Buy Info Edge India - Current weakness is a BUY opportunity - ICICI Securities

Reason for report: Q1FY13 result review and earning revision

Info Edge's Q1FY13 revenue growth of 22% YoY to Rs1.06bn and PAT growth of 24% YoY to Rs318mn were in line with our estimates. However, EBITDA margin at 34.8% was lower than our expectation of 37.5%, due to higher advertising expenses and admin overheads. naukri.com grew a healthy 20% YoY despite the uncertain environment and maintained its market leadership with traffic share in the range of ~60%. The management has hinted towards a weakening recruitment scenario as reflected in the deferred sales revenue, which grew only 17% YoY (vs >30% in the past eight quarters) and declined 7% QoQ to Rs1.11bn. 99acres.com grew a robust 47% YoY (though with increased advertising expenditure) and posted an EBITDA loss of Rs9mn. Revenues from jeevansaathi.com grew 15% YoY with realisations improving 20.5% YoY owing to better product mix. We tone down our FY13-14E revenue growth estimates for the recruitment business from 23% to 20%, cut our revenue/EPS estimates by 3-6%, and reduce our DCF-based target price to Rs419 (from Rs438 earlier). Any weakness in the stock owing to near-term macro slowdown should be used to BUY, as we believe the company would emerge stronger (as seen during last slowdown when traffic share in naukri.com improved from 50-55% to >60%). The stock is currently trading at 25xFY13E - 30% lower than its average P/E.

- Recruitment revenues grew a healthy 19.1% YoY to Rs834mn with a 50% EBITDA margin. Revenues from naukri.com grew 20% YoY with a 55% EBITDA margin, while Quadrangle revenues declined 33% YoY owing to weakness in the recruitment market.

- Recruitment market not as weak as seen during the earlier slowdown during the H2FY09-H1FY10 period. Deferred sales revenue had declined by 20-25% YoY during that period, while it has grown 17% YoY in Q1FY13 - although lower than the >30% growth seen during FY11 and FY12. Also, we believe product upgrades and pricing continue to be stable as of now. Besides, the company enjoys flexibility to tweak its advertisement spends.

- 99acres.com revenues grew a hefty 47% YoY post a 52.2% YoY growth in FY12. Increased advertising has helped boost revenue growth despite the fact that the key market for 99acres.com, i.e. the NCR, was under stress through the past year. The segment posted a loss of Rs9m in Q1FY13 due to higher thrust on advertising. We expect revenues from 99acres.com to pick pace given the improving real estate scenario in the NCR region (especially Noida) post the recent resolution of some real-estate development related legal issues and the company planning to increase its visibility in tier-2 towns as well.

- jeevansaathi.com revenues grew 15% YoY with realisations improving 20.5% YoY owing to better product mix. The segment posted a loss of Rs25mn primarily on account of higher advertising expenses. The company has plans to continue with its advertising strategy in order to increase market share.

- No investment was made in investee companies during Q1FY13 though Info Edge will invest on need basis during the year.

- Valuation methodology and key risks - We maintain BUY on Info Edge with a revised DCF-based target price of Rs419 (from Rs438 earlier). The key risks to call are: lower growth in the recruitment business, and higher losses in the non-recruitment business / early start-ups.

Source : Equity Bulls

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