MOSL: INFO EDGE INDIA (Buy)-Operating beat with demonetization concerns behind

​Info Edge India: Operating beat with demonetization concerns behind

(INFOE IN, Mkt Cap USD1.5b, CMP INR893, TP INR1050, 18% Upside, Buy)

• Recruitment-led operating beat: INFOE’s 4QFY17 revenue grew 8.0% YoY to INR2.08b, ahead of our estimate of INR2b, led by recruitment segment revenue growth of 9.2% YoY to INR1.55b (est. of INR1.46b). Higher revenue drove EBITDA margin of 30.3% (+620bp YoY and v/s estimate of 27%). However, a higher tax rate and lower other income led to PAT before exceptional items of INR368.5m, below our estimate of INR516m.
  
• FY17 saw standalone margin revival: Standalone revenue grew 12.6% in FY17 to INR8.02b, but more importantly, EBITDA margin revived to 28.4% from 20% in the previous year. This was due to normalization of advertisement expenses to 11% of sales, after ballooning to 18.5% in FY16. This drove 66% YoY PAT growth to INR2.03b. INFOE’s key investee company Zomato reported revenue of INR332b (captured in consolidated accounts financials) with a cash EBITDA loss of INR930m in FY17.
  
• Demonetization impact behind: Smart pick-up in recruitment segment (+10.7% QoQ) was an unexpected positive, as the impact of demonetization on hiring was less severe than our estimated embedded potential impact from the same. This was the case in 99acres.com too, but the segment continues to remain under stress in the foreseeable future with a weak physical market and RERA implementation introducing fresh uncertainties for players.