Info Edge impresses on returns, but downgrades begin to appear

In the past year, shares of Info Edge (India) Ltd, which runs internet portals Naukri.com and 99acres.com among others, have been on a tear, zooming 47%, thanks largely to the increase in valuations of its investments in Zomato.com and Policybazaar.com. The food delivery business has been successful in raising funds from marquee investors at higher valuations. Its insurance arm, has been fairly successful in this regard as well.

This rubbed off positively on the Info Edge stock. Note that the rally in its shares comes at a time when the markets have corrected by nearly 10% in the past year. But as valuations have been tipping too high, analysts have started to downgrade the stock.

“Info Edge’s market leadership positions in the recruitment and real estate segments, as well as investments in Zomato and Policybazaar make it well-positioned in the classifieds space. Current valuations, however, more than capture these positives,” said analysts at Kotak Institutional Equities. The brokerage house downgraded the stock to “sell” lately.

Meanwhile the company’s stand-alone numbers are showing an encouraging trend in the recruitment business, though its investments in other ventures are still losing money. Billings on its flagship jobs portal Naukri.com remained robust and continued to lead the revenues.

Overall, revenues grew at 20.5% on a stand-alone basis in the first quarter as compared to last year, much in line with what analysts were estimating.

Recruitment revenues grew 19.2% year-on-year through Naukri.com. Those at realty site 99acres.com grew at a faster clip at about 34.6% year-on-year, but that’s because the base is smaller. Other segments contributed about 10% of revenue growth.

As pointed out earlier in this column, Info Edge is a bit off an oddball in the internet space. Its mainstay businesses have fairly steady profits and cash flows. Of course, the story is different when it comes to its investments such as Zomato. But even there valuations have risen as a result of investor interest. With valuations now seeming full and downgrades beginning, it remains to be seen whether returns will continue to impress.