Macro continues to dampen recruitment business
We maintain Hold rating on Info Edge due to the challenging macro environment
impacting recruitment business as seen in Q3FY14 results where revenue growth
was 10.8% (collection growth 9-10%). Despite 99acres posting marginal operating
profit in the quarter, we believe the company will continue to invest in the vertical
to maintain market share in the highly competitive category. With 66% rally in the
stock price in the past 3 months on the back of expectations of quick recovery in
the recruitment business, investment in Zomato and strong profitable growth in
99acres, we believe there is no room for earnings upside and hence maintain Hold
rating on the stock
Q3FY14 results in-line with expectations: Revenue growth of 15.9% for the
company was in-line with expectations at Rs1234mn (estimate of Rs1234mn) on the
back of 10.8% YoY growth in recruitment business and 33.5% YoY growth in the nonrecruitment businesses. Operating profit was up 18.6% YoY on the back of 76bps
expansion in operating margins as admin & other expenses grew by mere 9% YoY.
Lower other income (down 12.8% YoY) coupled with higher tax rate (31.8% vs 29.6%)
resulted in PAT growing by mere 4.6% (4.2% below expectations).
Recruitment business posts double digit growth: Recruitment business posted
10.8% YoY revenue growth (~9-10% collection growth) on the back of healthy
growth in IT sector during the quarter and gain in market share from competitors.
Recruitment margin was up by 208bps on the back of lower ad spends in the
quarter. The company also launched an android app and a career site manager in
the period. Management expects future growth to depend on GDP growth rate.
99acres posts marginal profits: Though non-recruitment business posted an
operating loss of Rs32mn, 99acres posted operating profit of Rs4mn on the back of
39% YoY revenue growth coupled with lower A&P spends. Management expects to
invest in this business on new product development (android app, map search and
listing verification service), expanding in cities and brand building. Revenue growth
in jeevansaathi was mere 13% YoY with losses at Rs17mn. We believe losses in nonrecruitment businesses will continue in FY15
Valuation & Risks: We have marginally lowered our sales and operating profit on the
back of lower traction in recruitment business. We maintain Hold rating with a revised
target price of Rs525 on our SoTP valuations given the uncertainty in the recruitment
business on the back of sub 5% GDP growth rate, continued losses in nonrecruitment vertical and 66% increase in stock price in the past 3 months. Key upsides
could be faster than expected recovery in recruitment business and turnaround in
non-recruitment businesses
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We maintain Hold rating on Info Edge due to the challenging macro environment
impacting recruitment business as seen in Q3FY14 results where revenue growth
was 10.8% (collection growth 9-10%). Despite 99acres posting marginal operating
profit in the quarter, we believe the company will continue to invest in the vertical
to maintain market share in the highly competitive category. With 66% rally in the
stock price in the past 3 months on the back of expectations of quick recovery in
the recruitment business, investment in Zomato and strong profitable growth in
99acres, we believe there is no room for earnings upside and hence maintain Hold
rating on the stock
Q3FY14 results in-line with expectations: Revenue growth of 15.9% for the
company was in-line with expectations at Rs1234mn (estimate of Rs1234mn) on the
back of 10.8% YoY growth in recruitment business and 33.5% YoY growth in the nonrecruitment businesses. Operating profit was up 18.6% YoY on the back of 76bps
expansion in operating margins as admin & other expenses grew by mere 9% YoY.
Lower other income (down 12.8% YoY) coupled with higher tax rate (31.8% vs 29.6%)
resulted in PAT growing by mere 4.6% (4.2% below expectations).
Recruitment business posts double digit growth: Recruitment business posted
10.8% YoY revenue growth (~9-10% collection growth) on the back of healthy
growth in IT sector during the quarter and gain in market share from competitors.
Recruitment margin was up by 208bps on the back of lower ad spends in the
quarter. The company also launched an android app and a career site manager in
the period. Management expects future growth to depend on GDP growth rate.
99acres posts marginal profits: Though non-recruitment business posted an
operating loss of Rs32mn, 99acres posted operating profit of Rs4mn on the back of
39% YoY revenue growth coupled with lower A&P spends. Management expects to
invest in this business on new product development (android app, map search and
listing verification service), expanding in cities and brand building. Revenue growth
in jeevansaathi was mere 13% YoY with losses at Rs17mn. We believe losses in nonrecruitment businesses will continue in FY15
Valuation & Risks: We have marginally lowered our sales and operating profit on the
back of lower traction in recruitment business. We maintain Hold rating with a revised
target price of Rs525 on our SoTP valuations given the uncertainty in the recruitment
business on the back of sub 5% GDP growth rate, continued losses in nonrecruitment vertical and 66% increase in stock price in the past 3 months. Key upsides
could be faster than expected recovery in recruitment business and turnaround in
non-recruitment businesses
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