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MOSL: INFO EDGE INDIA (Neutral)-Core segments’ acceleration dragged by ad expenses

Info Edge India: Core segments’ acceleration dragged by ad expenses

(INFOE IN, Mkt Cap USD2.9b, CMP INR1711, TP INR1670, 2% Downside, Neutral)

 

• Acceleration continues in 99acres and Naukri: INFOE’s 3QFY19 standalone revenue increased 6.1% QoQ (+23.7% YoY) to INR2.81b – 4.4% above our estimate of INR2.7b, led by continued acceleration in the recruitment segment and 99acres.com. Recruitment revenue grew 20.5% YoY (our estimate: +16.8%) v/s +15.7% YoY in the previous quarter. 99acres revenue grew 47.9% YoY (our estimate: +35% YoY) to INR504m.
• Higher ad spends drag margins again: EBITDA margin expanded 110bp QoQ to 29.6% (230bp miss). On a YoY basis, the margin was down 220bp, mainly on account of elevated advertisement and promotion expenses (18% of revenue v/s 11% in 3QFY18). PAT grew 5.8% YoY (-4.8% QoQ) to INR743.1m – a 4% miss, mainly on account of lower EBITDA margin.
• Spending up across businesses; Zomato shareholding may continue receding: Operating losses escalated in 99acres due to higher advertising spends (>INR320m) to retain market share, as competition also ramped up ad spends. The company has also increased marketing intensity for Naukri.com to leverage the current strong hiring environment. Given the competitive intensity in food ordering, Zomato is becoming a very capital-intensive business. The size is getting too big for INFOE’s balance sheet, even to retain the current stake. Thus, stake in Zomato may continue coming down in further rounds of fund raise.