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Business News/ Markets / Mark To Market/  Growth outlook helps Info Edge, but don’t lose sight of margin
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Growth outlook helps Info Edge, but don’t lose sight of margin

The Info Edge stock’s sharp appreciation could well cap significant upsides in the near-term

Photo: iStockPremium
Photo: iStock

Info Edge (India) Ltd shares jumped more than 8% on the National Stock Exchange on Wednesday, also touching a new 52-week high. One reason for the optimism has been the excitement around the firm’s Naukri or recruitment business.

Hiring has picked up across industries with trends in the IT sector being particularly strong. In a report on 7 September, analysts from ICICI Securities Ltd said: “Net EPFO additions in June 2021 were about 85% higher than the pre-covid run-rate." “We foresee an employees’ job market for at least 12-18 months (versus employers’ market for 5+ years now)," the broker added.

In this backdrop, demand for search platforms such as Naukri is expected to be robust, thus benefiting Info Edge. ICICI also expects bright prospects for real estate classifieds and wedding listings. This, in turn, is expected to augur well for Info Edge’s 99acres and Jeevansathi segments.

Pause in momentum
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Pause in momentum

Even so, it is worth noting that 99acres and Jeevansathi account for a relatively smaller share of Info Edge’s sum-of-the-parts (SoTP) valuations. “Both these segments don’t move the needle dramatically for Info Edge," said an analyst requesting anonymity. Furthermore, competitive intensity in these segments is steep.

Upbeat growth prospects notwithstanding, investors would do well to follow the margin trajectory. “Salary hikes and A&P expenses (are) to keep margin expansion in check," said JM Financial Institutional Securities Ltd’s analysts in a report on 16 August. The broker has cut its Ebitda margin estimates for FY22-24 by 60-170 basis points. Ebitda is earnings before interest, tax, depreciation and amortization. One basis point is one-hundredth of a percentage point.

Info Edge’s management indicated that there could be some pressure on its employee costs if strong demand trends for product and tech employees sustains. “Moreover, it continues to spend aggressively in Jeevansathi and is likely to increase spends in the real estate vertical (as demand situation is improving)," said JM’s analysts.

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

Even as Info Edge’s long-term growth outlook is upbeat, investors should note that the current valuations are rich. The stock’s sharp appreciation could well cap significant upsides in the near-term. Furthermore, a potential third wave of covid poses a general risk and Info Edge won’t be immune to that.

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ABOUT THE AUTHOR
Pallavi Pengonda
Pallavi is a deputy editor at Mint and heads the Mark to Market team. This column covers wide-ranging topics related to the stock markets, offering an in-depth analysis of financial reports of companies. She writes and edits across verticals, covering the breadth of the Indian stock market. Pallavi has done her master of management studies, specializing in finance.
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Published: 08 Sep 2021, 10:31 PM IST
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