Info Edge saves war chest for rainy days

India's only listed e-com entity is flush with reserves but not loosening these; CEO Hitesh Oberoi says he first wants to see sustainably high growth in the segment

 

At a time when foreign hedge funds and venture capitalists (VCs) are showering cash on Indian start-ups, a company that has built a war chest of about $200 million (Rs 1,172 crore as of this March) has decided not to splurge.

Info Edge (India), better known as the owner of Naukri.com and 99acres.com, has taken a conscious decision to conserve cash amid a slowing real estate market and uncertainties surrounding macro economic growth. The first and only India-listed entity in the e-commerce segment is also taking lessons from the cash burnt by other players in the online realty segment without significant success.

Hitesh Oberoi, managing director and chief executive, is a picture of someone who has been there, done that. He remembers the late 1990s, when the company first raised money. "There were many (dotcoms) which raised millions of dollars but blew it all up in a few months. And, when they went back to raise money again, they couldn't. We survived because we conserved cash," said Oberoi.

A decade and a half later, that experience is guiding Info Edge's strategy. Being a leader in its segment, the company's recruitment vertical (Naukri.com) generates a significant amount of cash surplus every year. The revenue here grew by 19.6 per cent in 2014-15 and the Ebitda (earnings before interest, taxes, depreciation and amortisation) margin was 51.2 per cent, from 49.8 per cent in 2013-14.

"The recovery one is witnessing in Naukri's domestic corporate sales is particularly encouraging. It has been primarily driven by the information technology sector; even the non-IT sectors are showing initial signals of coming out of their slumber," the company said in its latest annual report.

This vertical reported a profit (Ebitda) of Rs 227.9 crore last year, having grown at an annual 20 per cent over the past five years. This business has also benefited from the new mobile platform and introduction of products like the Career Site Manager and the Referral Hiring Platform that "have helped to not only provide enhanced customer usage benefits but also to tap into revenue streams".

"This cash generation gives us the muscle to invest," Oberoi added. About five years ago, Info Edge took a conscious call to diversify. "We had options. One was to take naukri international." They decided against it.

The alternative, which got implemented, was to expand the classified business into other areas and explore investment opportunities in the "internet businesses, not necessarily classifieds". Thus, from being an online classifieds business, Info Edge has transformed into a mother ship of several up-starts that have interests across various segments in the internet business landscape.

It has significant investments in Zomato Media, Applect Learning Systems (Meritnation), Etechaces Marketing and Consulting (Policybazaar.com), Kinobeo Software (Mydala.com), Canvera Digital and Happily Unmarried Marketing. Of the total investment of Rs 690 crore, Zomato accounts for Rs 484 crore or 70 per cent.

While Naukri is a cash cow, this cannot be said about 99acres, Jeevansathi or the other investee companies still in growth mode. As the online housing space began heating up after entities like Housing and Commonfloor entered the fray, having raised millions of dollars in VC money, Info Edge felt their internal accruals might not be enough.

That was when it went for a Rs 750-crore qualified institutional placement. In September 2014, it issued 10.1 million shares at Rs 740 each. On Friday, the shares closed on the BSE at Rs 843.75, valuing the company at over Rs 10,000 crore.

Oberoi said though online realty firms have spent Rs 250 crore every quarter in marketing, they have not been able to make much headway, as "the underlying real estate market is in very bad shape". And, it looks like this is going to be so for some time, especially with uncertainties such as Greece and China looming large. People are throwing money at the problem but that is not going to help, he said.

Even acquisition of a player like Housing.com, which seems to have got into turmoil with the exit of founder Rahul Yadav, seems a difficult option. There are structural and cultural differences and issues these could pose at a time of integration. Though Info Edge is convinced of the long-term potential of the realty space, it feels a lot depends on macro economic growth.

While he doesn't see any major risks to the established recruitment business, sustained high rates of growth are critical for the internet businesses. Until he finds convincing signs of that, Oberoi says he's going to sit tight on his war chest. For, "the last time funding dried up, it did not return for five years".