Info Edge - Pressure to continue - Centrum

Info Edge posted Q2FY13 results below expectations with topline growth of 17%. Recruitment business is under pressure as collection growth for Naukri corporate sales was zero as business confidence continued to decline and hiring decision was postponed. Nonrecruitment business continued to be in the investment mode as the company increased brand building expenditure. Maintain Neutral rating on the stock.

- Results marginally lower than expectations: Info Edge posted 17% YoY increase in revenues to Rs1078mn (Rs1103mn Centrum estimates) on the back of weak 11.6% growth in recruitment revenues and 41% increase in non-recruitment revenues. Operating profit was up by 12% to Rs370mn while margins declined by 163bps YoY and 39bps sequentially as the company had 40% YoY increase in admin & other expenses and 25%YoY increase in headcount. Recruitment business operating margins was at 50% (up 141bps YoY) while losses in the new business was at Rs53mn (from loss of Rs41mn in Q2FY12). PAT for the company was at Rs333mn (up 18% YoY).

- Recruitment business under pressure: The management maintained that in the current economic environment the recruitment business remained challenging and collection growth was under pressure. Collection growth for the quarter was at 11.6% while for Naukri corporate sales were flat. Deferred sales revenue was at Rs1024mn (down 7.8% QoQ). As business confidence continued to remain low and decline, we believe the recruitment business growth rates would come under pressure going forward. The management believed that Q3FY13 results would also be under pressure as recruiters who buy the Naukri packages have been significantly hit in the slowdown.

- Continues to invest in new business: Non-recruitment business grew by 41% YoY to Rs230mn with 99acres growing at 52% YoY to Rs116mn. On the back of increase in advertising and expansion this business posted operating loss of Rs12mn. In jeevansaathi the company posted operating loss of Rs21mn as it advertised on television to increase brand presence while revenue growth was at 25%YoY. In Shikha the growth was 46% YoY on a lower base.

- Maintain Neutral: The stock currently trades at 27.4x and 22.5x 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 been commanding.

Source : Equity Bulls

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