99acres impacts operating performance - Info Edge :: Centrum

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99acres impacts operating performance



We maintain BUY rating on Info Edge as we believe the core business of
recruitment continues to grow at 18-20% with stable margins. Though
Zomato has contributed to the company, we believe success in other
investee companies will offer significant upside. We believe the
company is favorably placed to capture the opportunity in the online
real estate space in the medium to long term despite recent slowdown
in the market and hyper competition increasing near term A&P spends.
We have cut our estimates on the back of lower revenue growth and high
expenses but maintain Buy with a target price of Rs1030.

$ Q3FY15 result highlights: Info Edge posted revenue growth of 18.1%
to Rs1457mn on the back of healthy increase of 19% YoY in recruitment
business and mere 15.5% YoY (lowest in last 20 quarters) growth in
other verticals. Operating profit declined by 14% YoY (12% below
expectations), as A&P expenses increased by 55%YoY while employee cost
was up by 30% as headcount increased by 32% YoY. Though operating
margins in the recruitment vertical was at 49.8%, other verticals
posted operating loss of Rs184mn (Rs144mn loss in 99acres). PAT was up
~20% on the back of high other income.

$ Guidance of 18-20% growth in recruitment vertical: Management has
guided for 18-20% revenue growth for the recruitment vertical for the
next 2 years. We believe with the upturn in the economy, new product
launches and client additions will spur growth. While IT sector has
grown at a healthy pace, we believe other sectors will follow suit in
the near term. With market share of ~65-70%, we expect the company to
maintain margins in ~50% range.

$ Double whammy impacts 99acres: Revenue growth in 99acres slowed down
to 20%YoY (lowest in past years) during the quarter as key cities
including NCR, Mumbai, Chennai did not show much activity in the real
estate sector due to uncertain market conditions. At the same time,
hyper competition from recently funded portals resulted in higher
client acquisition cost impacting operating performance wherein
operating loss was the highest ever at Rs144mn. However, we believe
with ~30-35% market share, new product launches such as listings
verification, new UI design, analytics and focus on mobile phones (30%
traffic) will help the company in the medium to long run.

$ Valuation & Risks: We have revised our revenues lower by 1.7%/3.2%
for FY15E/FY16E on the back of slower traction in new verticals such
as 99acres, jeevansaathi and shiksha. EBIDTA has been cut by 10%/12%
for FY15E/FY16E factoring in higher A&P spends and employee cost while
earnings have been cut by 8.6%/12.6% over the same period. We value
the core recruitment business at 35x Dec’16E EPS and arrive at
Rs565/share while other businesses, investee companies and cash are
valued at Rs464. We maintain Buy rating on the stock with a downside
risk of continuing hyper competition in the real estate space coupled
with write offs in investee companies.



Thanks & Regards