Info Edge (India) Limited is an Indian internet company that was founded by Sanjeev Bikhchandani in 1995. The company runs an online job portal Naukri.com, a matrimony website Jeevansathi.com, a real estate classifieds platform 99Acres.com and an educational website Shiksha.com.
The company’s shares have 52 weeks price band of INR 3130-1581 and a total market capitalization of INR 264 billion which makes it a Mid-Cap company. The shares have a dividend yield of 0.37%
Now, let’s take a deep dive into the fundamentals of the company.
The company will be evaluated on 10 categories and each would be given a rating out of 5 stars. From this, we will arrive at a combined stock rating for the company. As the ratings are based on long term past performance, they are relevant for at least 3 years in the future until FY 2022. The categories are as follows.
- Economic Moat
- Business Model and Management
- Growth Ratios
- Profitability Ratios
- Cash Flow Ratios
- Liquidity and Solvency Ratios
- Efficiency Ratios
- Valuation Ratios
- ROE (Du Pont Analysis)
- Future Prospects
(All units are INR Millions except ratios and per share data)
You can get the complete excel model used for this analysis from below:
1.Economic Moat (★ ★ ★ ★ ☆)
The company works in internet and aggregation service Industry where market dominance comes through user base, infrastructure, branding and reach. In case of Naukri.com the company has around 50+ million registered job seekers and an average of about 15,000 résumés are added daily while about 250,000+ resumes were modified each day. This gives the company a market lead in the business. In case of 99acres.com, the number of property listings on the site reached 6+ million by FY 2019, with paid listings accounting for 0.5+ million.
In case of Jeevansathi.com, the company has 10+ million profiles (ever loaded) on their site and the revenue model is such that it is free to list, search and express interest, but pay to get contact information. This overall gives a considerable economic moat across all diverse lines of business for the company. Therefore this category gets 4 stars Info Edge fundamental analysis.
2. Business Model and Management (★ ★ ★ ★ ★)
The business model of the company is such that it is a market leader in recruitment classifieds and other related services. It also holds a stake in other online companies including two unicorns—the food delivery company Zomato (25.13% stake, as of January 2020) and the insurance aggregator PolicyBazaar (19% stake, as of November 2019). Also, more than 70% of the company’s revenue comes from the job portal Naukri.com. In 2020, the company set up a venture capital fund, Info Edge Venture Fund, to invest in online startup companies
Jeevansathi.com was acquired by Info Edge in September 2004. The sizeable opportunity in this space is still restricted largely to arranged marriages with parental consent. Given the challenges, Jeevansathi.com has successfully managed to establish a leadership position among select communities in north and west India. While focusing on gaining market share, there is emphasis on maximizing the flow of paid customers to its social network. This overall shows a well diversified business model for the company.
Mr Sanjeev Bikhchandani is the Founder and Executive Vice Chairman of the company. Mr Hitesh Oberoi is the Managing Director and CEO. Overall the management has been able to lead the company in a direction of strategic growth and has shown interest in shareholder’s wealth creation. Therefore this category gets 5 stars Info Edge fundamental analysis.
3. Growth Ratios (★ ★ ★ ★ ★)
The revenue has shown a growth of 19.19% CAGR over the last 10 years. The operating income and net income has also grown at 14.43% and 31% CAGR respectively. This shows improving efficiency and profitability for the company. The working capital is also positive and has shown a linear growth. Capital expenditure has remained flat even with an increased scale. Therefore this category gets 5 stars Info Edge fundamental analysis.
4. Profitability Ratios (★ ★ ★ ★ ☆)
The gross margin has been stable over the years even with wage inflation and increased cost of services delivered. The other margins along with return on assets have declined but has shown signs of recovery. This is a nature of the aggregation business where certain costs decline with increase with increased scale and improves profitability. Therefore this category gets 5 stars Info Edge fundamental analysis.
5. Cash Flow Ratios (★ ★ ★ ★ ★)
The net income margin has seen a good improvement over the years as opposite to the Cap-Ex as a percentage of sales. This also shows that growth is driven majorly by organic means without any new acquisitions. The free cash flow as a percentage of net income has been positive and stable over the years. The free and operating cash flow growth has been fluctuating but this is the nature of the business. Overall the company has shown a solid cashflow position. Therefore this category gets 5 stars in Info Edge fundamental analysis.
6.Liquidity and Solvency Ratios (★ ★ ★ ★ ★)
The company does not have any debt in its capital structure therefore the financial leverage and debt to equity ratio has been flat over the years. The profitability margins have improved over the years hence there is no significant concern to the solvency of the company. The current and quick ratio has been stable over the years and still way above the minimum threshold which shows a good liquidity position. Therefore this category gets 5 stars in Info Edge fundamental analysis.
7. Efficiency Ratios (★ ★ ★ ★ ★)
The table in the excel model is colour formatted so the worst performance over the period is highlighted in red colour and the best performance is highlighted by green.
Overall the business efficiency has not seen any significant changes over the years and this is because of the nature of the business. The payables period has increased from 912 to 844 days and the receivables days have declined. The cash conversion cycle has only seen a small increase from -895 days to -841 days and it is still negative. This is a good indicator of business efficiency. Therefore this category gets 5 stars in Info Edge fundamental analysis.
8. Valuation Ratios (★ ★ ★ ★ ★)
The company traded at a higher valuation since the 2012 period due to the bull rally in the Indian Technology sector which was led by the digitalization and internet boom in the economy. The company has managed to sustain the multiples over the years due to prudent cash generation and deployment along with expansion into new businesses. The multiples, however, are likely to increase in the coming years. Therefore this category gets 5 stars in Info Edge fundamental analysis.
9. ROE 5 way Du Pont Analysis (★ ★ ★ ★ ☆)
The leverage ratio along with asset turnover has seen a slight decline over the recent years. The interest burden ratio has remained at 100% due to no interest-bearing debt in the capital structure of the company. The operating margin has seen a great improvement and the tax efficiency has improved. Overall the Return on Equity has been stable even with declining asset turnover. Therefore this category gets 4 stars in Info Edge fundamental analysis.
10. Future Prospects (★ ★ ★ ★ ☆)
Some insights for the coming years from the analysis, management discussions and con calls are as follows.
- Indeed and LinkedIn are the major competitors for the company. Even though, LinkedIn has better technology, it has not been able to eat much into Naukri’s market share due to strict privacy policies that restricts the platform from providing a candidate’s contact information without prior permission.
- The management is also looking into premium hiring through its internal platforms namely bigshift and IIM Jobs. They are investing significantly to gain higher market share in this segment.
- 99acres.com has also been doing well. Despite Covid-19 effects, long-term prospects outlook remains. The revenue split is such that Brokers contribute around 53% of the revenue, while share of builders and owners stands at 41% and 6%, respectively.
- Jeevansathi.com remains at 3rd position in its segment with an overall market share of less than 15%.Majority of revenue comes from South India, which is majorly dominated by Matrimony.com.
Overall the company has solid fundamentals, prudent cash allocation and good growth prospects in the coming future. The margins are also expected to improve along with efficiency in the coming years. Therefore this category gets 4 stars in Info Edge fundamental analysis.
The overall rating is arrived by taking the average of the above 10 category ratings and rounded up if it is above 0.5 and rounded down if it is below 0.5.
Overall Fundamental Rating:
INFO EDGE SHARES (4.6/5)
Therefore it is a 5-star stock
★ ★ ★ ★ ★
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|Info Edge Shares|
|Economic Moat||★ ★ ★ ★ ☆|
|Business & Management||★ ★ ★ ★ ★|
|Growth Ratios||★ ★ ★ ★ ★|
|Profitability Ratios||★ ★ ★ ★ ☆|
|Cash Flow Ratios||★ ★ ★ ★ ★|
|Liquidity & Solvency||★ ★ ★ ★ ★|
|Efficiency Ratios||★ ★ ★ ★ ★|
|Valuation Ratios||★ ★ ★ ★ ★|
|ROE (Du Pont Analysis)||★ ★ ★ ★ ☆|
|Future Prospects||★ ★ ★ ★ ☆|
|Overall Fundamental Rating||★ ★ ★ ★ ★|
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(Note: All the research done by me is only for educational purposes and should not be seen as Investment recommendations. I am a Research analyst and not a SEBI registered Investment Advisor. My research completely reflects my personal opinions and not of my employers. Kindly do your own due diligence before Investing)