IT hiring slowdown to hit Info Edge revenues in second half of FY23

Ongoing investments in 99acres amid rising competition may hinder profitability

Led by its recruitment vertical, Info Edge (India) posted better-than-expected performance in the September quarter. The company reported a 47 per cent jump in standalone revenues led by the online hiring segment (Naukri.com) which saw a growth of 56 per cent. The strong growth in the vertical was on account of 16 per cent YoY growth in paying customers while realisations grew 35 per cent. Pperating profit margins for the company also grew sequentially by 250 basis points to just under 35 per cent on the back of lower ad spends and staff costs.

With attrition levels moderating and supply pressures easing, the firm has indicated that there is slowdown in IT hiring. Mukul Garg and Raj Prakash Bhanushali of Motilal Oswal Research believe this will remain a key risk, given that about 60 per cent of revenue contribution to the Naukri business comes from the IT space. The brokerage, which has a neutral rating on the company given rich valuations, expects the recruitment vertical to see flat-to-negative growth in the second half of FY23.

JM Financial Research, however, is bullish about the company. The brokerage says strong billings trends over the past 5-6 quarters (especially in the recruitment business) would continue to support revenue growth in FY23/FY24, even if it is assumed that there will be sharp sequential deceleration in billings growth in the second half of FY23. It expects the standalone business earnings to post an annual growth of 24 per cent over FY22-25.

The performance of the non-recruitment business segments will be key in the near term. For Q2, while 99acres, the real estate portal, saw a sales growth of 44 per cent, Shiksha, the online education vertical saw a 20 per cent growth over the year-ago period. Brokerages point out that 99acres, the market leader in real estate segment, continues to make losses even as sales are expected to remain strong given the uptick in the real estate market.

Garima Mishra and Shubhangi Nigam of Kotak Institutional Equities believe the firm may need to keep its marketing spends at elevated levels (to gain share) as it faces higher competition from players such as Housing, Nobroker, Magicbricks among other companies. While the brokerage has marginally upgraded the revenue estimates for FY23-25 it has cut its earnings estimates for this period by 5 per cent due to higher loss estimates at 99acres.

JM Financial on the other hand believes that strong revenue growth in recruitment should be able to offset continued losses in 99acres/Jeevansathi and lead to standalone business’s margin expansion, they add.

At the current price, the stock which has lost 5 per cent in trade on Tuesday, is trading at 64 times its FY24 earnings estimates. Given that some of the growth expectations are factored into the stock, investors should await a better entry point into the stock.