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Strong margin profile to sustain; maintain Neutral on valuations

* Info Edge (INFOE) delivered a healthy revenue growth in 4QFY23, with standalone revenue rising 24% YoY (in line) fueled by 27% YoY growth in the Recruitment vertical. EBITDA margin was flat QoQ at 39.1% (strong 240bp beat). Billings were healthy (up 15.3% YoY to INR7.5b) and grew ahead of our estimate, despite a slowdown in IT hiring during the quarter.

* Management sees clear sign of a slowdown in IT hiring that remains a key risk, given its significantly high revenue contribution from the Naukri business. However, INFOE is hopeful of a strong comeback in IT hiring once things improve in 2HFY24. Conversely, Non-IT hiring has picked up well and should offset some of the impact from slowdown in IT hiring. INFOE should report healthy growth in FY24 with strong demand in non-IT along with pickup in IT in 2HFY24. We expect it to deliver 15% revenue CAGR over FY23-25.

* 99acres posted a strong 4QFY23; demand is likely to remain strong with alltime low inventory, new launches and good demand for new homes. Aided by improvements made on the platform, INFOE has managed to increase traffic and inquires while reducing marketing expenses at the same time. The marketing spends, though, remained elevated and are likely to result in continued losses for 99acres over the next few years, before it turns profitable.

* INFOE has delivered a sharp margin improvement over the last few quarters (EBITDA margin up 11pp YoY) with lower dependency on advertisement and operating leverage. We expect FY24/FY25 EBITDA margin at 36.5/37.1%.

* We forecast standalone revenue and APAT to clock 15% CAGR each over FY23-25, driven by the Naukri business.

* We continue to see a healthy long-term growth opportunity in its operating entities. With margins improving, we expect scale benefits over the next few years. However, the current valuations fairly price in its growth outlook.

* We value the company’s operating entities using DCF valuation. Our SoTPbased valuation indicates a TP of INR4,010. Reiterate Neutral.

In-line revenue and continued strong margin performance

* Standalone revenue stood at INR5.64b, +23.8% YoY (in-line) in 4QFY23. For FY23, INFOE’s revenue/EBITDA/Adj. PAT grew 40%/72%/60% YoY.

* Its 4Q billings at ~INR7.5b (+15.3% YoY) were slower due to the impact from IT hiring. Recruitment Solutions rose 13.7% YoY (v/s our est. of +3% YoY), 99acres grew 30.8% YoY (v/s +9% est.), and Shiksha rose 42.4% YoY.

* EBITDA margin at 39.1% was flat QoQ v/s our est. of 36.7% (240bp beat).

* Margin was aided by lower advertisement spends (-90bp QoQ) in 4QFY23.

* Naukri’s EBITDA margin was slightly better at 62% (-90bp QoQ) v/s 61.5% est., while 99acres’ EBITDA loss percentage narrowed sharply by 650bp QoQ.

* Adj. PAT was at INR1.98b (v/s est. of 1.8b), +64 YoY. The Board announced a dividend of INR9/share.

Highlights from the management commentary

* Recruitment: The caution in hiring for IT Services continues and the slowdown is expected to continue for the next few months. Management is hopeful of a recovery in IT hiring in 2HFY23. The demand for the Non-IT segment continues to remain robust. There is strong demand in BFSI, retail, construction, real estate, and travel and hospitality domains while consumer durables, FMCG, healthcare and education have seen some growth moderation. INFOE is confident of sustaining current margins if the billings grow at least by 14-15%.

* Real Estate: There was a broad based volume-driven growth across new homes, resale, commercial properties, etc. The real estate market remains stable with inventories at an all-time low, new launches and good demand for new homes. There was a strong growth in number of enquires and traffic aided by the improvements made on the platform, despite cuts in marketing spends and heightened competition.

Valuations and view

* Though near-term growth in Recruitment is expected to be adversely impacted by lower IT demand, good medium-term growth in Recruitment should help the company deliver 15% revenue CAGR over FY23-25.

* With the management investing prudently, some of its current investments should scale up over the medium-to-long term, thereby contributing to the group’s valuation.

* We individually value INFOE’s group entities using a DCF-based valuation. Our SoTP-based TP stands at INR4,010. We reiterate our Neutral rating

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