BackInfo Edge shares tank on Q3 loss, concerns over IT sector slowdown
The next few quarters will be crucial for Info Edge’s flagship platform Naukri as IT hiring has slowed down considerably and non-IT demand may be unable to fully offset this slowdown
PremiumShares of Info Edge (India) Ltd were down by more than 10% during trading hours on Monday on the NSE. The company slipped into losses in the December quarter (Q3FY23) owing to recognition of impairment charge of Rs276 crore on investment in 4B Networks Pvt. Ltd due to uncertainty in the funding environment. As things stand, Info Edge does not expect to realize further impairment charges on other investments but the situation remains dynamic.
“The company has impaired its investment in 4B Networks in a short period of time. As such, it raises concerns on its existing and new investments," said Piyush Pandey, analyst at Yes Securities.
The company’s key investments include 14% stake in Zomato Ltd and nearly 13% stake in PB Fintech Ltd.
Further, the slowdown in hiring in the information technology (IT) sector could be another factor weighing on investor sentiments. This sector forms a significant chunk of recruitment vertical, which primarily comprises Naukri, which is Info Edge’s flagship platform.
While billings in the recruitment vertical rose by almost 18% year-on-year (y-o-y) in Q3, the pace of growth has slowed down. For perspective, in the June and the September quarter, billings growth stood at about 65% and 41%, respectively.
Analysts reckon that Info Edge’s revenue growth has been strong. Operating revenue was up by 4% sequentially and Ebitda (earnings before interest, tax, depreciation and amortization) margin was at a multi-quarter high of 39%. All segments except Jeevansathi saw y-o-y revenue growth. The matchmaking business saw good traffic but the company’s strategy of providing free services meant drop in revenues.
However, except the recruitment business, all other segments continued to report losses. The real estate segment, 99acres, is facing high competitive intensity and interest rate hikes have dented demand here.
To be sure, near-term headwinds in the IT sector is a point of worry and this means the Info Edge stock would face pressure. But it augurs well that hiring in non-IT sector is strong. “The next few quarters will be crucial for Naukri as IT hiring has slowed down considerably and non-IT demand may be unable to fully offset this slowdown," said analysts at Kotak Institutional Equities in a report on 13 February.
The broking firm has cut FY2024-25 revenue estimates by 7-8% and profit after tax by 12-15% primarily on lower growth estimates for Naukri.
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