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Info Edge rating – Hold: Steady set of numbers in the first quarter

While real estate segment was impacted due to lockdowns, return to normalcy will drive growth.While real estate segment was impacted due to lockdowns, return to normalcy will drive growth.

Info Edge (IEL) reported a steady set of Q1FY22 numbers. IT/ITES is seeing increased hiring, which will continue to drive revenue and billings growth for recruitment segment. While real estate segment was impacted due to lockdowns, return to normalcy will drive growth.

We believe valuation rerating in IEL portfolio firms and possible investments further fortifying the moat of the core business will keep investors interested in the stock. We are raising FY23e EPS by 13% to factor in stronger hiring demand, and increase valuation of portfolio companies like Zomato, Policybazaar, etc., to arrive at Rs 5,981 (from Rs 5,460) TP, rolling over to Q3FY23e. Maintain Hold due to expensive valuations (54x FY23e EPS for core business).

Steady growth across verticals: IEL’s Q1FY22 revenue at Rs 3.2 bn, up 14.1% y-o-y, was broadly in line with Street’s estimate. Ebitda margin bounced back to 31.2%, from 18.3% in Q4FY21, as the company curtailed advertising, promotion and other expenses. Billings and deferred revenue jumped 66% and 36% y-o-y, respectively.

Value unlocking from investments to continue: Valuation rerating in Zomato with the IPO has enthused investors on the upcoming Policybazaar IPO. We are building in ~$5.0 bn valuation versus $2.4 bn in the last funding round. With this, investors will see potential value creation from other investee companies as well.

Outlook: Growth priced in– Considering strong hiring trends in IT/ITES and demand in the real estate sector, IEL’s business outlook is strong. Going ahead, capital allocation will remain key to future value creation. We maintain ‘HOLD/SN’.

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