Info Edge continues to be blunted by dull IT demand

Naukri.com, derives more than half of its revenue from the IT sector, where demand conditions have been subdued. (Mint)
Naukri.com, derives more than half of its revenue from the IT sector, where demand conditions have been subdued. (Mint)

Summary

Info Edge’s real estate and matrimonial business are seeing strong traction, but remain in the red

For Info Edge (India) Ltd, the information technology sector continues to be its Achilles’ heel. Its recruitment business, which includes Naukri.com, derives about half of its revenue from the IT sector, where demand conditions have been subdued for a while now.

While Info Edge’s December-quarter results met expectations, its clouded outlook has left investors jittery. Info Edge’s shares are down by over 5% the past two days following its Q3 results.

 

 

The Naukri JobSpeak index–a measure of white-collar hiring in India–shows that hiring in the IT sector fell by 21% year-on-year in Q3. Still, healthy demand trends in non-IT sectors such as healthcare, manufacturing and BFSI (banking, financial services, and insurance) restricted the fall in the JobSpeak index to 14% in Q3.

Revenue from Info Edge’s recruitment business, as a result, grew by 3% year-on-year, its slowest pace in at least the past eleven quarters.

The recruitment business also faces margin headwinds. In Q3, pretax profit margin stood at 57.6%, down 390 basis points year-on-year. “We believe negative operating leverage and continued spends on new products (such as Jobhai) impacted margin print," Kotak Institutional Equities said in a report. (Jobhai.com is a recruitment platform for blue-collar hiring.)

Moreover, Info Edge is expanding its network into tier-2 and tier-3 cities and making investments in artificial intelligence and machine learning to improve user experience. This means more pressure on the margin.

“We contend the IT business headwind should start to moderate, going forward, given lower than historical attrition and higher than pre-covid utilization," said analysts at Nuvama Research in a report on 13 February.

In other verticals, Info Edge is seeing strong traction. Its real estate business, 99acres.com, clocked year-on-year revenue growth of nearly 22% in Q3. The company noted that despite a considerable rise in home prices, demand from customers remained strong.

Demand, in fact, was ahead of supply, and billing growth was led by a rise in brokers’ engagement on the platform. However, the business is still in the red, and Info Edge aspires to break even in the next year.

In its matrimony website, Jeevansathi.com, the company has seen an increase in traffic helped by offering paid services free of cost. It aims to focus on improving its monetisation strategy and driving healthy growth in billings. But the competitive landscape is tough, and other top players are seeking to expand their market share.

In Info Edge’s education website, Shiksha.com, there are opportunities for it to grow because of the establishment of more private universities in India.

But both these businesses are currently running in losses.

All said, the fortunes of the IT sector need to improve to brighten Info Edge’s earnings prospects. “We trim Naukri revenues by 3-4% and Ebitda forecasts by 4-7% for FY2025-26E though overall earnings per share remains unchanged on lower losses from other segments," Kotak said in its report.

Meanwhile, with the Info Edge management investing prudently, some of its current bets should scale up over the medium-to-long term, thereby contributing to the group’s valuation, said analysts at Motilal Oswal Financial Services in a report on 14 February.

Among listed companies, Info Edge holds about a 14% stake in Zomato Ltd and a 13% stake in PB Fintech Ltd. The market capitalisations of these companies have risen sharply over the past year, thus having a positive bearing on Info Edge, whose shares have gained by over 45% in the same period.

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