Info Edge faces low billing risk
Firm hurt by rising unemployment and lack of demand for real estate
The new normal such as work-fromhome, online delivery, in the Covid19 era is providing good traction for technology-driven businesses, and should bode well for firms like Info Edge — an online classifieds company that owns major portals like naukri.com, 99acres, and jeevansathi.
Consequently, the Street, too, has been bullish on the firm. Its stock, which had almost halved in a month from 52-week high of ~3,125 in February, has rebounded 75 per cent from its 52-week low seen in March to ~2,759 currently. These gains are more than twice the 33 per cent rise in the BSE Sensex during the period.
However, even as the company’s longterm growth prospects remain good, its near-term performance is likely to see pressure and this could hurt the stock.
According to Info Edge’s update on Covid-19’s impact on business, announced on June 3, with just 10 -12 day interruptions, its billing in the March quarter (Q4) declined by 8 per cent year-on-year (YOY). The Q4 results are yet to be announced.
Info Edge’s two key businesses — recruitment (naukri.com) and real estate (99acres) witnessed 6 per cent and 24 per cent year- on-year (YOY) fall in billing , respectively, in Q4. These two businesses account around 85 per cent of the firm’s overall revenue, according to numbers from financial year 2018-19 (FY19).
Analysts believe that the lower Q4 billing signals top line pressure in the coming quarters if it is unable to get new sales. On a monthly average basis, in April, billing of ~40.8 crore is around 60 per cent lower, both YOY and sequentially, and revenue of ~90.4 crore is a 13 per cent YOY decline in top line in the June quarter (Q1FY21). In Q4, revenue was up 10.3 per cent YOY to ~322.8 crore.
“Q1FY21 actual numbers are likely to be worse given that April billings were only 37 per cent of Q4 (monthly) average with meaningful improvement in May also unlikely,” analysts at ICICI Securities said in a note. The domestic brokerage, which has a ‘sell’ on the stock with target price of ~2,571 (8 per cent below current price) expects gradual recovery for Info Edge. It expects the company’s revenue to fall by around 9 per cent in FY21.
Motilal Oswal Securities, which has ‘neutral’ rating, also expects some business impact during April-september 2020 period because of the expectation of a decline in billing in recruitment and real estate segments.
Unemployment shot up in April and May because of the Covid-19-induced lockdown. Though it has now improved, some analysts believe a sizeable share of severely-hit discretionary services (30 per cent) in the recruitment business could restrict recovery. In the case of real estate, which was already under pressure, lower income levels and job insecurity have added to demand woes. Its online matrimonial portal, jeevansathi, however, is seen to be in a better position. This business had seen a 20.4 per cent increase in billing in Q4.
Among Info Edge’s i nvestee companies, Zomato has seen sharp decline in dine-in business and its delivery segment might take time to recover.
Amidst the headwinds for top line, Info Edge’s earning is also expected to face pressure. In Q4, its Ebitda (earnings before interest, tax, depreciation, and amortisation) margin fell by 310 basis points YOY to 28 per cent. And, Q1FY21 is likely to be worse.
For now, investors are advised to await clarity on business recovery as valuations are expensive. The stock is now trading at over 87 times its FY21 estimated earnings.