INFOEDGE INDIA LTD : NEXT ALIBABA IN MAKING !!!

Scrip Code: 532777 / NAUKRI

CMP:  Rs. 812.35; Market Cap: Rs. 9,765.75 Cr; 52 Week High/Low: Rs. 1015.05 / Rs. 523.70.

Total Shares: 12,02,16,159 shares; Promoters : 5,33,32,091 shares –44.36 %; Total Public holding : 6,68,84,068 shares – 55.63 %; Book Value: Rs. 64.32; Face Value: Rs. 10.00; EPS: Rs. 12.08; Dividend: 25.00 %; P/E: 67.24 times; Ind. P/E: 40.11; EV/EBITDA:41.60.

Total Debt: 0.48 Cr; Enterprise Value: Rs. 9,648.13 Cr.

INFO EDGE INDIA LTD: Info Edge (India) Ltd was incorporated in 1995 and is based in Nodia, India. Info Edge (India) Limited is an India-based company engaged in the business of providing online classifieds and certain related services. The Company operates its business principally through four different divisions: Naukri.com, Jeevansathi.com and 99acres.com. It provides recruitment classifieds and services through its Naukri.com and Quadrangle business divisions. The company came out with an IPO on November 2006 offering 53,23,851 equity shares of Rs. 10 each for Rs. 320 per share raising Rs. 170.36 Cr, the shares of INFO EDGE got listed on 22 November 2006 at Rs. 623.80 per share. The company has given bonus shares in the ratio of 1:1 in the year 2010 and second bonus shares in the ratio of 1:1 in the year 2012. Info Edge (India) Limited provides recruitment classifieds and related services to job seekers and employers and recruitment consultants through its website: www.naukri.com, as well as through its office network. Through the Quadrangle division, the Company provides executive search services to its various corporate customers in the information technology and information technology-enabled services. Naukri.com is an online job posting website that offers services for recruiters, job seekers, and employers. Jeevansathi.com provides matrimonial classifieds and related services for prospective brides, grooms, and relatives. The Company also offers a real estate classifieds service through its Website: 99acres.com and an education portal Shiksha.com. Info Edge also owns Allcheckdeals.com, an online real estate brokerage firm which is run as a subsidiary company. Company also owns naukrigulf.com in Middle East. It also operates brijj.com, a professional networking site; firstnaukri.com, a fresher hiring site; quadrangle.com, an offline executive search business site; Meritnation.com that offers kindergarten to class 12 assignment and tuitions; and zomato.com, an online food guide portal. The company’s subsidiary as on 31 March 2014 includes: Naukri Internet Services Private Limited and Jeevansathi Internet Services Private Ltd both of which is own internet domain names and related trademarks used in it business, Allcheckdeals.com India Private Ltd, Applect Learning Systems Pvt Ltd which owns and operates meritnation.com, Zomato media Pvt Ltd , MakeSense Technologies Pvt Ltd and Info Edge (India) Mauritius Ltd. Info Edge India Ltd is locally compared with HOMESHOP 18, Justdial Ltd and Globally compared with Monster.com , Seek.com, carsales.com , Truila Inc, HomeAway Inc, Zillow Inc, SouFun Holdings, REA Group, Rightmove PLC, Yelp Inc of USA, Yahoo! Inc of USA, eBay Inc of USA, Googlr Inc of USA, Facebook Inc of USA, Linkedin Corp of USA, Pandora Media Inc of USA, Shutterstock Inc of USA, Sciquest Inc of USA, Zillow Inc od USA, Monster Worlwide Inc of USA, America OnLine from USA, Bazaarvoice Inc of USA, Xo Group Inc of USA, Twitter Inc of USA, Verisign Inc of USA, Yelp Inc of USA, Carsales.com Ltd of Australila, Moneysupermarket.com from UK, XING AG of Germany, United Internet AG of Germany, Opera Software ASA of Norway, Vistaprint N.V. of Netherlands, Baidu Inc of China, Beijing 58 Information and Technology Co Ltd of China, 21Vianet group Inc of China, iProperty Group Ltd of Malaysia, Nifty Corporation of Japan, Wix.com of Israel, Ateam inc of Japan, CROOZ Inc of Japan, F@N Communication Inc of Japan, Infomart Corp of Japan, Excite Japan Co Ltd of Japan, Asahi Net Inc of Japan, Nexyz Corporation of Japan, Drecom Co ltd of Japan, Zappallas Inc of Japan.

Investment Rationale:

InfoEdge (India) Ltd operates a wide range of online websites. It enjoys leadership position in recruitment website-Naukri.com, in property website-99acres.com and is among the top 3 players in matrimony website-Jeevansathi.com. Apart from this, InfoEdge has made significant strategic investments into emerging internet companies like meritnation.com, policybazaar.com, mydala.com, Canvera.com and zomato.com. With its headquarters in Noida (NCR), the company employs over 2,460 people and operates through a network of 57 offices located in 32 cities throughout India. These offices primarily engage in sales, marketing and payment collection activities for company’s businesses. To cater to the Gulf market they have 2 offices in Dubai and 1 each in Bahrain, Riyadh and Abu Dhabi. Recently, in January 2015, its subsidiary in Restaurant listing and review site Zomato.com, has acquired its sixth & biggest overseas acquisition of Urbanspoon, a restaurant information and table booking property. The deal was an all-cash transaction worth $52 million or Rs. 325 crore. This was done from the funds raised in November 2014, where Zomato raised $60 million in a fresh round of funding at a pre-money valuation of $600 million from existing investors Info Edge (India) and Sequoia while adding Vy Capital as a new investor. This transaction instantly inflated Zomato's size by many times over across multiple parameters and most importantly it now marks Zomato's entry into the North American market which was till now dominated by Yelp. Zomato will now have a presence in 500+ cities, 1mn+ restaurant listings, 31mn app downloads, 1.4mn reviews, 80mn+ monthly visits and garner leadership in Canada, Australia and some key cities in the US. Urbanspoon, besides restaurant reviews, also allows users to book restaurant tables with integration of OpenTable to its site. Zomato also has a similar arrangement with OpenTable for certain overseas markets such as the UK. Zomato clocks 3.5 Cr+ visits a month which would rise to 8 Cr+ post the acquisition; its presence would also rise over threefold to over 500 cities against 150 currently with number of restaurants listed increasing to the same extent to over 10 Lakhs restaurants. The biggest differentiator, however, would be that the number of ratings would rise around 9x to 4.3 Cr with number of reviewers rising to over 1.4 million as against 400,000 at present. Urbanspoon is the sixth such deal by Zomato since July of 2014. Zomato also strucked its seventh overseas deal by acquiring Turkey Based resturant search service Mekanist after Urbanspoon later this month. All the Mekanist App users will be able to use the Zomato app and Zomato will cover over 75,000 resturants from the current 27,500 in Turkey and would be serving over 30 lakh user a month. Mekanist is one of the heavyweights in the online resturant search services in Turkey and is also one of the first and most successful tech startup from Turkey. It has 1,90,000 listed establishments such as resturants , cafes, bars along with over 5,00,000 reviews from its 15,00,000 strong signed up user based on web & mobile. Just last December 2014 it acquired Italy-based web and mobile restaurant search services start up Cibando Ltd. for an undisclosed sum. Over the last few months Zomato has acquired four other companies, including MenuMania in New Zealand; Lunchtime in the Czech Republic; Obedovat in Slovakia; and Gastronauci in Poland. To date, Zomato has raised more than $113 million, over multiple rounds of funding from investors including Vy Capital, Info Edge and Sequoia Capital. And definitely this deal benefits in the valuation of Info Edge India Ltd. Info Edge India Ltd, is a clear leader in key online classifieds segments and now is one of the primary beneficiaries of structural shift in ad spends towards online platforms which is clearly driven by increasing smartphone penetration and which is on the cusp of a J curve. 

India is among the world's youngest nations with a median age of 26 years. 65 % of Indian population is estimated to be below 35 years of age and India will have 7 Cr new entrants to its work force over the next 5 years. India currently has about 21.4 Cr internet users, the third largest in the world and is likely to have 33 Cr to 37 Cr internet users in 2015 which would then be the second largest in terms of incremental growth. Currently, as of December 2014 the TRAI reports that India had 85.74 Cr broadband subscribers which was 82.22 Cr - this gives a growth of 4.28 % MoM. The wired subscribers at the end of Dec 2014 was 1.53 Cr, Mobile devices users (Phone & Dongles were 6.99 Cr, Fixed Wireless subscribers (Wi-Fi, Wi-Max,Point-to-Point Radio & VSAT) subscribers at 4,30,000. Now, with declining costs of Internet access and mobile devices, nearly 55 % of aggregate user base in 2015 is expected to have an access to the internet from a mobile or tablet device in India. Economic contribution from Internet in India can be potentially doubled from current 1.6 % of GDP to 2.8 % to 3.3 % by 2015. Internet-related economy is expected to grow bigger than education and as big as healthcare sector in terms of current GDP share. Internet’s effect on the Indian economy goes well beyond iGDP. The Current levels of internet-related expenditure are estimated to create about 60 lakhs direct and indirect jobs. As the direct impact of the internet on India’s GDP has the potential to treble by 2015, an additional 1.6 Cr jobs could be created. Info Edge Lts is a long term play on the internet space in India. With lead in the online recruitment market (through Naukri.com) and presence in the online classified space has the potential to establish a market leading position and grab large pie of increasing online adoption. As various businesses come out of the recent slowdown it is seen that the recruitment industry to grow significantly as it is highly correlated to the economic health of the growth of domestic corporate sector. 

Outlook and Valuation: 

Info Edge (India) ltd is India’s one of the largest leading online company with its strong brands and sustainable growing businesses. It has a very excellent and experienced management team. The company have invested in several internet start-ups ventures. Info Edge’s Naukri has garnered higher market share in this slowdown, also its innovative products helps naukri to combat threat against Linkedin.com, naukri continues to invest in its brand, sales team, customer service, tech and product innovation and support. Info Edge’s 99acre.com is benefiting from the increase in the real estate advertising and has increased its market share. 99acres.com have improved its site by improving user experience- pricing trends, photos and videos, android Apps and the site is now have spread its sales coverage across cities, this has helped 99acres.com to bring in more traffic, 99acre.com soon plans to launch a verified listings. Info Edge’s Jeevansathi.com has leveraged its IP built over last 5 years through investing in brand building. Management will continue to invest its analytics and algorithms. Info Edge’s other brands like Shiksha, FirstNaukri, naukrigulf continues to perform well. Management is committed to invest in potential big businesses of future like zomato, meritnation, policybazaar and is vouching for potential start-ups and M&A’s. On financial side Info Edge posted revenue growth of 18.1 % to Rs. 145.7 Cr on the back of healthy increase of 19 % YoY in recruitment business and mere 15.5 % YoY the lowest in last 20 quarters growth in other verticals. Operating profit declined by 14 % YoY, as A&P expenses increased by 55 % YoY while employee cost was up by 30 % as headcount increased by 32 % YoY. Though operating margin in the recruitment vertical was at 49.8 %, other verticals posted operating loss of Rs. 18.4 Cr including Rs. 14.4 Cr loss in 99acres. PAT was up by 20 % on the back of high other income. Management has guided for 18-20 % revenue growth for the recruitment vertical for the next 2 years. It is believed that with the upturn in the economy, new product launches and client additions will spur growth. While IT sector has grown at a healthy pace, and so it can be safely believed that the other sectors will follow suit in the near term. With market share of 65-70 %, the company can maintain margins in 50 % range. Revenue growth in 99acres slowed down to 20 % YoY which is lowest in past years during the quarter as key cities including NCR, Mumbai, Chennai did not show much activity in the real estate sector due to uncertain market conditions. At the same time, hyper competition from recently funded portals resulted in higher client acquisition cost impacting operating performance wherein operating loss was the highest ever at Rs. 14. 4Cr. However, with market share of 30-35 %, new product launches such as listings verification, new UI design, analytics and focus on mobile phones with 30 % traffic will help the company in the medium to long run. Zomato is focusing on expanding business and this could result delay in breaking even however, Urbanspoon, acquisition is a stepping stone for Zomato in US market giving it a foothold in the US, where Urbanspoon enjoys number two position. Zomato has learnt from the tough experience in the UK, where it found it difficult to expand organically. In terms of business, Urbanspoon serves three million unique monthly visitors or 1/12 of Zomato’s user base. Its valuation of US$52 mn needs to be seen in this context versus US$670 mn valuation of Zomato based on the recent transaction. Info Edge had expected the Zomato business to break even at a top line of Rs. 40. Cr to Rs. 50 Cr. This is in contrast to the current losses at projected topline of Rs. 80 Cr to Rs. 90 Cr in FY2015E. It believes Zomato will leverage its recent acquisitions to cross-sell products and establish a presence in new markets. Presently most of the revenues of the portal come from India and the UAE. However, given that Zomato will need additional funding, there is a chance that INFO EDGE might not be able to retain its 50 % stake in Zomato unless it decides to raise further capital or divert some of the $125mn raised from the recent QIP towards Zomato. The QIP money was raised by Info Edge with the intention of investing into 99acres which is the real estate classified business. Post the last round of fund infusion into Zomato which was in January 2015, INFO EDGE would have Rs. 1060 Cr in cash of which Rs. 750 Cr is earmarked for investment into 99acres. There is a high growth potential of Infoedge to unlock the actual value of the stock over the years to come. Listing of its subsidiaries can also be supporting to the company’s valuation. On SOTP (sum-of-the-parts) basis, the value of INFO EDGE alone comes at Rs. 505.00 per share valueing 29.70 x its FY17E EPS of Rs. 17. The valuation of the Investee comapnies - the value of 99acers comes at Rs. 167 per share, Zomato Media valuing it at 10x to sales having 50 % stake comes to Rs. 178 per share; Applect Learning Systems valuing 6x to sales having 56 % gives Rs. 13 per share; Canvera Digital Technologies valuing 6x to sales having 33 % stake gives us Rs. 35 per share, totaling this gives us the value of its subsidiaries at Rs. 332 per share. And valuing the whole gives us the value of INFO EDGE of Rs. 986.00 per share. It is expected that the company’s surplus scenario is likely to continue for the next three years & will keep its growth story intact for the coming quarters also. 

SOTP VALUATIONS :

Business Subsidiary	Value Per Share (₹)
InfoEdge Standalone	505.00
99acres (Non-Listed)	167.00
Zomato (Non-Listed)	178.00
Applect Learning Systems (Non-Listed)	13.00
Canvera Digital Technologies (Non-Listed)	35.00
Other Investments	88.00
TOTAL	986.00

KEY FINANCIALS	FY14	FY15E	FY16E	FY17E
SALES (₹ Crs)	505.09	604.70	736.50	891.70
NET PROFIT (₹ Cr)	128.50	155.70	203.80	251.70
EPS (₹)	11.80	13.00	17.00	21.00
PE (x)	74.00	62.30	47.60	38.50
P/BV (x)	11.60	6.00	5.50	5.00
EV/EBITDA (x)	47.90	44.10	34.40	26.60
ROE (%)	18.40	13.10	12.00	13.50
ROCE (%)	14.30	9.30	8.30	9.50

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