Volatility may be a good thing for investors considering Info Edge stock

Analysts bullish about holding company of popular websites like Naukri and 99acres despite value erosion of Zomato, Policybazaar, its investee firms

Info Edge, the holding company of Naukri.com, 99acres.com, Shiksha.com and Jeevansathi.com, had a strong April-June (Q1) quarter operationally. However, the share price has seen excessive volatility due to the company’s exposure to investments in Zomato and Policy Bazar, since those holdings have seen sharp value erosion.

Info Edge reported revenue growth of 55 per cent year-on-year (YoY) and 11.4 per cent quarter-on-quarter (QoQ) in Q1, 2022-23, with 67.5 per cent YoY growth in Naukri (a jobs portal). Billings, which is a leading indicator of revenues, grew 67 per cent YoY, off a low base, with Naukri billings growing 65 per cent YoY. The realty play, 99acres, grew strongly as the real estate market remained strong. Info Edge’s Ebitda margin stood at 32 per cent (up 400 basis points QoQ). One contribution to better margin was lower ad expenses on a sequential basis. But in YoY terms, employee expenses increased 45 per cent, while ad expenses increased 90 per cent.

The gain in margins could be sustainable due to the improved share of the profitable recruitment and education verticals. Info Edge is among the few companies on the Indian internet that are cash-flow positive with net cash and investments of Rs 3,500 crore and it paid a dividend of Rs 5 per share in 2021-22. Despite subsequent fall in valuations, the successful listings of investee companies, Zomato and Policy Bazaar, and the partnership with Temasek could be counted as positive developments. Price movements in these have, however, affected sentiment regarding the stock.

Naukri is a leader in the online recruitment space with its broad ecosystem of offerings. The recruitment segment reported billings growth of 65 per cent YoY, while revenues grew by 68 per cent YoY. Stable revenue growth in a highly volatile recruitment market and close to 80 per cent market share is impressive.

The real estate and matrimony portals have not been so successful with increased competition. In matrimony, Info Edge is experimenting with tweaks such as freeing up certain services and focusing on future monetisation rather than trying to generate cash upfront. In Q1, 99acres saw billings go up 173 per cent YoY off a low base, but Jeevansathi (matrimony portal) saw low growth (revenues up 9 per cent YoY), and Shiksha (education portal) was above expectations at +37 per cent YoY. 99acres will continue to see marketing spends to maintain traffic share, and margins would be under pressure in Jeevansathi given the change in strategy.

Demand slowdown in the IT sector remains a key risk, given 60 per cent contributions to revenue. Management guidance is that the recruitment vertical will maintain strong revenue growth in 2022-23, which should drive a revenue CAGR of 30 per cent during FY22-24. Hiring in IT slowed a bit, but remains strong. Non-IT recruitment is returning, with clients hiring across Travel, Hospitality, Education and Retail.

Most analysts have strong buy recommendations with Sum-of-the-Parts valuations ranging from Rs 4,800 to Rs 5,400, implying a decent upside. This is despite lower valuations for Zomato, Policybazaar and other investments, given bearishness in the start-up space.