INFOEDGE INDIA LTD (Naukri.com) : BEST E-COMM STOCK TO OWN !!!

Scrip Code: 532777 / NAUKRI

CMP:  Rs. 809.05; Market Cap: Rs. 9,782.72 Cr; 52 Week High/Low: Rs. 938 / Rs. 688.10.

Total Shares: 12,09,16,159 shares; Promoters : 5,21,25,403 shares –43.10 %; Total Public holding : 6,87,90,756 shares – 56.89 %; Book Value: Rs. 137.54; Face Value: Rs. 10.00; EPS: Rs. 13.78; Dividend: 30.00 %; P/E: 58.85 times; Ind. P/E: 25.93; EV/EBITDA: 38.04.

Total Debt: Rs. 0.70 Cr; Enterprise Value: Rs. 9,747.81 Cr.

INFO EDGE INDIA LTD: Info Edge (India) Limited was incorporated in 1995 and is based in Noida, 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 2016 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 Infibeam, 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. 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. 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 and Urbanspoon. The Information Technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India's economic growth. 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. Due to 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 2018. INFOEDGE is focused on investing in Naukri.com to raise product quality and maintain its dominance. Naukri is looking to enter new verticals and also improve its recruiter-jobseeker matching engine. The growth outlook is steady but the macro climate and growth rates need to improve for any material margin gains. Company will continue to invest in 99acres. The competition among real estate portals has reduced at the margin, but 99acres.com is expected to continue to invest in products and improve its share of new homes. Management believes that the real estate portals are an advertisement-led model and that new homes drive most of the real estate ad spends. INFOEDGE continues to maintain a war-chest of Rs. 570 Cr which is the cash on balance sheet to fend off competition if Quikr turns aggressive. Notably Quikr bought Commonfloor. 99acres will look to maintain traffic leadership and focus on expanding its share here to 60%+. Structurally, management expects real estate advertising spends to move online, as was the case in the jobs market. Zomato.com is focused on curbing its capital burn rate. It is introducing new products like table reservations and online ordering which will be rolled out in select markets, while at a broader level the focus will be on ad revenues and paid listings in its key markets of India and the UAE. Paid listings in key markets are in the teens and management intends to raise this to 25 %. This coupled with the addition of new cities for traditional restaurant discovery will be its key growth drivers. INFOEDGE’s Jeevansaathi.com portal is the number 3 player in India’s online matrimony market. The business has seen an uptick in volume growth led by new initiatives. Management believes that valuations of startups have cooled off and expectations have become reasonable. INFOE is therefore looking at new opportunities to deploy capital and its investment sweet spot is Rs. 6 Cr to 90 Cr for startups. During Q3, InfoEdge invested additional Rs. 15 crore in Canvera at a premoney company valuation of Rs. 75 crore resulting in an increase in its stake to 49 %. It also acquired 35 % stake in Rare Media, an early stage company looking to develop mobile-based applications for Rs. 7.4 crore taking the total amount invested in investee companies to Rs. 797 crore as of January 20, 2016. The current quarter also includes the profit of Rs. 34.2 crore resulting from transfer of its entire shareholding in Policybazaar to its wholly-owned subsidiary MakeSense for a consideration of Rs. 101.3 crore, the quarter also includes additional provision of Rs. 2.94 crore for bonus related to April 1, 2014 to March 31, 2015 pursuant to retrospective amendment to the "The Payment of Bonus Act, 1965" notified on January 1, 2016, and diminution in carrying value of investment amounting to Rs. 42.8 crore related to Canvera. The November 2015 Naukri Job Index reading was at 1,599, up 9 % YoY. IT-software index grew 18 % YoY to 2,175 while BPO-ITeS index grew 11 % to 1,460. Telecom witnessed maximum YoY growth 61 % while banking and financial services moderated at 2 % YoY. Pharma and biotech index declined 6 % YoY while oil & gas saw a decline of 34 % YoY to 759. It is expect that InfoEdge can deliver revenue CAGR of 19.7 % in FY15-17E, below its CAGR of 25.9 % in FY10-15 as growth moderates in other verticals like 99acres, Jeevansathi due to structural issues. It can show a revenue growth of 20 % For FY16E, led by a recovery in the Naukri business. It is believed that with the upturn in the economy, new product launches and client additions will spur growth. With market share of 65-70 %, the company can maintain margins in 50 % range. Info Edge had expected the Zomato business to break even at a top line of Rs. 40. Cr to Rs. 50 Cr. It is believed that 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. In all Infoedge has good prospects looking forward and with the brand recall and diversified portfolio surely gives clear vision on company’s financial growth.   

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 non-recruitment business grew 18 % YoY slower than average 24.3 % reported in FY15 to Rs. 44 crore and declined 4.1 %QoQ. Also, 99acres reported 12.7 % YoY growth to Rs. 25.9 crore in Q3 as real estate market continues to be weak amid sluggish sales. Paid transactions grew 23.4 % YoY and declined 3.7 % QoQ to 23,700 while paid listings grew 27.2 % YoY to 748,000. Jeevansathi grew 20 % YoY to Rs. 11.7 crore led by 36 % YoY growth in unique paid customers to 37,435 while pricing declined 13.5 % YoY and 9.4% QoQ to Rs. 3,182. As of Q3, outstanding profiles stood at 7.4 million compared to 6.6 million in Q3FY15 and 7.2 million as of Q2FY16. Shiksha revenues grew 41 % YoY to Rs. 6.4 crore. During Q3, InfoEdge invested additional Rs. 15 crore in Canvera at a premoney company valuation of Rs. 75 crore resulting in an increase in its stake to 49 %. It also acquired 35 % stake in Rare Media, an early stage company looking to develop mobile-based applications for Rs. 7.4 crore taking the total amount invested in investee companies to Rs. 797 crore as of January 20, 2016. Exceptional item during the current quarter includes. For Naukri the management attributed growth to a recovery in IT markets like Bengaluru which is growing at 20 % to 25 % while non-IT markets like Mumbai, Delhi grew 15 % to 20 %. Economic recovery bodes well for non-IT markets and could aid growth pick-up, and help sustain margins profile which is currently at 51.8 % as overall recruitment business starts growing in excess of 20 %. The management highlighted that Naukri corporate sales continue to see demand uptick while EBITDA margins at 58 % are near its all-time high of 62 %. For Naukri the overall hiring outlook continues to look good and is improving, led by IT while investee companies be volatile. Though the valuations appear rich, the shares are a play on economic recovery while Zomato and 99acres could be potential money spinners. 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. 763.00 per share valueing 32 x its FY17E EPS of Rs. 23.90. The valuation of the Investee companis - the value of 99acers comes at Rs. 54 per share, Zomato Media valueing it at 50 % stake comes to Rs. 182 per share; Meritnation at 56 % stake at Rs. 18 per share; Policy Bazaar a 10 % stake at Rs. 10 per share and other investments at Rs. 30 per share totaling this gives us the value of its subsidiaries at Rs. 294 per share. And valuing the whole gives us the value of INFO EDGE of Rs. 1057.00 per share. At the current market price of Rs. 809.05, the stock is trading at a PE of 66.31 x FY16E and 46.76 x FY17E respectively. The company can post Earnings per share (EPS) of Rs. 12.20 in FY16E and Rs. 17.30 in FY17E. It is expected that the company’s surplus scenario is likely to continue for the next three years keeping its growth story in the coming quarters also.   

SOTP VALUATIONS :

Business Subsidiary	Value Per Share (₹)
InfoEdge Standalone	763.00
99acres (Non-Listed)	54.00
Zomato (Non-Listed) 50 % stake	182.00
Meritnation (Non-Listed) 56 % stake	18.00
Policy Bazaar (Non-Listed) 10 % stake	10.00
Other Investments	30.00
TOTAL	1057.00

KEY FINANCIALS	FY15	FY16E	FY17E	FY18E
SALES (₹ Crs)	611.50	724.50	871.70	1,054.40
NET PROFIT (₹ Cr)	194.10	148.00	210.00	308.60
EPS (₹)	16.50	12.20	17.30	25.40
PE (x)	47.40	64.30	45.30	30.80
P/BV (x)	5.70	5.30	4.90	4.30
EV/EBITDA (x)	50.70	59.80	33.90	24.30
ROE (%)	16.00	8.60	11.30	14.80
ROCE (%)	9.80	5.50	8.90	11.10

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*As the author of this blog I disclose that I do not hold  INFOEDGE LTD in my any of the portfolios.

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This is a personal blog and presents entirely personal views on stock market. Any statement made in this blog is merely an expression of my personal opinion. These informations are sourced from publicly available data. By using/reading this blog you agree to (i) not to take any investment decision or any other important decisions based on any information, opinion, suggestion, expressions or experience mentioned or presented in this blog (ii) Any investment decisions taken if any would be his/hers sole responsibility. (iii) the author of this blog is not responsible.   

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