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Info Edge: Spreading its wings wider

Sep 25, 2009

Info Edge India, better known for its brands like naukri.com and jeevansathi.com is a Noida-based leading online-classified company. We recently met its management to understand the business model of the company and discuss about the general business environment. Here are the key takeaways from the same. Company background
Info Edge India (IEI) is a leading provider of online recruitment, matrimonial and real estate classifieds and related services in India. The company was incorporated in 1995 as Info Edge (India) and went public in April 2006.

Its main strength lies in Ďmaking people shake handsí i.e., acting as a bridge between the demand side and supply side in the areas of recruitment, real estate, matrimony and education. The company has five key business divisions:

  • Recruitment classified (www.naukri.com, naukrigulf, asknaukri, firstnaukri);

  • Matrimonial classified (www.jeevansathi.com);

  • Real estate classified (www.99acres.com, allcheckdeals);

  • Education portal (Shiksha); and

  • Offline executive search (Quadrangle).

IEIís revenues have grown at an average annual rate of over 84% during the period FY04 to FY08. It has a cash rich balance sheet with negligible debt. It has around 1,164 employees including an in-house tech team of around 250 people which is deployed across its online business verticals.

In case of naukri.com, the major revenue streams are those from job listing, employer branding services and access to resume database. It also generates money through job seeker services, advertising, resume short listing and screening services. In case of 99acres.com, revenue comes for property listing from developers, builders and brokers. The matrimonial business generates revenue through subscription.

Key takeaways from the research meeting
Business environment: The global downturn has affected all, and IEI has been no exception. The companyís performance was largely impacted by slowdown in the recruitment and real estate markets in India. In order to cope up with the tight business scenario, it focused on improving sales force and telesales efficiency and controlling costs. Though there is still time for a complete turn-around, the management sees some improvement in overall market sentiment.

IEI counts strong customer-relationship, dedicated sales force, superior products, technology, and a very strong brand as safe and strong moats around its business. These, the management believes, pose as an entry barrier to any startup or existing player challenging IEIís forte.

On competition: IEIís management believes that a lot of competitive activity has resulted in a market expansion in the recruitment and matrimony space. However, it believes that its peers were hurt more severely by the global downturn. In the recruitment space, competitors like monster.com and timesjob.com face major issues on management fronts, are cash-strapped, and have lost a lot of market share in recent times. The other players in the matrimony and real estate businesses might see a cash crunch as well.

On FY09 performance: In FY09, IEI recorded a 12% YoY growth in its topline. Naukri.com (online recruitment classified division), which accounts for over 85% of the topline mainly aided the growth during the fiscal. Its operating margins contracted by 3.2% as operating profit on account of increased network and employee cost.

IEIís bottomline grew by a marginal 3% YoY, mainly impacted by contraction in operating margins. Owing to the global downturn, the performance remained muted during FY09, as online recruitment and real estate business took a beating. Although, confident of its strong fundamentals, the company made investments in its online education portal Ė Shiksha.com.

On expansion plans: IEI sees a lot of potential in the online education market. It will continue to invest in sales force and product for its educational classified business, Shiksha.com. The company is also focused on maintaining its market share through appropriate investments in advertising and marketing.

On future outlook: IEIís management counts the low penetration of Internet and its poor quality in India as a major risk to its businesses. On a philosophical level, the management held the lack of trust among people living in the contemporary society as the major hurdle in the stellar success of the online businesses in India so far. In order to keep competition at the bay, the management believes that the need is to remain focused on timely execution of business strategy. Educating users is another priority.

What to expect?
At the current price of Rs 662, the stock is trading a multiple of 30 times its trailing 12-months earnings. Though we are enthused by the long-term prospects of the company, we find its current valuations a tad expensive. Although the fact remains that these valuations would remain high on the back of the stock enjoying a scarcity premium (due to absence of listed companies with similar businesses). Overall, we believe that IEI will be a direct beneficiary of economic growth, changing demographics behavioural patterns, and improved communications infrastructure in the country over the next few years.

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