* Weak performance affected by demonetisation: For Q3FY2017, Info Edge (India) has delivered a weak set of numbers, owing to the government’s demonetisation measure. For the quarter, revenue grew by 5.8% YoY to Rs186 crore due to a modest growth in the core Recruitment business (up by 8.6% YoY to Rs140.4 crore), while 99 acres’ topline was muted at Rs26 crore (Rs25.9 crore in Q3FY2016). Around Rs20- 25 crore of revenue was impacted by demonetisation. The Operating Profit Margin (OPM) expanded by 425BPS YoY to 25.3% (lower than expectations), aided by lower ad spends in 99 acres. Other income for the quarter was down by 18% YoY at Rs25 crore, while the net profit was up by 76% YoY at Rs47 crore, largely attributed to lower effective tax provision at 28.4% (38.5% in Q3FY2016).
* Management commentary: (1) On account of demonetisation, the core Recruitment business was badly hit, largely due to the small & medium enterprises than the large enterprises; (2) Change in the company incentive structure for sales staff in the Recruitment business will lower the discounts given to customers during the renewal of contracts. The discounts, which were introduced in Q1FY2017, also impacted collection and revenue (expect a larger impact in Q4FY2017, being a seasonally strong quarter for collection); (3) The IT job market is still weak, while the BPO and Banking sector job markets remain relatively stable; (4) Demonetisation resulted in 40-45% drop in traffic in 99 acres, although the same saw a smart recovery in the last 3-4 weeks. However, owing to a sluggish real estate market, revenue trajectory may not improve significantly in the near term; (5) More consolidation is seen going forward in the online housing portal market. We will remain watchful of the competitive intensity and ad spends accordingly, and (6) Total investment in investee companies stood at Rs845 crore at the end of Q3FY2017.
* Maintain Buy with revised price target of Rs950: We have tweaked our earnings estimates for FY2017/FY2018 on the back of a weaker-than-expected performance in Q3FY2017 and expectations of a relatively weak Q4FY2017 (seasonally strong quarter). We continue to derive comfort on Info-Edge business strength, with leading market share in key businesses. We expect its earnings trajectory to catch up, as the macro headwinds subside. We have maintained our ‘Buy’ rating on the stock with a revised SOTP-based price target (PT) of Rs950.
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