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Going strong despite challenging times; valuation reasonable

Concerns of IT hiring slowdown affecting the recruitment vertical have only aggravated each passing quarter over the last 12 months or so. However, defying expectations and a base that only gets steeper, INFOE has continued to report better-than-expected billings. Recruitment billings grew 17.7% YoY vs. JMFe of 15.0% YoY in 3Q; in fact, it rose 45% YoY on a TTM basis led by strong realisation and expansion of the customer base. Further, despite fears of high competitive intensity in Real Estate and Matrimonial verticals affecting the standalone margin, the rising revenue share of Recruitment has only lifted the company’s margin profile. In fact, following a delivery of 39.1% EBITDA margin in 3Q (+10ppts YoY, +4.5ppts QoQ), we believe it’s safe to forecast that standalone EBITDA margin for FY23E will exceed 35% (may as well sustain over FY24-25) vs. <32% reported in FY20. The recent share price movement, on the other hand, suggests the market has continued to penalise the stock factoring in the earlier mentioned uncertainties, while ignoring the strong underlying results. We also note that even in an uncertain environment during FY16-20 (due to multiple headwinds such as IT slowdown, demonetisation, GST launch and NBFC crisis), recruitment billings had grown at a CAGR of ~14%. That said, we are mindful of the management’s hazy near-term commentary. So, while we assume a slowdown in recruitment billings over the next 1-2 quarters we also expect a quick rebound supported by stable GDP growth and increase in offshored jobs demand. Our stress case (Exhibit 12) that values standalone business at FY25E PE of 42x (well below the long-term 1-yr fwd. average of 60x+) suggests maximum downside of ~4% vs. 22% upside in our base case - standalone @55x FY25E PE.

* Robust standalone billings growth amidst hazy outlook: Standalone billings grew 14.5% YoY to INR 5.51bn (+1.4% QoQ), ahead of JMFe by 1.4%, despite a very hazy outlook offered by the management for the recruitment segment (+17.7% YoY) in recent quarters. The company continued to report very strong revenue growth of 33.4% YoY on the back of strong billings over TTM to reach INR 5.55bn, albeit missing JMFe by 1.8%. While Recruitment/99acres/Shiksha reported 40%/24%/26% revenue growth on YoY basis, Jeevansathi’s revenue was down 26%. We build in flat billings growth for recruitment in 4Q due to a very high base and mounting worries around IT hiring, but expect revenue growth to remain at ~32% YoY due to ~39% YoY rise in deferred sales. The latter should also ensure mid-high teen’s revenue growth in FY24, even if billings were to marginally shrink in 1HFY24.

* Exceptional margin expansion: Driven by very strong topline growth and operating leverage, standalone EBITDA in 3Q grew 79.3% YoY to INR 2.17bn, ahead of JMFe by 10.1%. EBITDA margin also improved a healthy 10ppts YoY to 39.1% (+4.5 ppts QoQ) well ahead of JMFe by 420bps. While the beat was mainly driven by lower-than-expected A&P spends in 99acres/Jeevansathi, employee and G&A costs were also lower than our forecast. Segmentally, while recruitment EBITDA margin improved 222bps YoY to 62.9%, 99acres and Jeevansathi continued to remain under pressure at -31.8% and -141% due to high competitive intensity and revised monetisation strategy, respectively. The management indicated that quarterly margin trends may remain a bit volatile in the near

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