Info Edge’s 4QFY18 revenue was largely in line with our estimate but EBITDA/EBITDA margin were sharply lower on account of higher advertising & promotion expenses at 20% of revenue vs. 11% historically.
Stronger growth in 99acres and positive management commentary on likely bottoming out of growth in the business was a key positive in Info Edge’s 4QFY18 results. While EBITDA/EBITDA margin were well below estimate due to higher ad spend, we believe this is not much of a concern and if anything signals improved outlook. In Naukri business, however, growth was slightly below estimate and commentary on IT sector hiring remained cautious.
Higher ad spend leads to miss in Ebitda: Info Edge’s 4QFY18 revenue was largely in line with our estimate but EBITDA/EBITDA margin were sharply lower on account of higher advertising & promotion expenses at 20% of revenue vs. 11% historically. Mgmt attributed this to ad campaigns across Naukri, 99acres and Jeevansathi. Write-off of investments led to a large exceptional loss. Company declared a final dividend of Rs 1.5/share taking full year dividend to Rs 5.5 vs. Rs 4.5 last year.
Strong growth in 99acres; management suggests green shoots: Revenue from 99acres grew sharply at 36% YoY vs. our estimate of 25% and was the key positive surprise. Management commentary also suggested bottoming out of growth in 99acres as RERA related uncertainty is easing off. However, we do note that low base of last year has helped to some extent — 2- year cagr was a more reasonable 15%.
Slight miss in Naukri growth; commentary cautious on IT sector: Growth in Naukri at 13% missed our estimate of 15%, on the other hand. Management commentary also pointed towards continued weakness in hiring activity in the IT sector, which accounts for 40% of its revenue.
Key takeaways from earnings call: 1) Management guided for continued higher advertising & promotion spend in 99acres and Jeevansathi, at least in 1QFY19; 2) Zomato will focus on growing the delivery business in the near-term; burn is likely to be higher as a result.
Tweaking estimates; maintain Hold: We marginally raise our revenue estimates mainly on account of 99acres but cut near-term margin to factor in higher ad spend. Risk-reward is balanced in our view.
Valuation/Risks: Our price target of Rs 1,260 is based on SOTP valuation of different businesses. Key risks: 1) Faster /slower than expected revenue growth, margin in Naukri/99acres/Zomato; 2) higher/lower value of investments; 3) consolidation/disruption leading to substantial gain/loss of market share.
Company description: Info Edge India operates as an on-line classifieds company. Its key websites are Naukri, 99acres and Jeevansathi. It also has stakes in a number of investee companies including Zomato and Policybazaar.