A worthy shuffle

SPECIAL REPORT

Infomedia's increased focus on publishing BPO has set the stock ablaze.

After technology enabled services, contract drug manufacturing and auto components, there is an all new segment that is witnessing an outsourcing boom: back-end publishing. Being a niche, the size of the outsourcing market is relatively small at an estimated $250 million, but this is more than sufficient to set the share of Infomedia India on fire.

Over the past one month, the stock has gained 47 per cent rising from Rs 146 to Rs 190, after domestic brokerage Edelweiss Securities published a visit note on the stock pointing to a favourable change in the business mix.

While Infomedia's publishing and outsourcing businesses are growing steadily, the company is hoping to utilise its printing capacity entirely for its own publications, thereby improving margins further.

Currently, the printing division which constitutes 20 per cent of revenues suffers from low margin due to intense competition from the unorganised players.

Infomedia India, now owned by ICICI Ventures, has a business composed of printing, publishing and publishing outsourcing. The domestic publishing business includes business directories and special interest magazines. It forayed into outsourcing by acquiring companies in this space.

In addition to this, the company has a tie-up with the Ringier Group of Switzerland to publish five trade magazines in India and also market advertising space in Infomedia's magazines abroad. 

BOLD NUMBERS
Rs crore	Infomedia India
	FY07	FY08E
Revenue	200.70	241.00
Operating Profit	35.70	46.00
OPM (%)	17.79	19.09
Net Profit	15.41	19.30
NPM (%)	7.68	8.01
EPS (Rs)	7.29	9.13
P/E (x)	26.50	21.20

Besides, Infomedia has a unit called Reed Infomedia, a joint venture with Reed Business Information US (RBI US), a division of Reed Elsevier Group of the UK which will bring over 100 business titles of RBI US to India.

Sourcing growth
Infomedia acquired Bangalore-based Cepha Imaging Systems, and Keyword Group in the UK, to enter the publishing BPO market in FY06. In April 2006, it acquired International Typesetting and Composition's (ITC) operations which has the front-end based out of Florida in the US and the back-end in Noida, India.

ITC is a leading pre-press and publishing services company. Currently, the company provides these services mainly for academic texts and other books published in English. The division employs 700 professionals with various skill-sets.

"The services we provide are in the nature of knowledge process outsourcing (KPO) since we attempt to help publishers in the intervening process from the time an author gives the manuscript till a printer-ready file is created for publishing," says Prakash Iyer, managing director, Infomedia India.

Over the past year, the company's publishing BPO division has witnessed phenomenal growth. In FY06, this division contributed a meagre four per cent to the topline, which rose to 26 per cent in FY07. "After we acquired it, this business has grown close to 40 per cent in just a year," claims a confident Iyer.

The icing on the cake is that this vertical is proving to be the most profitable for the company with operating profit margin in the range of 35-40 per cent. The business has plenty of headroom for growth considering the potential to scale up Infomedia's services in areas like magazine publishing, academic journals and even yellow pages.

Yellow pages and more
Infomedia India has been a pioneer in publishing yellow pages, since 1991. Apart from having a presence in nearly 20 cities across the country, the company has launched exporters' guides, state directories, home, office and city guides and a 24-hour yellow-line, which is a telephonic helpline.

In addition to steering this business into more locations, the company is now looking to leverage its expertise in publishing of yellow pages to outsource similar products to foreign publishers, especially in the US.

Infomedia also publishes special interest magazines and certain other business publications. Currently, it has eight business-to-consumer (B2C) titles, like Overdrive, Cricinfo, Better Photography, Better Interiors, AV Max, T3 and Disney Adventures and 12 business-to-business (B2B) titles including Auto Monitor, Chemical World, Photo Imaging, Modern Textiles, Modern Pharmaceuticals among others.

The company has also launched publications aimed at children under the brand Bright Sparks. Further, leveraging its joint venture with RBI US, Infomedia has brought titles like Logistics in B2B publishing, and the globally successful online directory service called HotFrog. It is now planning to enter the business events segment in order to organise trade fairs and commercial expositions.

Even as Infomedia is re-shaping its business, a key concern is competition from overseas publishers back home. Overdrive and Better Photography have been in the market for more than a decade.

However, these are vulnerable to competition, as more titles are being launched after the government has allowed up to 74 per cent foreign direct investment in special interest publications. To counter competition, the company is looking at launching international titles along with its own titles in the same space.

"Apart from that, we are investing heavily in creating content through a worldwide network of contributors to provide better content to our readers with the right mix of domestic and international content," says Krishna Tewari, general manager - publishing, Infomedia India.

"We also attempt to connect better with our readers by organising events, conferences and trade fairs, such as organising Overdrive rallies," he adds.

So far there seems to be no stress on profitability. Infomedia's topline from domestic publishing business (excluding BPO) grew 19 per cent in FY07.

"While our overall operating profits grew 83 per cent, which was mainly due to the outsourcing business, the operating profit in the core publishing business too grew nearly 25 per cent," says Jayaraman Shashidhar, chief financial officer, Infomedia India.

Valuations
In FY07, the company reported a whopping 53 per cent jump in its revenues, from Rs 131.5 crore in FY06 to Rs 201 crore this year. Its operating profit margins improved from 14.8 per cent in FY06 to nearly 18 per cent.

As the outsourcing business grows, the profitability is expected to improve further. Infomedia's stock trades at 26.5 times its FY07 earnings and 21.2 times its estimated FY08 earnings. Considering the potential for outsourcing and the company's strong magazine titles, profitable growth is assured. After the recent run-up, the stock looks fairly valued. Investors can look at accumulating the stock on dips.