Recruitment recovery to drive Info Edge stock

Significant traction in real estate vertical should aid growth

The Info Edge stock has been under pressure due to stress on its classified jobs vertical, Naukri, which accounts for 70 per cent of the company’s revenue. The stock has lost 13 per cent since the beginning of the year.

Revenue from the recruitment segment in the March quarter was up only 3.6 per cent on a sequential basis (12 per cent over a year). The segment level margins fell 243413 basis points (bps) to 51.8 per cent on a sequential and on year-on-year (y-o-y) basis.

Given the slowing in information technology (IT) service hiring, customer acquisition is becoming challenging. Billing growth in the March quarter was the slowest in at least eight quarters. Analysts, however, say with utilisation rates at record levels for IT companies, and demand growth expected to come back, the business segment should see an uptick in revenue in this financial year.

Its real estate vertical under 99acres, however, has been doing well after being pegged back by demonetisation, implementation of the goods and services tax (GST) and roll-out of the Real Estate Regulation Act across states.

Growth in the past two quarters has been 43 per cent, indicating a recovery in the segment as far as the company is concerned. Some of the growth, however, has been led by revenue from brokers, mostly in secondary sales. Growth is strong in the National Capital Region but it is affordable housing that is driving up demand.

Higher investment in both verticals is rubbing off, with traffic and market share much higher than the nearest competitors, both in the recruitment and real estate businesses. The company’s matrimony (Jeevansathi) and education classifieds (Shiksha) segments are also clocking good growth. However, these are much smaller than the two core verticals and will take time to scale up.

The upside trigger for the stock could come from a valuation upgrade for the slew of investments the company has made in various segments.

Key among these is the food delivery business Zomato, reportedly valued at $2 billion. Also, Etechaces Marketing and Consulting, which owns Policybazaar and Paisabazaar; it also saw additional investment recently from SoftBank.

While the monetisation potential is significant and private equity players have shown interest, the investee companies could take time to turn around, given the significant cash burn.

Thus, in the near term, recovery in the recruitment segment would be the single biggest trigger for the stock.

The upside trigger for the stock could be a valuation upgrade for the investments the company has made in various segments