Info Edge (IEL) posted Q2FY22 financial performance in line, but the strong growth in billing points to improving growth trends. Overall billing was up 61.3% y-o-y with recruitment, real estate and Shiksha growing y-o-y by 73.9%, 45.9% and 74.7%, respectively.
While macro tailwinds and leadership position are helping IEL’s core business, the stock’s re-rating is a result of the Zomato and PolicyBazaar IPOs triggering a valuation re-rating of investee companies. With no new IPO of an investee company in the pipeline, IEL’s stock will move in tandem with traction in core business. We maintain our estimates broadly and ‘Hold’ with a revised TP of Rs 6,484 (up from Rs 5,981) on a valuation rollover to Q4FY23e.
Strong billing growth indicates improving growth trajectory
IEL reported 37.3% y-o-y Q2FY22 revenue growth to Rs 3.5 bn, broadly in line with Street’s estimate. Ebitda margin jumped 1,010bps y-o-y to 30.2% (Street: 30.8%). The company has resumed its advertising spends as economy returns to normalcy. In the recruitment business, IEL is seeing strong growth in IT/ITES as well as other segments. Billing growth was strong – 61.3% y-o-y. With strong billing growth, we expect revenue growth to continue to be strong. As the recruitment and real estate markets remain buoyant, advertisement cost may not rise much, but technical manpower cost will weigh on margins.
No immediate valuation re-rating triggers
While Info Edge’s core business is on an improving trajectory, its 27% excess stock return (versus NIFTY) over the last six months is attributable to a significant valuation re-rating of Zomato and PolicyBazaar in the wake of their public market debuts, compared to their historical private market valuations. As there is no IPO of an investee company in the pipeline, the odds of a further rerating are low; the stock performance will hence depend on how core business does, stock performance of Zomato and PolicyBazaar, and pace of investments in core and non-core portfolios.
Outlook and valuation: Growth priced in; maintain ‘HOLD’
Growth prospects for Info Edge appear bright with momentum in the recruitment segment poised to sustain and recovery in the real estate segment on the anvil. However, valuations (98.6x FY23e EPS for core business) are rich. We maintain ‘HOLD/SN’ with an SoTP-based target price of Rs 6,484 as we roll over to Q4FY23E.