Here is an opportunity for you to invest in the growing online classifieds market in India. The company we are analyzing today is Info Edge which owns prominent portals like Naukri.com, 99Acres.com and JeevanSathi.com. Naukri.com is the largest online job portal in India having more than 60% market share.99Acres.com is the largest real estate listing portal in India and JeevanSathi.com is the 3rd largest online matrimony portal in India.
Introduction
Info Edge is a technology driven company, relying primarily on the internet as the main medium of information delivery. Its business is more concentrated in India and is directly linked to the Indian growth story. Info Edge operates in the online classifieds space which is still at a very nascent stage in India and has lot of exponential growth potential. Most of its products cater to the growing influential and financially independent young population of India.
There are many factors that will determine the fortunes of long term business growth of the company in India. If you want to be part of the India growth story Info Edge is one of the best company you should have in your portfolio. So of the factors that will affect the growth of this company going forward is given below
- A consistent GDP growth (Anything above 8% consistently for 3-4 years will work wonders for this
Company)
- The rise of Indian middle class. According for an NCAER study the Indian middle class population will be
54% of the total population from the current 26% by 2013
- Growing number of young and mobile generation
- Overall economic progress and the resulting job creation and opportunities.
Business Prospects & Valuation
I combined both the business prospects and valuation for a specific reason. The reason is if you do a conservative analysis of profits, revenues and all other normal valuation parameters this company will appear to you ridiculously overpriced with very little scope for any capital returns. However from the time it got listed this company commanded such high valuation and this is one of the companies which is much fancied by FII’s and is always on their radar.
First some valuation parameters.
The FY10 revenues will be close to 240Cr with a NP of around 70Cr. At the CMP of 900 the Market Cap is close to 2400Cr. This gives a Market Cap/ Sales ratio of 10 (Most manufacturing companies will have this value in the range of 1-2). The FY10 EPS will be in the range of Rs 25 which means a PE of 35. The company is Deft free and has liquid cash and investments to the tune of 355Cr.
This gives you a feeling that why this market is giving this company such a rich valuation. What makes this company different from other companies which also in some way track the Indian growth story.
The important differentiator that this company brings to the table is that this company has in its fold some of the very few successful online portals which cater to the growing Indian online market. Also many of these online portals are independent business in itself with multiple revenue models (Not just the ad revenues). In fact it is not correct to call these as portals there are mostly online classifieds with multiple revenue models.
The simple fact that the online classifieds market in Indian has just taken off with lot of scope of exponential growth in the coming years itself makes this company very attractive. The company is also debt free with a surplus cash of close of 350Cr in its books. This gives lots of benefits from a competition point of view. Apart from the high entry barrier this creates for the new players it also offer the company with the added advantage of creating new ventures with multiple revenue models relatively cheaper leveraging its existing brands which are already successful.
The other benefit of its business model is that this is a no debtor business. That’s quite interesting. Company’s normally spend quite a lot of time, money and effort in getting the money back from its customers or partners for the goods and services it has already sold. There are ample cases where this money is never recovered at all. Normally for a brick & mortar business this can take anywhere between 90-180 days. (I have not seen many cases where this time is less than 90 days). So this gives the company in a very sweet spot where the debtor days are 0(Zero). This also makes sure that the company will have a very healthy cash flow from its operations (Operating Cash Flow). The direct benefit is that the company will have enough financial strength and managerial power to sustain their business even in adverse business conditions.
Now you know why this company is commanding a premium in Indian browses. Now let us see in detail the business prospects of each of its business verticals.
Online Jobs classifieds
This vertical is the cash cow for the company. The brand Naukri.com is a well known and reputed brand in India when it comes to job search business. Presently this segment is dominated by two major players Naukri.com and Monster India. Naukri is the largest player with 61% market share.
Jobs normally are of a very high interest category. This along with a booming economy augers well for the online job listing market in India. Majority of Info Edge’s revenue comes from this vertical. Company has managed to register moderate growth both in revenues and profits even in difficult times.
Having a well known brand has its own advantages in terms of leveraging its brand to start new revenue generation streams. Info Edge has done exactly the same with the brand Naukri. While Naukri.com caters to the booming lateral hire market they have successfully created FirstNaukri to bring the campus and the recruiters together. These two brands cater to the needs of two different segments of the job market and the company was able to leverage its market leadership in the first segment to successfully create a new market segment.
FirstNaukri.com, relatively new has lot of potential going forward. With many IT and non IT companies looking to recruit fresh graduates from the campus this product has created an ideal platform for both of them. And more over this platform has created a new market in itself where the possible revenue can come from both the recruiters and also from the campus placement cell who want to connect to their recruiters. And with close to 5 lakh engineering graduates passing out every year will make sure that there is enough traffic created.
Along with the above two properties the company also owns NaukriGulf.com which focus on the jobs in the Middle East. However with lots of uncertainty in the economic conditions of Middle East countries the revenue visibility is low as of now.
Online Matrimonial Classifieds
Info Edge has a presence in the online matrimonial space in the Indian market (JeevanSathi.com) and is one among the 3 major players. The other players are BharatMatrimony and Shaadi.com which are strong players in the south and the NRI market in India. JeevanSathi is a strong player in the Northern side of India.
Online matrimony space in India is still evolving and with the increase in young and educated population In India along with a strong internet penetration this sector is a no brainer in the long run. But how many firms will survive in the end and in what form is slightly difficult to predict as of now. JeevanSathi is showing great promise and is in the verge of a breakeven (Reported a Rs 1.6m EBITDA loss this Qtr).
The business prospects of this segment are to do more with the cultural background of India. The marriage data aggregation is not a new concept in India which traditionally was dominated by specialized agents mostly linked to religious centers. Even though the young and the restless generation of India want to choose their partners of their choice their parents still have a final say in finalizing things. The online matrimony platforms play a greater role here which brings the bride, bridegrooms and also their parents together. With over 300m people in India getting married over the next 30 years I think this sector is having a long term potential. However a specific portals success will mostly depend on how it responds to the challenge of cultural, cast and religious preferences of this market segment.
Recently the company has revamped the positioning of Jeevensathi and introduced a new ad campaign which has been received well by the market. I think this sector will grow in an orderly manner and will bring a steady revenue stream for the company in the coming years.
Real Estate Classifieds
Info Edge’s presence in the online real estate classifieds market is through the portal 99acres.com. This is also in the investing phase and has lot of potential in India. Here the company aims to bring buyers, developers and agents to a single platform. 99acres is the major player in this sector and the other major player is magicbricks.com, owned by the times group.
The recent economic slowdown had made 99acres position strong in the market where the company has made investments in reaching to the developers and making customized solutions for them which has catapulted them in to the market leader position. The marker share of 99acres is 40% and that of magicbricks is about 30%.
With the Indian economy getting back to the growth path this is one sector which is going to receive lot of attention going forward.
Educational Classifieds
Info Edge recently started Shiksha.com to cater to this space. Before going to see how company could leverage its brand there let us first see the prospects of this business in India.
Education is the most promising and lucrative business in India especially after the private sector participation. One estimate gives its value already at USD 40b and is growing at double digits. There is enough competition among educational institutions to get the attention of prospective and bright candidates. The advertisement spend by educational institutions in India is estimated at 2000-2500Cr annually and most of these is being taken by the print media. The online advertisement spend is estimated at around 40Cr.
So the potential is there for this segment but being a new one the company has to work out a unique strategy which will bring good information about the college and its course content to prospective candidates. And this initiative is still in an investment mode and will take some time before serious revenues come in.
Cross Selling Opportunities and Operational Synergies
Even though it seems most of the new business segment that the company has started other than the Naukri cater to new verticals and might require lot of marketing investment, that’s not quite true. Most of these new verticals are extensions of their existing models either forward or backward and mostly the costs are just incremental in nature. For example the same Naukri sales team can sell the FirstNaukri to the campus and along with them can cross sell Shiksha benefits to them.
Other Investments
The recent economic slowdown has taught the company the benefits and the necessity for creating multiple revenue engines which can lessen the impact of an economic slowdown. This strategy is reflected in many of the new initiatives that the company has started recently. Apart from that the company has investments in many of the promising startups like MeritNation.com, PolicyBazaar and also owns a professional social networking firm Brijj.com. Most of these are in early stages of investment and very difficult to predict the success rate.
Conclusion
Valuation wise you will see this company fully priced at the current levels but the prospects of its existing and new business in a recovering market will make up for that. I would recommend a buy for this stock at the current levels (Rs 900) for a minimum investment period of 2-3 years. Another factor that needs attention is the quality of the management. They are very transparent and this is one of very few listed firms in India which gives a Quarterly cash flow statement of their accounts and also a detailed report of the cash they hold.
Subscribe to:
Post Comments (Atom)
No comments:
Post a Comment