Sharp drop in billing a major concern for Info Edge

Q1 was better than estimates, but a 44% drop in billing points to a weak revenue and margin outlook

Info Edge surprised the Street with a better-than-expected performance in the June 2020 quarter (Q1), but the sharp drop in billing is worrying investors. After being up over 4 per cent in Tuesday’s trading session, the Info Edge stock ended the day with just 0.7 per cent gain at ~3,313.75.

The online classified company, which owns major businesses, such as naukri.com and 99acres.com, announced its Q1 numbers on Monday after market hours.

In Q1, revenue declined 10.4 per cent year-on-year (YOY) to ~280.1 crore but was higher than the consensus estimate of ~261.4 crore. Profit before tax and exceptional items of ~112.2 crore, which was down 1.5 per cent YOY, was also nearly 50 per cent higher than the expectation of ~75.1 crore. The profit beat was led by operating cost control, which resulted in a 504-basis point expansion in the Ebitda margin to 37.3 per cent.

However, the company’s billing fell 43.9 per cent in Q1 because of the nationwide lockdown. Billing was down across key segments, including recruitment (naukri.com) and real estate (99acres.com). These two segments, which account for over 85 per cent of the company’s overall revenue, witnessed 44 per cent and 71 per cent decline in billing, respectively, in Q1.

This, in turn, points to top-line and earnings pressure for the company in the coming quarters. The management, during analysts’ call on Tuesday, also noted the sharp fall in billing would hurt revenue, unless billing improved materially, and so, the strong operating profitability would not sustain. Moreover, many of the cost-cutting measures observed in Q1 are temporary in nature.

Analysts at Axis Capital said in their note that Q1 billing was hit by Covid-19, which could impact Q2 revenue; they expected gradual recovery from the December quarter. Although the company is witnessing improvement in billing since the past couple of months as the economy is getting unlocked, September, which is typically a renewal month, is crucial and will present a clearer picture, according to the management.

Therefore, investors are recommended to wait for the management commentary regarding September quarter earnings. While there are questions over the near-term outlook for Info Edge, the recent rally in its stock (up 24 per cent in the past three months versus a 12 per cent rise in the BSE Sensex) has made valuations expensive, said an analyst. It is currently trading at 97 times FY22 estimated earnings.