Info Edge (India) Ltd - Stock Valuation and Financial Performance

Market Cap Rs. 53,565 cr

CMP Rs. 4,155 |PE 18x TTM

Click here for 10 year X-ray

Key Highlights:

• Number of unique customers on Naukri grew by 15.6% YoY and revenue per customer increased by 35.2% YoY.
• Naukri posted an EBITDA of Rs. 254 cr (+61.3% YoY), 99Acres and others (Jeevansathi and Shiksha) reported an operating loss of Rs. 30 cr and Rs. 28 cr, respectively.
• Overall listings on 99acres are down 28% YoY. However, premium listings are seeing good adoption which has led to higher ARPUs.

Management Outlook:

• Naukri.com EBITDA can reach ~70% (currently 61%) but management will continue to invest in new products and hence the margins would be lower.
• Even though 99Acres’ operating loss has widened, it is investing in product development and marketing due to increase in competitive intensity.
• Stake sale in Zomato and PB Fintech will only be evaluated if the company needs to urgently return cash to shareholders or prospects of the investee companies have diminished. Since neither of these conditions are currently present, there is no intent to reduce stake in either of the companies.

Info Edge | Market Cap: Rs. 42,000 Cr

CMP 3350 | P/E 50x FY22

Recommendation | REDUCE/SELL

Results: Info Edge (NSE:NAUKRI) reported 10% decline in sales while operating profit grew 3.5% year on year.

Key highlights:

-       Operating profit grew 3.5% by cutting down advertising and general expenses.

-       Recruiting sales declined 9% while real estate sales declined 25% from previous year.

-       Except recruitment business, other businesses of Info Edge are in nascent stage and not yet profitable. Current spends are done to scale up business in long term.

-       Info Edge has other investments in Zomato (23%) and PolicyBazaar (15%) through minority shareholding. 

-       Cash per share is Rs. 330.

Outlook: Info Edge management expects tepid sales growth in next 2 quarters as they recognized deferred revenues of next two quarters in current quarter. JeevanSathi is doing well while 99Acres is yet to recover to pre-covid levels. Info Edge has raised Rs. 1,875 Cr for through QIP, post which cash on books is almost 330/share which will be solely used for acquisitions.

MoneyWorks4me Opinion: Info Edge is a phenomenal business model with core business as Naukri, 99 Acres, JeevanSathi and holds investment in Zomato, Policy Bazaar. Read more about Info Edge Business model.

We like asset light and strong network effect aka winner takes all business model of Info-edge. Besides, its ability to successfully deploy cash into newer unlisted business also gives a chance to participate in private equity (PE) like investments. We believe that Info-edge is a sort of PE model in listed space. 

Naukri has large % of sales coming from IT companies and future growth in sales won’t be as steep as past due to moderate growth rate of IT sector. Including realization of subscription of Naukri we expect 13% CAGR growth in sales and 16% earning growth over next 5 years. We assign 1-year forward P/E ratio of 30x to Naukri and EV/ Sales of 5x on other directly owned business. We have assumed investee companies’ valuation same as their latest capital raising as the market is assigning the same. (~700/share)

Even after assuming latest capital raising valuation of Zomato and Policy Bazaar, Naukri business trades at elevated 50x P/E ratio. Other businesses including investee companies are not profitable to assign full valuation.

Results: Info Edge (India) Ltd reported 15% growth in sales and 16% growth in operating profit year on year.

Key highlights: 

• Naukri and 99acres reported 13% and 15% growth in sales respectively year on year.
• Jeevansathi (the matrimonial arm of the company) reported 21% growth whereas Shiksha, (the educational arm) reported 15% growth in sales.
• Uber-Eats was acquired by Zomato. Info-edge owns ~30% in Zomato.
• Naukri revenue growth was under pressure due to slowing IT sector hiring which had previously kept the growth momentum going. Operating profit improved due to lower ad-spend and overall cost management.
• 99acres revenue growth sharply decelerated to due to continuing stress in the real estate market. However, paid listings grew by 21% and increased operating profits indicate some benefits of operating leverage and control on ad-spends.

Outlook: The company faced the heat of overall slowdown. Concerns about sectors like real estate, BFSI and auto continue and have also spread to IT, FMCG and retailing. The management said that the expected synergy from Uber-Eats is turning out better than expected. They were able to transfer a significant amount of customers from Uber Eats to Zomato app successfully. Losses at Zomato declined as is visible from a decline in the share of associates’ loss on a sequential basis. Financing issues continue to plague the space for both developers and buyers of homes. Growth is being led by the broker segment that now contributes 53% to overall billings. The company believes that its overall competitiveness is intact and not worried about the methodology change-led decline in traffic share.

We like asset light and strong network effect aka winner takes all business model of Info-edge. Besides, its ability to successfully deploy cash into newer unlisted business also gives a chance to participate in private equity (PE) like investments. We believe that Info-edge is a sort of PE model in listed space. Current stock price has already factored in next 2-3 years of growth rate and upside is limited. If you already own it, you can consider selling it partially or fully. We await better levels to buy Info Edge. 

 About the Company:-

Info Edge (India) Ltd., better known for Naukri.com is engaged in providing online & offline services related to recruitment solutions, matrimony & real estate property listing. The Company operates through its portals such as Naukri.com, Jeevansathi.com, 99 acres.com, shiksha.com & offline portal Quadrangle.com. The company owns 27% stake in Zomato (a restaurant rating & food delivery app) and 24.1% stake in Policy Bazaar (online insurance listing service portal). Also recently company acquired a job portal website- iimjobs.com.

Info Edge (India) Ltd. operates in two business segments through:

• Recruitment Solutions- Company owns a very renowned brand in job searching portals- Naukri.com. It also recently acquired iimjobs.com (specialized for white collar jobs). The source of revenue in this segment is- job posting fees from recruiters & resume writing fees from candidates.
• 99acres- 99acres.com is a real estate property portal used for selling and buying of used or new properties. The source of revenue in this segment is fees charged for listing of property on website.
• Jeevansathi- Jeevansathi.com is a match-making matrimony website. The revenue here comes from subscription fees.

As seen in the above chart, recruitment is the dominant portion of overall business. Naukri.com is the key brand and the driving factor for the growth of the company. Out of the overall traffic on job portal websites, Naukri enjoys ~75%.

One of the strongest theme of about business segment is strong ‘network effect’. Because there are users available on the platform, more users join the platform to ensure they connect to relevant people. Just like we have started using Whatsapp because our friends and family members are already there are Whatsapp. Naukri, 99acres have already signed up quite a few recruiters & employees/Real Estate sellers & buyers early using advertising or incentives. This has led more users signing in and so on. Another classic example of network effect business models are: Facebook, Microsoft Excel, etc.

The success of naukri.com over the years is visible as its sales has grown from 520 Cr to ~800 Cr in 2019. It generates almost 50-55% of sales in cash flows every year. In this year, the cash flow is around 450 Cr. This steady cash flow has provided funding newer ventures like 99acres & Jeevansaathi and also investing in technology based start-ups like Zomato & Policy Bazaar.

However, the other mentioned ventures are not contributing to the value creation due to higher gestation period in technology business. Although on a low base, sales from 99acres has grown at 21% CAGR and Jeevansaathi at 14% CAGR from 2014-15 to 2018-19.

Results: Info Edge (India) Ltd. reported a year on year increase of 19.5% in sales and 20.3% increase in operating profit.

Key highlights: 

• The growth was led by recruitment solutions growing at 18.7% year on year and 99acres growing at 26.2% year on year. The operating profit increased due to decreased marketing expenditure in these two segments.
• Jeevansathi reported revenues growth of 13.1% year on year. The company’s market share is seeing an increase mainly in operating markets of North and West
• Traffic share for Naukri dropped at ~66% (including competitor Indeed). Also, billings in Naukri were impacted by weakness in non-IT segments (mainly in areas of Mumbai) and could be under pressure due to the economic slowdown.
• InfoEdge acquired iimjobs for 80.8 crore, with iimjobs making a revenue of 16 crore and growth of 25% year on year. Acquisition of IIMJobs can add good value to Naukri’s customer offerings and strengthen its position as a leader in the recruitment industry.

Outlook: The Company will continue to invest in ad spends, at least for Naukri, and would also invest in new aspects such as senior hiring and blue collar jobs. Continuity in aggressive marketing spends in the near term owing to competitive intensity would keep Jeevansathi profitability under pressure. Zomato’s cash burn has come down to US$20 million (in October’19) from US$45 million (in March’19). It is focusing on getting more restaurants on the platform and reducing cost of delivery thereby reducing cash burn. The focus of PolicyBazaar is to bring more innovation on the product side. The company would continue to evaluate investment opportunities in other investee companies.