Healthy performance at operating level…
InfoEdge’s Q1FY21 numbers were above our estimates. Revenues declined 10.4% YoY to | 280.1 crore (above our estimate of | 221.1 crore). Recruitment solutions declined 8.8% YoY to | 200.2 crore (vs. our estimate of | 142.7 crore) and 99acres declined 24.7% YoY to | 42.5 crore (vs. our estimate of | 36.7 crore). However, other verticals grew 1.7% YoY to | 37.5 crore (vs. our estimate of | 41.7 crore). EBITDA margins increased ~504 bps QoQ to 37.3% (above our estimate of 14.5%) mainly led by lower advertising (down 841 bps YoY) and other expenses (down 156 bps YoY)
Near term headwinds, long term revenue trend robust
Covid-19 impacted revenue growth in Naukri. Revenues from the recruitment business declined 8.8% YoY vs. sustained double digit growth. Billings also dipped 44.3% YoY in Q1FY21 led by lockdown. However, the company is witnessing improving traffic share across segments (including recruitment). We expect revenues to return to pre-Covid levels in Q3FY21E. In addition, opening of economy and recovery in IT sector will further boost revenues at recruitment business. In 99acres, continued pressure in real estate markets (reflected in decline in billings by 71% in Q1FY21) is expected to dent FY21E revenues (down 12% YoY) leading to a CAGR of 8.7% over FY20-22E. On the other businesses side, we expect Jeevansathi, Shiksha to register revenue growth of 15%, 10% CAGR in FY20-22E, respectively. Hence, we expect overall revenues to grow at a CAGR of 10% in FY20-22E
Cost rationalisation to keep margins robust
In the near term, Info Edge is taking various measures to rationalise cost like lower marketing spend (in Naukri, 99acres), freezing salary hikes, hiring, not replacing attrition. As a result, the company has seen a margin improvement in Q1FY21E. In the near term, we expect Info Edge to witness healthy margins. Hence, we revise our margin estimate for FY21E upwards. However, with the recovery in revenues, we expect EBITDA margins to taper down due to increased marketing and admin cost. Hence, we expect FY22E EBITDA margins to marginally dip by 95 bps YoY to 33.5% (albeit the margins are still higher than FY20 margins).
Valuation & Outlook
We like the company due to its prudent capital allocation, a quasi-play on the Indian start up ecosystem and leadership in recruitment with EBITDA margin of above 50%. In addition, Info Edge already has two unicorns in the growing space (Zomato & PolicyBazaar) while its investment in the tech start up space makes it an attractive company. However, a run up in stock price leaves no room for upside in valuation. Hence, we maintain our HOLD rating on the stock and value the stock on an SOTP basis to arrive at a target price of | 3555.
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