Analyst Corner: Maintain ‘neutral’ on Info Edge, target price Rs 5,440

By: |
February 18, 2021 9:17 AM

Billings fell 31% YoY in 1HFY21. The same reflected in the 15% revenue decline during 3QFY21, given the subscription-based model of the business.

info edgeStrong traction in traffic for Naukri/99acres should eventually translate in billings growth and revenue.

Billings fell 31% YoY in 1HFY21. The same reflected in the 15% revenue decline during 3QFY21, given the subscription-based model of the business. However, in 3QFY21 billings grew strongly by 19% QoQ, boding well with our assumption of a gradual increase in revenue going forward. Increase in margin by 5pp QoQ, despite a similar run-rate in advertisement spends (~Rs 500m), was a result of operating leverage in the business. While losses from investee companies fell by 40% YoY to Rs 940m, it was flat sequentially, highlighting a new normal for Zomato’s unit economics.

Strong traction in traffic for Naukri/99acres should eventually translate in billings growth and revenue. Given the company’s market positioning, multi-dimensional growth may be expected across its core businesses in the medium-to-long term. We expect long-term growth trends to play out at its operating entities, whose margin continue to inch-up on high operating leverage. Led by an inclination for profitability in investee companies, we expect consolidated losses to be curtailed over time. We value its operating entities using DCF valuation, with WACC of 11% and terminal growth rate at 5%. Our SoTP-based valuation indicates a target price of Rs 5,440 per share.

Maintain ‘neutral’.

Standalone revenue stood at Rs 2.7 bollion, up 6.3% QoQ, but down 15% YoY (a 3% miss to our estimate of `2.8 billion). The revenue decline was a function of 18%/23% fall in the recruitment/real estate segment. This was partially offset by an 18% YoY increase in other businesses (Jeevansathi and Siksha).

Billings stood at Rs 2.9 billion, an increase of 19% QoQ, but flat YoY. Billings for Naukri/99acres came in flat YoY at `2 billion/Rs 0.5billion . EBIT margin rose +5pp QoQ (and -9pp YoY) to 21%, 200bp above our estimate of 19%, on lower than expected employee cost. Advertisement and promotion expenses stood at 18.5% of revenue, against 19.6% in 2QFY21. Employee cost declined 4% QoQ (and 3% YoY) against our expectation of +3% QoQ. PAT fell 23% YoY, but was up 37% QoQ, to Rs 699 million on higher other income and lower ETR.

(20% v/s our estimate of 25%). During 3QFY21, net loss from investee companies stood at INR 940.2m as compared to a loss of INR1.5b in 3QFY20. Reduction in losses was led by lower burn in Zomato.

Recruitment. Billings in 3QFY21 stood at INR2.1b. The management said there has been a good recovery in collections and billings. On a YoY basis, collections for Dec’20 were higher. Dec’20 also witnessed a peak in activity. Naukri is seeing a massive growth in traffic. On the job seeker site, all metrics are growing at a healthy rate. 99acres. All business verticals in this segment saw a recovery.

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