Info Edge - Recruitment business under pressure - Centrum

Info Edge posted Q1FY13 results in-line with expectations with topline growth of 22.2%. Recruitment business is under pressure as collection growth is at 11 quarter low as business confidence continues to decline and hiring decision is postponed. Non-recruitment business continues to be in investment mode as the company increased brand building expenditure. Maintain Neutral rating on the stock.

- Results in-line with expectations: Info Edge posted 22.2% YoY increase in revenues to Rs1059mn (Rs1057mn Centrum estimates) on the back of strong 19% growth in recruitment revenues and 35.3% increase in non-recruitment revenues. Operating profit was up by 16.3% to Rs368mn while margins declined by 176bps YoY and 538bps sequentially as the company had 35% YoY increase in A&P expenses for new businesses and admin & other expenses went up by 26% as headcount increased. Recruitment business operating margins was at 50.1% (up 112bps YoY) while losses in new business was at Rs49mn (from loss of Rs27mn in Q1FY12). PAT for the company was at Rs318mn (up 24.1% YoY).

- Recruitment business under pressure: Management maintained that in the current economic environment the recruitment business remains challenging and collection growth is under pressure. Collection growth for the quarter was the lowest in the last 11 quarters at 6.5% with deferred sales revenue at Rs1111mn (down 6.5% QoQ). As business confidence continues to remain low and decline, we believe the recruitment business growth rates would come under pressure going forward. We have modeled 18% growth in recruitment business for FY13.

- Continues to invest in new business: Non recruitment business grew by 35% YoY to Rs226mn with 99acres growing at 47% YoY to Rs105mn. On the back of increasing head count and advertising this business posted operating loss of Rs9mn. This business could face challenges ahead as there is a significant slowdown in real estate transactions in key markets of Mumbai, Delhi and Chennai. In jeevansaathi the company posted operating loss of Rs25mn as it advertised on television to increase brand presence while revenue growth was at 15% as company increased prices marginally.

- Other highlights: The company is looking to lease a new building with ~1100 seating capacity and 0.15mn sqft in area and is expected to do a capex of Rs400mn for the same in FY13E. The company is also looking to integrate with facebook for naukri.com which could reap benefits in the long term.

- Maintain Neutral: The stock currently trades at 26.2x and 21.5x FY13E and FY14E PE. We continue to value the stock at 23x FY14E EPS of Rs15.8 and arrive at a target price of Rs363 and maintain our Neutral rating on the stock. We believe in this challenging economic environment it would be difficult for the company to continue to post strong revenue growth which would mute outperformance and reduce the premium it has being commanding.

Source : Equity Bulls

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