Info Edge needs robust trend in IT hiring to last
Premium- The company noted some slowdown in IT hiring but the sector recruitment still remains strong
- Zomato & PB Fintech’s better stock performance may positively impact Info Edge’s shares
Shares of Info Edge (India) Ltd are down as much as 40% from their 52-week high of ₹7,465.40 apiece seen in October on NSE, amid subdued sentiments for technology driven stocks across markets. Against this backdrop, shares of Zomato Ltd and PB Fintech Ltd, where Info Edge holds 15.2% and 12.8% stake, respectively, have also not been spared and have declined by nearly 12% and 43% from their respective issue prices.
Recall that Zomato’s shares had plunged to lows in July after the expiry of the one-year lock-in period for pre-initial public offering investors.
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However, Info Edge is not in a hurry to offload its stake. The company in the June quarter (Q1FY23) earnings call said it has no plan to divest its holdings in Zomato and PB Fintech, as it sees long-term growth potential here. If these stocks perform well, it would positively rub off on Info Edge’s shares, which have risen 35% from their 52-week lows seen in May.
JM Financial Institutional Securities Ltd said there could be further upside potential if US tech slowdown fears have lower-than-expected impact on recruitment billing, and advertising and promotion spends towards its real estate segment, 99acres, and matrimony website, Jeevansathi, are lower than expected.
However, a potential recession in the US market is a looming threat as it will weigh on recruitment revenue from the information technology (IT) sector. Info Edge noted some slowdown in IT hiring in the last one or two quarters but recruitment continues to remain firm.
In Q1, high attrition in the IT sector drove recruitment. Also, other verticals, such as retail, education, insurance, real estate and travel, are seeing a revival in hiring trends. The recruitment business, which formed 79% of billing in Q1, is on a strong footing and sustaining the robust performance will be key for the Info Edge stock.
As such, there is room for further improvement in the recruitment vertical’s Ebitda margin. In Q1, this was 59.6% and the company sees it rising to 70% if it refrains from investing in new businesses. However, the management will continue to invest more and at the same time maintain its margin levels.
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Overall, billing rose by 62% year-on-year but declined by 19% sequentially. Analysts at Kotak Institutional Equities pointed out that some of this decline is seasonal as Naukri.com, the job portal Info Edge runs, closes a disproportionately large number of contracts in Q4FY22 and hence, Q1 is always weaker. However, some of this could indicate normalization in demand.
Info Edge’s other verticals continue to make losses. 99acres is seeing an increase in competitive intensity from Nobroker, Magicbricks and Housing.com. As such, advertising and promotion expenses will continue to be high, the company said.
The strategy of offering paid services free of cost in Jeevansathi has driven user engagement. However, this means a drop in revenue and hence losses. “The management expects more user registrations and increased engagements via word of mouth, which could potentially reduce their ad spends. However, it’s difficult to ascertain if this model would eventually succeed in scaling up matrimony revenue," said Edelweiss Securities in a report on 12 August.
“We raise FY2023-25 revenue forecasts by 7-8%, primarily on higher Naukri revenues. FY2023-24E, however, witness an earnings per share cut on higher 99acres losses," said the Kotak report.
The broking firm has raised its target price for Info Edge stock to ₹4,830 ( ₹4,330 earlier) while downgrading the rating to ‘Add’ because of the recent run-up in the stock price. On Thursday, the Info Edge stock closed at ₹4,467.15 apiece.
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