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Stock markets had a rough year just about everywhere. Photo: iStock
Stock markets had a rough year just about everywhere. Photo: iStock

Info Edge shares are factoring in upsides despite dull results

Part of the reason for stock cheer is the recovery seen in Zomato, whose revenue run-rate is near pre-covid levels

Info Edge (India) Ltd’s second-quarter numbers fell short of analysts’ expectations after lower billings in its flagship recruitment business. Overall revenue slipped 19% year-on-year (y-o-y) in Q2. But that has not deterred investors just yet. The stock gained 11% since its results were announced, rising to a new 52-week high on Tuesday.

It seems investors are betting on a rise in revenue in the coming quarters along with an increase in the value of its investments in Zomato and PolicyBazaar. But the stock’s valuations have soared as well.

Covid-19 has hit revenue growth in Naukri and 99Acres and billings have dipped 20% y-o-y in recruitment, and 23% in real estate segments. Sure, there are signs of sequential uptick as IT recruitments are at pre-covid levels.

Healthcare, telecom and education segments are also seeing good improvement in billings. However, travel and hospitality recruitments may take time to recover. So, revenue growth may improve from here on.

Pandemic hit
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Pandemic hit

While that is good, operating profits for the quarter were hit due to lower revenues and high expenses. Its matrimony vertical’s increased marketing activity mean that ad spends may remain alleviated.

The company has seen its Q2 Ebitda dip to 48% y-o-y. Margins shrank to 20.1% from 31.4% in the year-ago period. In the coming quarters, while operating leverage may improve, it will still take time to reach pre-covid levels. Operating metrics may show good improvement in the second half, but overall margins will take time to reach pre-covid levels. Ebitda is earnings before interest, tax, depreciation and amortization.

Part of the reason for the optimism in its stock is the recovery seen in Zomato. Its revenue run-rate is now near pre-covid levels, which is due to higher-value orders.

Even while ordering levels are yet to recover to pre-covid levels, cash burn has reduced. “From a Zomato perspective, delivery volumes have recovered to pre-pandemic levels and appear on track to hit operating profitability in the coming quarters," said analysts at Nomura Financial Advisory and Securities (India) Pvt. Ltd in a client note.

Still, the stock’s valuations at 112 times FY22 earnings, as per Bloomberg consensus estimates, seem quite rich. Analysts noted that valuations are expensive due to high dependence on economic recovery. “While execution remains top-notch, dependence of its core vertical on economic recovery could jeopardize growth rate in the medium term," said Edelweiss Securities Ltd analysts.

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