Info Edge stock rides high on hopes of economic revival, Zomato IPO

Shares have rallied 42% since November to a record high of Rs 5,876.05 on Jan 6, before taking a breather

Recovery in the core business and potential value unlocking for shareholders with the initial public offer (IPO) of online food delivery start-up Zomato have triggered a sharp rally in the shares of Info Edge.

The stock, which corrected from its intra-day all-time high of Rs 5,875.05 to end at Rs 5,044.45 on Friday, is still up 42 per cent since the beginning of November and has more than tripled from its March 23 lows of Rs 1,580.

Info Edge is one of the key players in India’s online classifieds industry on the back of its well-established classifieds and related services offerings in the recruitment, real estate, and matrimonial segments. It also has investments in at least 23 start-ups, including a 22 per cent stake in Zomato.

The recruitment vertical, Naukri.com, accounts for 70 per cent of the company’s standalone revenue and is the market leader with more than 90 per cent domestic traffic share as of March 2020. 

Recovery in Naukri’s prospects is a function of improvement in the domestic economy.

“As gross domestic product (GDP) growth revives in India, it would directly benefit Info Edge’s recruitment segment growth, which has had a seven-eight percentage point (pp) historical multiplier effect for every one pp uptick in GDP growth,” said Anmol Garg, research analyst, Motilal Oswal Securities. This should be compounded by a pickup in demand for IT resources, adds Garg.

IT services and technology start-ups contribute 43 per cent of Naukri’s revenue. Large deal wins and sustained demand momentum are seen aiding hiring activity in the segment, which is a positive say analysts.

Notably, despite several setbacks in recent years, the company has managed to grow its real estate search portal 99acres.com, and helped it break-even. A weak real estate market though meant growth remained subdued. However, analyst remain bullish over the long-term prospects of this business.

“The company is seeing improved trajectory in smaller towns; owner listing and brokers are spending higher time on websites,” said ICICI Direct. While a complete recovery will take time, improving trends are visible in 99acres. With growing internet usage, the domestic brokerage expects 99acres to see improved performance in the long term.

Media reports suggesting the Zomato’s listing later this year and potential value unlocking for Info Edge’s shareholders have only added to the optimism.

Zomato has seen a spurt in demand on account of restrictions on movement and higher preferences for ordering food online. Deepinder Goyal, chief executive officer at Zomato, in a recent tweet said the company reported a 60 per cent year-on-year (YoY) jump in gross merchandise value (GMV) on New Year’s Eve.

Despite strong growth in revenue, the company, however, reported net losses. One reason for this extreme bullishness, according to experts, is the Street giving a higher multiple to Internet-based businesses, as seen with the recent listing of DoorDash, an American online food delivery firm.

But, here’s a word of caution. Even as investors continue to bet on Internet and technology-related stocks, valuations remain uncomfortably high at the moment, say analysts. On a 12-month forward basis, the Info Edge stock trades at around 160 times, offering limited scope of further upside.

“We believe most of the positives are already in the price and the stock may see a breather before further directional move. We advise investors to wait till the company’s quarterly results are out before making fresh investment decision,” said Ajit Mishra, vice president – research, Religare Broking. Over 60 per cent of analysts covering the stock have either a ‘sell’ or ‘hold’ rating, according to data from Bloomberg.