Buy Info Edge; target of Rs 950: ICICIdirect

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ICICIdirect.com`s research report on Info Edge India“InfoEdge reported mixed Q2FY15 earnings. Reported revenues grew 19.4% YoY and 1.8% QoQ to Rs 147.6 crore (Rs 149.5 crore estimate) led by 33% YoY growth in 99acres and 19% growth in the flagship Naukri business. At 28.6%, EBITDA margins declined 535 bps QoQ and came below our 33.8% estimate, led by higher advertising expenses in 99acres. Reported PAT of Rs 33.2 crore was also below our estimate of Rs 38.2 crore led by lower operating margins. The company announced an interim dividend of Rs 1/share.” “Naukri Job Speak Index for August 2014 stood at 1,478, growth of 23% YoY. IT-software index grew 31% YoY to 1,929 while BPO-ITeS index rose 36% to 1,426. Majority of sectors including auto, telecom, BFSI and pharma saw a healthy 15%, 56%, 36%, and 16% YoY growth to 957, 827, 1,567, and 1,602, respectively. We expect InfoEdge to deliver FY14-16E revenue CAGR of 24.6%, above its FY09-14 CAGR of 18.3% primarily led by Naukri business. For FY15E, we expect revenues to grow 24% led by recovery in the Naukri business and market share gains from competition, continued traction in 99acres and growth in other businesses (Zomato, Canverra Technologies). Modest growth in FY14 (20%), relative to historical average was led by softness in flagship recruitment business (9.8%) despite a healthy growth in other verticals (36%) and investee companies. At 28.6%, Q2 margins were 515 bps below our 33.8% estimate led by higher advertising spends. We are modelling consolidated margins of 25.1% for FY15E vs. 17.1% in FY14, led by recovery in Naukri business partially offset by business reinvestments and losses in other verticals. Recall, during FY09-14, consolidated EBITDA margins declined 10 percentage points (pp) to 17% led by higher losses in subsidiaries and investee companies, and tepid growth in recruitment business. While recruitment margins improved to 50.5% in FY14 vs. 41.5% in FY10, losses in other verticals expanded to Rs 19 crore vs. Rs 13.7 crore in FY10 led by business investments and rising competition in real estate business.” “We maintain our estimates and expect revenue, PAT CAGR of 25%, 44%, respectively, during FY14-16E as overall hiring outlook could likely improve led by IT while investee companies could outgrow company average growth. We maintain our DCF based target price of Rs 950 which discounts our FY16E EPS estimate of Rs 15.5 by 54x. Though valuations appear rich, the shares are a play on economic recovery,” says ICICIdirect.com research report.

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