Growth outlook helps info edge, but don’t lose sight of margins

Recruitment across industries has picked up, with trends being particularly strong in the IT sector. In a report on September 7, analysts at ICICI Securities Ltd said: “Net EPFO ​​additions in June 2021 were around 85% higher than the pre-Covid run-rate.” “We expect the employee job market to last at least 12-18 months (versus the employer market now for 5+ years),” the broker said.

Against this backdrop, the demand for search platforms like Naukri is expected to strengthen, which will benefit Info Edge. ICICI also expects bright prospects for real estate classifieds and marriage listings. This, in turn, is expected to bode well for the 99 acres and Jeevansathi segment of Info Edge.

Still, it’s worth noting that 99Acres and Jeevansathi account for a relatively small portion of Info Edge’s sum-of-the-parts (SOTP) valuation. “These two segments don’t move the needle dramatically for the info edge,” said an analyst requesting anonymity. Moreover, the competitive intensity in these segments is intense.

Despite the upbeat growth prospects, investors would do well to follow the margin trajectory. There are “wage hikes and A&P expenses (to prevent margin expansion),” analysts at JM Financial Institutional Securities Ltd said in a report on August 16. The broker has cut its Ebitda margin estimates by 60-170 basis points for FY 22-24. Ebitda is earnings before interest, taxes, depreciation and amortization. One basis point is one hundredth of a percentage point.

Info Edge’s management indicated that if the strong demand trend for product and technical staff continues, there could be some pressure on its employee cost. “Furthermore, it continues to spend aggressively in Jeevansathi and is likely to increase spending in the real estate vertical (as demand conditions improve),” said analysts at JM.

To be sure, after considering Wednesday’s gains, Info Edge stock has now more than doubled (118%) from its pre-Covid high seen on February 7, 2020. True, the successful initial public offering of the investment firm, Zomato Ltd. has also helped. sentiment for the stock. Hence, investors are likely to follow the potential listing of the investee firm, Policybazaar.

Info Edge’s long-term growth outlook is upbeat, but investors should note that the current valuation is quite good. A sharp appreciation of the stock could lead to significant upside in the short term. Furthermore, a possible third wave of COVID poses a general risk and Info Edge will not be immune from it.