Info Edge - Q4FY12 Result update - Centrum

Strong performance

Info Edge's Q4FY12 numbers were better than expectations on the back of strong revenue growth across verticals in a challenging environment. Increasing market share in nauki.com to 61% has helped the company post best ever margins and benefit from operating leverage. High deferred sales revenue will continue to boost revenue growth going forward. Hence we upgrade the stock to Hold.

- Strong revenue growth: Info Edge posted 30% YoY revenue growth on the back of 27% YoY growth (13.6% QoQ) in the recruitment vertical. Operating profit was up by 48% on the back of 493bps margin expansion while PAT was up by 49.8%. The company continues to maintain that they faced challenges in collection and could not meet internal revenue targets. However, the operating matrix continues to be strong currently with strong client addition along with stable pricing. However, with pressure building up for growth, we expect pricing to drop marginally in coming quarters. Deferred sales revenues continue to be strong at Rs1189mn.

- Other businesses continue to lose money: The non-recruitment business continues to grow at a healthy pace of 42% YoY at Rs211mn. 99acres grew by 63% and posted a marginal profit during the quarter. Jeevansaathi grew by 4% on the back of price increase while losses continue to be high both for Shiksha and Jeevansaathi, dragging profitability downwards. According to management estimates, the six invested companies posted revenue of Rs460mn with operating loss of Rs500mn. The company expects its share of PAT loss for FY12 to be ~Rs170mn.

- Steady margins expansion: Info Edge posted its best ever operating margin at 40.1% on the back of controlled admin and other expenses. Recruitment margins were at 55% which we believe have peaked. We expect the operating leverage to benefit only if revenue growth is upwards of 20%. The management intends to spend more on brand building and gaining market share in the slowdown which would increase A&P going forward. Nonrecruitment losses having been under control, we expected margin expansion to take place.

- Valuations Expensive; Upgrade to HOLD: In the current economic situation with GDP growth rates between 6.5-7% we believe the 20%+ growth is sustainable in the recruitment vertical. We have increased our FY13/FY14 estimates by 19% on the back of higher revenues and better margins. Hence we upgrade the stock to HOLD and with a target price of Rs733 (24x FY14E EPS of Rs30.5).

Source : Equity Bulls

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