue growth in jeevansaathi was mere 16% YoY with losses at Rs8mn. We
believe losses in non-recruitment businesses would continue in FY15.
 Valuations & Risks: We have marginally increased our operating margins on the back of
lower A&P spends. Despite 12% increase in stock price in last 1 month, we maintain Hold
rating with a target price of Rs360 (22x Sept 2015) given the uncertainty in the
recruitment business, continued losses in non-recruitment vertical and expectations of
further investment in Zomato. Key upsides could be faster than expected recovery in
recruitment business and turnaround in non-recruitment businesses.