99acres’ billings collapsed in April 2020 to Rs 1 crore, this is indicative of the sharp stress being seen by both developers and brokers.
In an update on the impact of Covid-19 on its business, Info Edge has indicated that collections for Naukri and 99acres have declined meaningfully compared with FY20 run rates. Collections and revenues may remain muted in H1FY21 on weak hiring activity and real estate demand. We cut EPS estimates by 23-48% for FY21-22 as we bake in the impact of Covid. Our SoTP-based FV consequently gets revised down to Rs 2,130 (Rs 2,470 earlier). ‘Sell’ stays.
Info Edge has indicated substantial impact of Covid on its Naukri business. It has pegged ~13% y-o-y growth in collections till mid-March, however, lockdowns and the resultant slowdown in business led to a collections shortfall of `40-45 crore, thereby resulting in a 6% y-o-y decline in Q4FY20 billings.
Further, compared with the monthly billing of `81 crore in Q4FY20, April 2020 billings were down to Rs 31 crore, implying significant slowdown in business. We believe this trend may not change for the next 2-3 months as businesses freeze hiring and/or retrench employees. It is thus logical that there may be loss of customers as well as pricing pressure for Naukri. Naukri’s job speak index also suggests a significant decline in job postings and queries. We expect some recovery in H2FY21 as business activity normalises and hiring activities resume.
99acres’ billings collapsed in April 2020 to Rs 1 crore, this is indicative of the sharp stress being seen by both developers and brokers. While revenues were still at ~80% of monthly run rate witnessed in Q4FY20, we believe poor collections are indicative of a substantially weaker revenue trend going forward. 99acres collections may take time to recover as real estate activity may remain low for some time and customer interest in new purchase may also remain low.
We see headwinds to Naukri’s revenues in H1FY21, given an expected weakness in hiring activity by IT and other companies. We do expect a recovery in FY22, in line with resumption in economic activity. We expect the company to tighten its cost controls, with fixed cost for FY21 remaining within guided levels of Rs 600 crore annually.
Downward revision to revenue estimates negatively impacts margins and drives a 23-48% cut in FY21-22E EPS. We retain our SoTP-based valuation methodology, and revise down our FV to Rs 2,130. We like Info Edge’s market leadership position as well as focus on growth, but the stock price more than factors in all positives. ‘sell’ stays.