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Billing trajectory continues to improve…

InfoEdge’s Q4FY21 numbers were below our estimates. However, the company has seen improving billing growth both on a YoY and QoQ basis. Billing increased 25.1% YoY, 39.8% QoQ to | 415.3 crore, mainly led by 26% YoY growth in recruitment and 41.5% YoY growth in 99 acres billing. As compared to Q4FY19 (a pre-pandemic quarter), overall billing was up 15.0%. Overall revenues on a QoQ basis increased 6.5% QoQ. EBITDA margins declined from 29.9% in Q4FY20 to 18.3% (below our estimate of 29.6%) mainly led by wage hike, one-time incentive and higher other expenses.

Recruitment revenues to see healthy improvement

The company’s recruitment business was unaffected by the second Covid wave due to digital on-boarding and healthy traction in IT and ITeS segment. Resume addition increased 23.5% YoY. We expect revenues to improve, driven by improving hiring trend in IT, healthcare, education, telecom and recovery in travel. 99Acres saw an impact of the second Covid wave but the company saw a healthy recovery in June. Further, lower interest rate and affordability is expected to drive 99acres revenues. In addition, traction in Jeevansathi, Shiksha and introduction of new products are expected to lead to a gradual improvement in revenues in the long term. Hence, we expect overall revenues to increase at a CAGR of 28.8% over FY21-23E.

Margins to improve in long term

The company’s current quarter revenues were impacted by wage hike, onetime incentive, higher CSR and bad debt expenses. Going forward, Info Edge plans to keep advertising spends higher in Jeevansathi and 99Acres due to higher competition. However, with improving growth, we expect margins to expand in long run. Hence, we expect margins to improve 560 bps to 37.3% in FY21-23E.

Valuation & Outlook

We believe Info Edge will be a key beneficiary of a shift of advertising on the online medium. In addition, digital on-boarding of talent and strong traction in the IT& ITeS segment bode well for revenue growth. Further, the company is witnessing a healthy billing trend on a QoQ and YoY basis. We expect Info Edge to witness improved traction post the Covid second wave. In addition, prudent capital allocation, quasi-play on the Indian start up ecosystem (Zomato, PolicyBazaar, like Shoekonect, Ustra, Gramophone) and leadership in recruitment with EBITDA margin of above 50% keeps us optimistic on the stock from a long term perspective. Hence, we upgrade the stock from HOLD to BUY rating and value the stock on an SOTP basis to arrive at a target price of | 5,740 (earlier | 5,725).

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