Info Edge (India) Ltd - Research Report

Private Client Research

Rating

Buy

Sector

BPO/ITeS

Company

Info Edge (India) Ltd

BPO/ITeS


November 21, 2017

Sensex: 33478.35


CNX Nifty: 10326.90

NSE: NAUKRI


BSE: 532777

Reco Price
Rs. 1207
Price Target (1 Year)
Rs. 1450
Upside
20.13%

Date

November 21, 2017

Sensex

33478.35

CNX Nifty

10326.90

Exchange

Code

NSE

NAUKRI

BSE

532777

Stock Data

CMP (Rs)
1201.15
Face value (Rs)
10
52 Week Range (Rs)
1252.90 - 796.20
Market cap (Rs Crores)
14623.25
Price To Book Value (x)
7.24
P/E Ratio (x)
68.95
EV/EBIDTA (x)
42.05

One Year indexed Stock Performance

Info Edge (India) Ltd Sensex
Info Edge (India) Ltd
Return (%)
1m
6m
12m
36m
Absolute
8.29
41.55
29.43
24.94
Sensex
2.99
9.51
29.94
18.15

Shareholders

(in %)
30-Sep
Promoter
41.88
Public
57.97
Others
0.15
Total
100

+91 22 6639 3000

research@stockaxis.com

Diversified segments will lead to key growth in the business

Zomato – a big daddy of food tech:
Info Edge holds 50.1% stake in Zomato, an online food tech company valued at $1 billion. Zomato is the largest restaurant search & discovery platform globally with presence in 24 countries. To prevent Swiggy from pivoting its model to advertisement-based revenue, Zomato has recently launched a zero- commission-based delivery service on its platform. To heighten its focus on purely software subscription and advertising as revenue sources, Zomato recently removed its commissions on table bookings made through its platform. Zomato has more than 10,000 restaurants in four countries accepting reservations through its platform with zero cover charge.

The company incurred a cash level EBITDA loss of Rs. 930 Mn for the same period. Over the years, Zomato has built a well recognized brand franchise and handsome traffic which helps the company to steer the business without too much advertising. This has enabled the company to bring down the burn rates to ~US$ 1 Mn a month. The company has enough cash on its books and management believes they can break-even whenever they want. However, since the business is still in a growth phase, the company is looking to stabilize the current burn rate and focus on expanding its operations. Zomato has its operations spread across 23 countries. At the end of FY17, India accounted for ~50% of the company’s revenue, Middle East (~20%) and Rest of the World (~30%).

Naukri – Not just a cash cow:
Naukri – Info Edge’s recruitment portal – is an established leader in the online job classified space with 70% traffic share. Further, unlike real-estate, online classified dominates the jobs category leaving limited scope for market penetration. Thus, Naukri is often perceived as a mature cash-cow business supporting Info Edge’s other emerging segments and investee companies.

Naukri, with a data base of 54 million CV’s is currently a market leader does a revenue of more than Rs 600 crore with a EBITDA margin of 59% is the only business supporting other ventures of the company.

With much of india’s population is still under 26 and rapid urbanization, there would be higher number of jobs in market and the business would continue to grow.

Company did revenue of Rs 164.8 crores in Q2FY18 and is growing at 15% CAGR. They would be able to clock Rs 750 crores revenue in FY19. The growth should also be supported by higher yield (revenue/client) due to improved product features and better pricing environment, in our view.

99acres: leadership in real estate to lead to financial efficiency:
99acres near term performance will be determined by factors such as revival in real-estate market, easing of interest rate cycle and competitive activity. While these may be difficult to call in the near-term, we believe medium term prospects remain intact. India’s real-estate online classified market offers an estimated Rs 18 bn opportunity by 2020, with a potential 15% five-year CAGR. 99acres, the only listed and one of the largest online real-estate portals in the country has revenue of only Rs 93 crores. Increasing internet penetration is facilitating a structural shift of advertising budget to the online space. However, real estate classified market is still predominantly offline.

Losses narrow down in 99 acres, traction in Jeevansathi continues:
On the non-recruitment business side, revenue growth was broad based across three segments of 99 acres, Jeevansathi and Shiksha, where net sales were up 1.1% YoY to Rs 32.6 crore, ~26% YoY to Rs 17.7 crore and ~7% YoY to Rs 7.1 crore, respectively. Losses continue to narrow down in 99 acres and reported a positive EBITDA in Q2FY18. Provisions write-back of Rs 3.2 crore aided to turn EBITDA positive in 99 acres. Lower advertising expenses in 99 acres mainly contributed to its improvement in EBITDA. However, the management hinted at an up-tick its ad spends from here-on in 99 acres, going ahead. Jeevansathi made an EBITDA loss of ~Rs 3.9 crore (vs. Rs 0.9 crore loss in Q2FY17) while Shiksha posted Rs 1 crore EBITDA profit in the quarter. The management reiterated at aggressive investment in the Jeevansathi and Shiksha business. Going ahead all 3 businesses have prospects to turn positive and this would lead to dispropotionate growth of profits.

 

Industry

The Rs 1000 crores digital classified market in FY11 had drawn attention of various stake holders of e-commerce industry in India. Digital classified market recorded collective revenue of Rs 3200+ in FY17. The impressive growth momentum of the industry is likely to continue in coming 5 years, as the industry matures and stabilizes, with an expected CAGR of 20-22% helping the industry reach to Rs 7900 crores by FY2020.

In light of the current state of the industry, leading players in each digital classified vertical may need to establish, consolidate and enunciate their respective business models unambiguously amongst its important stake holders, especially listing customers, consumer and investor, in order to steer clear of volatility in the industry.

In the backdrop of ongoing trends in the internet space and the in-evitable growth of digital economy, it is expected that the digital classified market will continue exhibiting notable growth across vertical.

Profile

Founded in 1995 by Sanjeev Bhikchandani, Info Edge is a leader in online classified space in India with internet properties across verticals. Info Edge’s businesses can be dissected into three broad categories:

1. Core recruitment business (Naukri.com) - the largest segment for Info Edge and contributes 73% of revenue and 125% of company’s standalone EBITDA (LTM)

2. Internal portfolio of online classified businesses in various categories such as real-estate (99acres. com), matrimonial (Jeevansathi.com), education (Shiksha.com) etc.

3. Investee companies: Info Edge invests in internet start-ups to tap the growing internet market in India. Info Edge has invested INR 7bn till date in internet start-ups. Zomato, a restaurant listing portal, and Meritnation, an online K-12 education services provider, are two of the more successful investments of Info Edge

Profit & Loss Statement:- (Consolidated)

(Rs Crores)

DESCRIPTION Mar-15 Mar-16 Mar-17 Mar-18E Mar-19E Mar-20E
Net Sales 732.49 747.51 887.63 925.00 1010.00 1180.00
Growth (%) 2.05 18.74 4.21 9.19 16.83
Total Expenditure 711.33 667.51 716.58 740.00 808.00 944.00
EBITDA 21.16 80.01 171.05 185.00 202.00 236.00
% Margin 2.89 10.70 19.27 20.00 20.00 20.00
Other Income 94.64 456.09 92.70 100.00 100.00 100.00
Operating Profit 115.80 536.10 263.75 285.00 302.00 336.00
Interest 3.79 3.35 3.94 1.00 1.00 1.00
PBDT 112.01 532.75 259.81 284.00 301.00 335.00
Depreciation 46.94 23.82 32.76 35.00 35.00 35.00
Profit Before Taxation & Exceptional Items 65.07 508.93 227.05 249.00 266.00 300.00
Exceptional Income / Expenses -5.52 -32.23 -32.39 0.00 0.00 0.00
Tax 74.00 57.35 47.80 87.15 93.10 105.00
Profit After Tax -14.44 419.36 146.87 161.85 172.90 195.00
EPS -1.20 34.89 12.13 13.37 14.28 16.11
Source: Stockaxis Research, Company Data

Valuation

We have valued the company in SOTP terms with Price to sales and price to book for subsidiary business. Hence we arrive at a target price of Rs 1450 per share. 99acres, Naukri, Shiksha, jeevansathi is valued at Rs 1090  and zomato is valued at Rs 360 per share.