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Regaining momentum 

IT hiring possibly turning around; reiterate Neutral on valuations

* Info Edge (INFOE) delivered in-line revenue growth in 2QFY25, with standalone revenue rising 10.6% YoY/2.7% QoQ in-line with our estimate. EBITDA margin came in at 41.8% (up 280bp QoQ/120bp YoY), in-line with our estimate of 40.8%. Overall billings were up 14.3% YoY, a double digit growth after 5 quarters, and stood at INR6.5b. Adj. PAT was up 9.3% YoY to INR1.9b (below our est. of 2.3b). The company’s revenue/EBITDA grew 10.0%/12.0% YoY while PAT declined -22.1% YoY in 1HFY25 compared to 1HFY24. We expect revenue/EBITDA/PAT to grow 15.4%/15.7%/19.9% YoY in 2HFY25. We reiterate our NEUTRAL rating on INFOE with a TP of INR7,000, implying a 9% downside.

* In 2QFY25, recruitment growth was broad-based, with IT growing 12% and Non-IT achieving a 20% increase. This gradual IT recovery provides support to Naukri's revenue, contributing to a 14% YoY increase in overall billings— the first double-digit growth in five quarters. We expect Non-IT to sustain its strong trajectory, positioning Naukri for continued double-digit growth. That said, IT services still account for the lion’s share of hiring and are critical to a sustained turnaround.

* 99acres experienced healthy growth in billings, driven by improvements in both the number of billed customers and average billing per customer. However, low inventory of unsold projects in major metros and moderated new project sales in Q2 may introduce some near-term uncertainties for 99acres, in our view. Nonetheless, given its growth trajectory, the company expects 99acres to be nearing breakeven by FY25. For Jeevansathi, marketing expense rationalization continued, with costs down 36% YoY while maintaining growth momentum, positioning the business to reach its breakeven target as well, in our view.

* INFOE has achieved a notable margin improvement over the last few quarters, driven by reduced dependency on advertising and operating leverage. However, with plans for incremental advertising investments this year, we see limited room for further margin expansion. We expect FY25/FY26/FY27 EBITDA margin at 40.5%/41.6%/40.3%.

* We forecast standalone revenue/PAT to clock an 18%/19% CAGR each over FY24-27. The change in estimate for FY25 is due to increased tax expenses on previously recorded unrealized mark-to-market gains; otherwise, we have kept our EPS estimates largely unchanged. We continue to see a healthy long-term growth opportunity in its operating entities. However, the stock has rallied over the past six months and current valuations fairly price in its growth outlook. We expect the stock price to remain sideways in the near term.

* We value the company’s operating entities using DCF valuation. Our SoTPbased valuation indicates a TP of INR7,000. Reiterate Neutral.

In-line revenues and margins; healthy growth in billings

* Standalone revenue stood at INR6.5b, up 10.6% YoY/2.7% QoQ, in line with our estimate.

* Overall billings rose 14.3% YoY and were INR6.5b. Billings for Recruitment/ 99 Acres came in at INR4.9b/INR1.0b vs. INR4.3b/INR0.9b in 2QFY24.

* The recruitment business continued the uptick in 2Q, whereas non-recruitment businesses also continued to grow with reduced operating losses.

* EBITDA margin came in at 41.8% (up 280bp QoQ/120bp YoY), in-line with our estimate of 40.8%. The margin expansion was due to lower advertisement expenses (11.5% of revenue vs. 13.4% in 1QFY25).

* Naukri’s PBT margin was up 380bp QoQ at 57.7%, while 99acres’ PBT loss percentage increased 10bp QoQ to 13.9%.

* Adj. PAT was down 9.3% YoY to INR1.9b (below our est. of 2.3b) owing to increased tax expenses on previously recorded unrealized mark-to-market gains.

Highlights from the management commentary

* Recruitment: Overall billings grew 14% YoY in 2QFY25, marking double-digit growth for the first time in five quarters. Revenue growth lagged due to stalled billings observed in previous quarters. Key non-IT sectors such as BFSI, Healthcare, Infrastructure, and Manufacturing experienced strong double-digit growth. Billings increased due to favorable macro conditions, as indicated by JobSpeak data. The October JobSpeak report is promising, with growth opportunities expanding in GCC, IT, and Tier 2-3 cities. Non-IT segments continue to perform well; listing business models are consistent across IT and Non-IT segments, with little contribution from price increases.

* Real Estate: Billing growth in Q2 was driven by improvements in both the number of billed customers and average billing per customer. Unsold new project inventory remains low across most metro areas. New project sales moderated in Q2 as well. Sequential price increases have also moderated QoQ across most metro markets. Sequential price growth has moderated, and new project sales slowed in 2Q. Pricing on 99acres leverages data analytics, with cityspecific pricing models. The company continued to increase the efficiency of digital performance marketing spends, applying analytics, creative content, and audience optimization.

Valuations and view

* While we expect a gradual recovery in IT services demand in late FY25, nearterm recruitment growth is likely to remain range-bound as companies rely on their current bench to meet demand, resulting in overall muted growth for INFOE.

* 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 value the company’s operating entities using DCF valuation. Our SoTP-based valuation indicates a TP of INR7,000. Reiterate Neutral.

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