Standalone steady; Losses in investee portfolio remain high
* Broad-based revenue growth in standalone business: 1QFY20 standalone revenue was INR3.1b (In-line), +6.9% QoQ/20.5% YoY. Recruitment revenues grew 19.2% YoY (v/s 18.4% YoY in 4QFY19). 99acres.com grew 34.7% YoY (v/s 45.8% in 4QFY19). On a consolidated level, revenue grew 15.4% YoY to INR3.2b and EBIT grew 16.4% YoY to INR1.1b. Cons. net losses increased 754% YoY to INR 1.9b, led by higher losses in investee companies. Consolidated performance — share of net losses of JVs ballooned to INR2.5b (v/s INR0.9b in 1QFY19; profit of INR0.9b in 4QFY19), which was INR3.1b for full-year FY19, helped by one-time sale of Middle East operations.
* EBIT beat due to lower operating expense: EBIT margin declined 40bp QoQ to 29.1% (v/s est. 26.1%). Advertisement expense increased 46% YoY to INR548.6m (v/s est. INR571.6m). At PBT level, losses were pruned in Recruitment Solutions, while it slightly expanded in 99acres.com. Adj. PAT at INR749m (-5.1% YoY/-10.6% QoQ), missed estimates by 22%, mainly due to lower other income and higher ETR.
* Recruitment businesses steady on higher IT hiring: Despite the economic slowdown, Naukri.com continues to witness stable growth due to IT Hiring (revenues from IT grew 25%+ YoY). Muted recruitment in Auto, Infra, Telecom and NBFCs remains a challenge, but also an opportunity when the economy turns. For 99acres.com, the underlying industry remains sluggish. Jeevansathi.com is marking its efforts by increasing ad spends and offering lower pricing, preferring volume share over value share for now.
* Valuation View: We expect multi-dimensional growth at INFOE, backed by recruitment, real estate and its biggest investee company – Zomato. Our SOTP-based price target of INR2,050 is up marginally after factoring in traction in standalone core segments. Our price target implies 6% downside to CMP. Maintain Neutral.
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