Info Edge's prized assets Naukri, 99acres fall prey to Covid-19, lockdown

Valuations still not fair, given uncertainty over revenues

The Info Edge stock has always appealed to investors, as it has given them access to an array of online businesses. These include recruitment, real estate, education, and food delivery. However, it has also fallen prey to Covid-19 and the resultant lockdown.

Commentary from Wipro suggests hiring will be muted in the near-to-medium term. What’s more, firms across sectors have slashed salaries, which spells trouble for the realty sector. Naukri.com (jobs portal) and 99acres (property portal) together account for 58 per cent of Info Edge’s valuations.

 

Whether the 25 per cent correction in the Info Edge stock — since its 52-week high in February — be construed as a buying opportunity, or whether the 7.6 per cent market-beating gains over the past month be interpreted as fundamentals being intact, are questions investors are facing.

 

Analysts are, however, divided. Those at Motilal Oswal Financial Services have retained their neutral rating on the stock, citing a halt in near-term earnings.

 

 

“Hiring activity had shown early signs of slowing down from January, but the plunge came only in March. The first 20 days of March saw a 5 per cent fall. However, due to the lockdown, a substantial drop was observed in recruitment activity in the last 10 days of March. This resulted in an overall drop of 18 per cent in hiring, year-on-year,” the analysts noted.

In contrast, JM Financial recently upgraded its recommendation on the stock to ‘buy’ from ‘hold’, on expectations that the firm will tackle the crisis better than its peers. The optimism is based on the firm’s track record of dealing with crises, its strong fundamentals, superior positioning across businesses, and a cash cushion of Rs 1,500 crore as of the December quarter.

The brokerage is mindful of the near-term earnings pressure, owing to the pain in naukri and 99acres.
 

JM Financial has reduced its stand-alone revenue estimates for FY20, FY21, and FY22 by 3 per cent, 12 per cent and 14 per cent, respectively, on assumptions that Covid-19 related pressures are contained by June 2020.

These numbers don’t factor in the possible decline in revenues of its food delivery business. Zomato, in which Info Edge owns a stake, adds up to 21.2 per cent of the latter’s valuation.

Under these conditions, even though valuations have moderated to 60x its FY21 estimated earnings (from 85x earlier), the reigning uncertainties doesn’t justify the asking rate yet.