Info Edge wades through pandemic stress in Q4, but FY21 will be slow

While the business of recruitment and real estate listings took a hit in the fourth quarter, Info Edge’s Q4 numbers did quite well to meet analysts’ expectations. While the company lost some revenue momentum during the lockdown, some of this was factored in. As a result, the Street was impressed with the results and the stock jumped 6.7% on Tuesday. But there is trouble ahead, and investors will do well to tread cautiously.

Info Edge’s standalone revenue saw a steady improvement of around 10% year-on-year (y-o-y). Against the backdrop of a slowing economy, the growth in its recruitment business, of about 11.2% y-o-y, was also along expected lines. But the company, which runs the portal Naukri.com, among others, struggled for growth in the real estate segment, with segment revenues growth of about 3.6% y-o-y.

Furthermore, billings for both the recruitment and real estate businesses have been weak, showing that the stress in both businesses is mounting. Recruitment billings were down 6% y-o-y, while real estate billings were down about 24% y-o-y.

Margins were also lower compared to last year, thanks to an increase in employee and other overhead costs. One worry is the continuing losses in its investee companies, which dragged its consolidated numbers lower. In Q4, the losses amounted to about ₹136 crore, compared to about ₹147 crore in Q3, noted analysts. While the company has managed to pull through, for now, the coming quarters are likely to be a challenge. Signs of economic stress are mounting.

With both the recruitment and the real estate businesses largely linked to economic growth, the slowdown will impact cash flows.

The firm has already seen some stress in collections during April. “Further, compared to monthly billing of ₹81 crore in 4QFY20, April 2020 billings were down to ₹31 crore, implying a significant slowdown in business. We believe this trend may not change for the next 2-3 months as businesses freeze hiring and/or retrench employees. It is thus logical that there may be loss of customers as well as pricing pressure for Naukri,” said Kotak Institutional Equities analysts in a note to clients. A capital raising plan of about ₹1,875 crore is under way and should keep the books buffered with cash to tide over the slowdown and to make investments. The firm is also tightening costs.

Nevertheless, earnings pressure is expected to mount in the first half, with a revival expected only in the second half. “Downward revision to revenue estimates negatively impacts margins and drives a 23-48% cut in FY21-22 estimated earnings,” said Kotak in the note.