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Strong sequential increase in billings; margin remains a drag

* 4QFY21 saw a strong revival in INFOE’s billings in the Recruitment and Real Estate business. Combined billings stood at INR4.1b in 4QFY21, an increase of 25% YoY and 40% QoQ. While revenue is still down 10% YoY, we expect a strong revival as revenue generally lags billings, given the subscription nature of the business.

* EBITDA margin dipped 7pp QoQ in 4QFY21, led by unusually high employee expenses (10% miss to our estimate). This was on account of a wage hike and higher variable payout to sales employees on higher than expected recovery in Naukri/99acres. Other expenses increased 32% QoQ, led by higher CSR expenses and bad debt provisioning.

* Losses from investee companies fell 80% YoY to INR246m as firms restricted their cash burn on advertising and discounts during COVID-19.

* Given the company’s market positioning, multi-dimensional growth may be expected across its core businesses in the medium to long term. We expect long-term growth trends to play out at its operating entities, whose margin continue to inch-up on higher operating leverage. Led by an inclination for profitability in investee companies, we expect consolidated losses to be curtailed over time.

* We value its operating entities using DCF valuation, with WACC of 11% and the terminal growth rate at 5%. Our SoTP-based valuation indicates a TP of INR4,590 per share. We maintain our Neutral rating.

Standalone revenue in line with our estimates, miss on margin

* Standalone revenue rose 6.5% QoQ, but fell 10.2% YoY to INR2.9b.

* The revenue decline was a function of a 14%/11% dip in the Recruitment/Real Estate segment. This was partially offset by a 15% YoY increase in other businesses (Jeevansathi and Siksha).

* EBITDA margin declined by 7pp QoQ/12pp YoY to 18.3% due to increased employee expenses.

* Advertisement and promotion expenses stood in line at 19% of revenue. Employee cost increased 15% QoQ and 9% YoY (above our estimate).

* Adjusted PAT fell 11% YoY to INR699m (flat QoQ). Lesser operating income was offset by lower ETR (15% v/s 24% in 4QFY20) and higher other income (INR406m v/s INR195m in 4QFY20).

* Net loss from investee companies stood at INR245.8m in 4QFY21 v/s a loss of INR1.4b/INR940m in 4QFY20/3QFY21. Reduction in losses was led by lower burn in investee companies.

Highlights from the management commentary

* Recruitment: 4QFY21 saw a broader recovery, with many old customers returning. The company was also able to upgrade many. Billings in 4QFY21 rose 22% YoY to INR3b. The company saw a strong performance in Naukri, with billings in Mar’21 growing 54% YoY.

* 99acres saw a sharp drop in traffic in Apr-May’21. However, the same saw a recovery in Jun’21. Billings in 4QFY21 rose 45% YoY to INR717m. In FY21, billings fell 13.6% YoY. Recovery in rentals was muted in 4QFY21, whereas advertising was high due to new campaigns. New home revenue continues to stay strong.

* Jeevansathi: The management intends to grow the Jeevansathi business to over 20%, for which they need to invest for the next 3-4 years. To further gain market share in the Matrimony segment, it would have to burn cash, especially on marketing, like its peers.

* Acquisitions: The company will continue to invest in its core business and will scout for bigger acquisitions as well, though the frequency would be less.

Valuation and view

* Revenue declined by 14% YoY in FY21. This was due to a 44% decline in billing in 1QFY21. From there onwards, the company has seen a continuous increase in billings. This should translate into strong revenue momentum in FY22. With the expectation of additional jobs coming in (on pent-up demand) and pressure on Real Estate developers to sell off inventory, we expect 25% revenue growth for FY22E/FY23E.

* With the management investing prudently (clocked an XIRR of over 35%), some of INFOE’s current investments would scale up in the medium to long term, further contributing to the group’s valuation.

* We have individually valued INFOE’s group entities using DCF-based valuation (WACC: 11%; terminal growth rate: 5%). Our SoTP-based TP stands at INR4,590/share. We maintain our Neutral rating.

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