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Core businesses to gain from improving tailwinds: Upgrade to BUY

We upgrade Info Edge (INFOE) to BUY with a revised TP of INR 5,180 as we believe the key operating businesses Recruitment and 99acres will benefit from a favourable macro set-up. This is also confirmed by the strong billings trend in the recruitment business in 9MFY22 (+75% YoY) and continued hiring activity in IT (we reckon this is spreading to other industries, as also reflected in the recent Jobspeak index) that are likely to translate into strong revenue growth through the next few quarters. 99acres is expected to benefit from the real estate up-cycle supported by favourable interest rates and likely improvement in new launches (with absorption picking up). Hence, we expect the standalone business to deliver 28%/42% Revenue / EBITDA CAGR over FY21-24E. INFOE also offers the optionality of playing emerging businesses through its investee companies and cash-rich balance sheet. We trim the contribution of Zomato (Buy, TP 140) and PB Fintech (Buy, TP 980) to our Mar’23 TP for INFOE due to recent revisions we had made in their respective TP. Lastly, we stress test the valuations of INFOE as the stock has been volatile over the past 3/6 months (corrected 20%/35%, respectively), and ascertain that the downside risk is <8% from CMP..

Strong underlying trends for the core operating business over the near/medium term: While Covid-19 drove a decline in Recruitment (70%+ of revenue for the standalone business) billings during FY21, the strong pick-up in hiring in the IT/ITES Services space and the broadening of the hiring pick-up to the non-IT/ITES segment are likely to drive strong growth in the Recruitment business over the next few quarters. As highlighted in our IT sector note (Continuing the growth momentum with stable margins), the hiring by the TWITCH group in 9MFY22 exceeded the previous annual hiring peak seen in FY12. Given increasing faith in global delivery and the accelerated need for digital transformation, the strong hiring in IT/ITeS is likely to sustain. Feb’21 Jobspeak index (Ex. 3) also indicates a sharp improvement in hiring activity in non-IT/ITeS industries. These factors should benefit INFOE’s recruitment business, which has already reported 75% YoY billings growth over 9MFY22. We, therefore, expect strong operating performance in the recruitment business and factor in 31%/33% Revenue/EBITDA CAGR over FY21-24E.

99acres to benefit from the real-estate up cycle: 99acres.com is likely to benefit from industry tailwinds in the real estate sector as detailed in JM’s recent report (Real Estate: High absorption + Low Inventory = Perfect Blend). INFOE also confirms the underlying increase in activity, which is likely to show up in improved billing trends. This has also led the company to step up A&P spend in the segment.

Raise standalone estimates; adjust investee contribution to TP: We marginally tweak our revenue / margin assumptions, leading to a 1-4% increase in our standalone FY22E-24E EPS. We also factor in the recent downward revision in our TP for key investee businesses (Zomato and PB Fintech), resulting in an SOTP-based Mar’23 TP of INR 5,180 (vs. INR 5,350 earlier). We upgrade INFOE to BUY (vs. HOLD earlier) and see the recent pullback as a good opportunity to get into a premier Indian internet asset with likely optionality to play emerging businesses.

Strong underlying tailwinds supporting the core businesses

The underlying dynamics on the ground are improving for INFOE’s core operating businesses – not only the Recruitment business but also the real estate classifieds business.

Recruitment side

On the recruitment side, the company is continuing to benefit from the hiring uptick seen in the IT/ITES industry (also confirmed by the Jobspeak index). While the hiring momentum by the IT Services sector is expected to continue with companies remaining quite confident of their growth prospects heading into CY22/FY23, the underlying hiring trends are also improving in sectors such as Travel/Hospitality, Retail and other core industries. As normalcy returns post Covid, we expect hiring to go up in non-IT/ITES industries also, given India’s macro-economic recovery.

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