Shares of Info Edge (India) Ltd and Just Dial Ltd, two India-listed Internet stocks, have risen by 15.9% and 25.5%, respectively, since the former announced results earlier this month. According to an analyst at a multinational brokerage firm tracking the sector, there was nothing spectacular in Info Edge’s results. The recent rally appears to be more of a technical one, after a sharp correction in valuations earlier.
Justdial’s shares had more than halved and those of Info Edge had fallen by over 26% before the recent rally. In the unlisted space, funding sources have become less this year. But appetite for listed Internet stocks had abated even earlier. Besides, results of these companies have been lacklustre. Increased competition and the general slowdown in the Indian real estate market have hit Info Edge’s classifieds business in the real estate space (99acres.com). Losses in the segment have expanded in the past two quarters. In the September quarter, the company even reported a drop in the mainstay job classifieds business, Naukri.com.
Analysts at Nomura Research point out, “We believe there is a possibility of below 20% revenue growth for the Naukri business given a tad lower growth in IT markets like Bangalore (at 20-25% year-on-year in the second quarter of FY16 versus 30% year-on-year growth in the prior quarters). IT contributes around 30% of the recruitment business and hence a 500 bps (basis points) lower growth overall could lead to 150 bps impact."
Meanwhile, Justdial’s paid listings grew by just 0.8% sequentially in the September quarter, far lower than the Street’s estimate, leading to a massive selloff in its shares soon after the results were announced.
Ironically, the company’s shares have nearly recovered all of its losses. Its buyback tender offer seems to have helped sentiment, although this had been announced in August. In any case, there’s no reason why the company should rise as sharply for a buyback that amounts to just 1.5% of its share capital.
In the backdrop of lacklustre results, the recent revival in interest for these stocks looks a bit out of place.
The writer does not own shares in the above-mentioned companies.