MOSL: INFO EDGE INDIA (Buy)- Getting past near-term roadblocks

​Info Edge India:Getting past near-term roadblocks

(INFOE IN, Mkt Cap USD2.1b, CMP INR1136, TP INR1300, 15% Upside, Buy)

• 2QFY18 – miss on revenue and beat on margins: 2QFY18 standalone revenue grew 7.2% YoY to INR2,252m (2.6% miss), led by lower growth in Recruitment (+6% YoY) and 99acres.com (+6% YoY) v/s our estimate of +8%. Although the first two months were slow, Recruitment saw a revival in September. EBITDA margin expanded 640bp YoY to 39.4%, implying a 740bp beat, led by write-back of provisions of INR72m (320bp) and lower ad spends (350bp). Adjusted PAT rose 3.2% YoY at INR827m.
  
• Bottoming out of near-term pressures: Over the last few quarters, growth in Recruitment (softness in IT Services) and 99acres (uncertainty around RERA) has disappointed. Although IT hiring remains subdued, the situation has improved. At the same time, with uncertainty around RERA waning, a revival can be expected in major markets in 2HFY18 (status quo on real estate market otherwise). Effectively, INFOE’s performance trajectory would be thrown back to the levels before being impacted by the pain points, erasing near-term weakness earlier factored in.
  
• Adv. expenses to ramp up: INFOE’s traffic share in Naukri.com was a healthy 75%, excluding Indeed (60% incl. Indeed). Similarly, the share in 99acres was at ~40%, despite a cut in ad spends. However, INFOE is ready to throttle harder on advertising across segments, and see employee additions in the areas of product development. While this could increase absolute costs, a better revenue growth outlook should partly mitigate margins impact.