MOSL: INFO EDGE INDIA (Downgrade to Neutral)- Sustained traction in Recruitment and Real Estate

Info Edge India: Sustained traction in Recruitment and Real Estate; Valuations drive rating downgrade to Neutral

(INFOE IN, Mkt Cap USD2.6b, CMP INR1583, TP INR1600, 1% Upside, Downgrade to Neutral)

• Traction continues in 99acres and Naukri: INFOE’s standalone 2QFY19 revenue increased by 18% YoY to INR2.7b, mainly driven by growth of 16% YoY in Naukri and 39% YoY in 99acres. This, however, was partially offset by slower growth in Jeevansathi (+2.3% YoY). Both Naukri and 99acres have been seeing strong growth since two quarters now. Encouragingly, the outlook in recruitment appears better on the back of a pick-up in IT hiring, while the real estate sector is coming off its worse.
• Higher ad spends: EBITDA margin shrank 830bp YoY to 31.1% (130bp miss), as against our expectation of 32.4%. Adjusting for one-time CSR expense of INR270m, margins stood at 32.2% (in-line). The sharp decline YoY can be attributed to a higher base, increased ad spends (+130% YoY, +7% QoQ) and higher product development cost. Promotional and ad spending was concentrated to 99acres and Jeevansathi.com. Consequently, PAT declined 5.5% YoY to INR781m (in-line).
• 99acres focusing on brokers, Zomato focusing on ordering: 99acres is seeing strong traction due to a lower base and increasing demand following more clarity emerging on RERA. INFOE suggested that it will focus more on brokers and channel partners, and explore new ways to monetize in order to maintain its leading market share. Zomato is aggressively changing its revenue mix from listing to delivery, with the focus on becoming the market leader in the segment before doing away with cash burn.