Asia Pacific Equity Research 30 May 2015
Overweight Info Edge India INED.BO, INFOE IN Robust quarter with broad-based growth; 99acres Price: Rs778.60 ▲ Price Target: Rs1,000.00 could face near-term competitive pressures; stay OW Previous: Rs950.00
Info Edge reported a robust Mar-15 quarter with 25.4% Y/Y revenue growth India (the highest in the last 12 quarters) and significant EBIT margin expansion. Technology, Software & IT Recruitment Services revenues grew 24.6% Y/Y, while 99acres also registered services 33% Y/Y growth. We believe that Info Edge is a structural growth story, but with Viju K George AC potential for quarterly disappointment/aberrations. EBIT margin increased 190bp (91-22) 6157-3597 Y/Y to 29.3% driven by operating leverage. We believe economic recovery will be a [email protected] key catalyst for the recruitment business & 99acres – the two dominant businesses Bloomberg JPMA VGEORGE
Key catalysts for the stock price: Upside risks to our view: Downside risks to our view: • Leadership position in online • Macro environment improvement ahead of • Traffic share contraction due to competitive threat from recruitment services business with expectations or faster than expected LinkedIn and other players Naukri.com • Faster-than-expected shift to online in real estate • Advertising expenses may pick up in response to • 99acres.com and Zomato will likely be market competitors' actions the most important growth drivers given • Significant success of any of the investee company • Continued weak macro environment or continued high their leadership position competitive intensity in real estate portal business • Success of any of the investee company will be value accretive
Key financial metrics (LC in mn) FY14A FY15A FY16E FY17E Valuation and price target basis Revenues (LC) 5,059 6,116 7,577 9,320 We maintain our OW rating on Info Edge. Our Dec-15 price target of INR 1,000 is based on our SOTP valuation. We value the recruitment Revenue growth (%) 16.0% 20.9% 23.9% 23.0% services based on EV/EBITDA, Zomato based on market valuations for EBITDA (LC) 1,668 1,822 2,355 3,244 recent funding, and other businesses based on EV/sales as all these EBITDA margin (%) 33.0% 29.8% 31.1% 34.8% businesses are still loss-making. We value recruitment services EBIT (LC) 1,494 1,649 2,172 3,056 business at Rs700 per share, while Zomato and 99acres contribute about Rs114 and Rs115, respectively, to our price target. We value EBIT margin (%) 29.5% 27.0% 28.7% 32.8% other Info Edge businesses and investee companies at about Rs71. PBT (LC) 1,902 2,675 3,193 4,147 Tax rate (%) 31.1% 27.5% 31.0% 31.0% Price chart Net profit (LC) 1,285 1,939 2,203 2,862 EPS (LC) 11.8 16.4 18.3 23.8 1,200 EPS growth (%) 25.7% 39.8% 11.4% 29.9% 1,000 800 DPS (LC) 2.5 3.0 3.5 4.0 600 BVPS (LC) 69.8 141.4 152.6 171.9 400 Net margin (%) 25.4% 31.7% 29.1% 30.7% Net debt (4,796) (11,913) (13,981) (16,700) 200 ROE 17.2% 9.9% 12.0% 13.9% 0
Key model assumptions FY14A FY15A FY16E FY16E No. of employees 3,168 3,817 4,087 4,507 Price (LHS) Target price (LHS) Recruitment business growth 10.2% 19.6% 23.2% 22.0% 99acres business growth 47.3% 32.3% 31.4% 30.0% Source: Bloomberg, Company and J.P. Morgan estimates. Source: Bloomberg, Company and J.P. Morgan estimates.
Sensitivity analysis EBITDA EPS JPMe vs. consensus, change in estimates Sensitivity to FY16E FY17E FY16E FY17E EPS FY16E FY17E 1% chg in sales volume growth 1.0% 1.0% 0.7% 0.8% JPMe old 16.5 22.4 1% chg in avg. realization 3.3% 3.1% 2.4% 2.4% JPMe new 18.3 23.8 1% chg in emp cost per emp 2.0% 1.8% 1.4% 1.4% % chg 11% 6% Consensus 16.5 22.1 Source: J.P. Morgan estimates. Source: Bloomberg, J.P. Morgan. Comparative metrics CMP Mkt Cap P/E (x) EV/EBITDA (x) EV/Sales (x) YTD LC $Mn FY15E FY16E FY15E FY16E FY15E FY16E Stock perf. TCS 2,610 80,106 22.5 19.2 16.5 14.3 4.6 4.1 2% Infosys 2,023 36,225 18.6 16.2 12.7 10.9 3.5 3.1 3% Wipro 562 21,701 15.0 13.7 11.0 10.0 2.5 2.3 1% HCL Tech 1,011 22,350 18.3 16.0 14.2 12.6 3.2 2.9 27% Tech Mahindra 554 7,707 16.7 13.6 10.1 8.5 1.7 1.5 -14% Info Edge 817 1,538 44.6 34.3 36.4 26.4 11.3 9.2 -4% Source: Bloomberg, Company and J.P. Morgan estimates. Prices are as of May 29, 2015
2 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Solid broad-based revenue growth in Mar-15 quarter; expected economic recovery/improvement in India GDP growth has multiplier effect for Info Edge Info Edge reported a robust quarter with Y/Y revenue growth of 25% Y/Y (and 19% Y/Y) – marking the highest growth in the last 12 quarters. The March quarter is seasonally strong for Info Edge. All segments, including Recruitment services and 99acres, saw healthy growth. Recruitment Services had a solid quarter with revenue growth of 15.5% Q/Q and 24.6% Y/Y. Hiring activity in the IT sector increased meaningfully. Revenues from other verticals were up 28.9% Q/Q and 27.7% Y/Y. Growth in non-recruitment verticals was primarily driven by 99acres, which grew about 33% Y/Y. In the coming quarters, we expect growth rates to remain healthy driven by improvement in economic environment and hiring activity. Notably, deferred revenues increased significantly from Rs1.38 billion in 3Q FY15 to Rs1.73 billion at the end of FY15. Deferred revenues grew 21% Q/Q and 25% Y/Y, implying healthy collections in Mar-15 quarter and providing near-term visibility.
Figure 1: Info Edge reported robust revenue growth of 25% Y/Y in 4Q FY15 marking the highest growth in the last 12 quarters; improvement in macro environment could support growth further InfoEdge revenue growth (Y/Y) 35% 32% 29% 30% 30% 28% 28% 25% 25% 25% 25% 23% 22% 20% 19% 18% 18% 20% 17% 16% 16% 16% 14% 15% 10% 10%
5%
0% 1 1 1 1 2 2 2 2 3 3 3 3 4 4 4 4 5 5 5 5 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y Y F F F F F F F F F F F F F F F F F F F F Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Source: Company reports, J.P. Morgan.
Recruitment services, the primary component of Info Edge’s revenue base (contributing ~72% of total revenues) and over 100% of EBITDA (as other businesses are still loss-making), is highly leveraged to gross job additions in the economy, and hence on domestic economic growth. The pick-up in GDP growth creates additional jobs, which drives revenue growth for Info Edge. Also, the number of job opportunities also drives increases in attrition, causing a multiplier impact on ‘gross job additions’. Info Edge reported 24.6% Y/Y (15.5% Q/Q) revenue growth in its recruitment services business in the Mar-15 quarter, which is the highest in the last twelve quarters, which is encouraging in our view. However, we do not rule out quarter disappointments and aberrations due to seasonality and lumpy nature of this business.
3 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
We expect revenue growth to stay healthy for recruitment services business. In a low-growth environment, companies generally do not increase their headcount and they hire only to offset relatively low attrition (low attrition due to fewer job opportunities in the market). However, as revenue growth picks up, companies position themselves for growth and hire to fulfill additional demand, while attrition picks up as well due to the larger number of job opportunities in the market. Hence, ‘gross job additions’ happen multifold. Info Edge’s business model is levered to gross job additions.
Figure 2: Recruitment services revenues increased 24.6% Y/Y in 4QFY15 – the highest in the last twelve quarters; improvement in economic growth should drive improvement in recruitment services revenues 30.0% Recruitment services revenue growth (Y/Y) 24.6% 25.0%
20.0% 19.1% 18.7% 19.0% 15.5% 15.0% 13.6% 11.6% 10.2% 10.8% 10.0% 8.0% 8.3% 4.4% 5.0%
0.0% 3 3 3 3 4 4 4 4 5 5 5 5 1 1 1 1 1 1 1 1 1 1 1 1 Y Y Y Y Y Y Y Y Y Y Y Y F F F F F F F F F F F F Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 3
Source: Company reports, J.P. Morgan estimates
We believe that against an estimated 4-5% real GDP growth backdrop, Info Edge's revenue growth multiplier might be 1.5-2.0x (primarily to fulfill attrition and online penetration increase), implying Y/Y revenue growth of 8-10%. In FY14 (year ending March), India real GDP grew by 4.7% (as per the old series), while Info Edge reported 10.2% growth in its recruitment services business. We think the multiplier could increase to 2.5-3.0x (or even more) if real GDP growth accelerates to 7-8% (due to higher attrition and hiring for growth), implying Y/Y revenue growth of up to 20-25% for Info Edge’s recruitment business. We believe acceleration in GDP growth (as expected) will drive revenue growth for Info Edge.
EBIT margins increased significantly due to high operating leverage; employee cost and advertising expenses moderated as % of revenues Info Edge’s EBIT margins increased 190bp Y/Y and 770bp Q/Q to 29.3% in 4QFY14, primarily due to significant operating leverage. Employee benefit expenses and advertisement spending decreased meaningfully as a % of revenues due to meaningful increase in revenues (denominators). Gross margins contributed significantly (570bp) to EBIT margin expansion, increasing from 52.7% last quarter to 58.3% marking the highest gross margin in the last eight quarters. Notably, gross margins had declined significantly (about 330bp) last quarter due to weak growth. Both employee benefit expenses and depreciation moderated as a % of revenues in Mar-15. Advertisement spending decreased modestly Q/Q after the highest-ever
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advertising spend in Dec-14 quarter, but due to strong growth it contributed 3.2% points to EBIT margins. Management said it will likely go up in the coming quarters.
Figure 3: Info Edge's gross margins increased 570bp Q/Q while EBIT margins increased about 770bp due to significant increase in gross margins and decline in advertising expenses 62% 36% 60.5% 60.3% 59.7% 34% 60% 32.6% 57.6% 57.9% 58.3% 33.5% 31.1% 57.9% 31.0% 32% 58% 58.3% 31.6% 31.5% 56.0% 30% 31.0% 56% 56.8% 56.3% 28% 29.3% 54% 27.2% 27.4% 26% 52% 25.5% 52.7% 24% 50% 21.7% 22% 48% 20% 3 3 3 3 4 4 4 4 5 5 5 5 1 1 1 1 1 1 1 1 1 1 1 1 Y Y Y Y Y Y Y Y Y Y Y Y F F F F F F F F F F F F Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 4
Gross Margins (LHS) Operating/EBIT margins (RHS)
Source: Company reports, J.P. Morgan.
Importantly, Recruitment Services, which contributes almost all of Info Edge’s value, reported a 52.6% EBITDA margin in 4Q FY15, up materially from 49.8% last quarter. The EBITDA margin for Naukri.com was at 56%+. 99acres registered an EBITDA loss of ~Rs8mn, while Jeevansathi.com also registered modest EBITDA loss in 4Q FY15. Info Edge plans to continue making investments in 99acres.com primarily on product improvement, marketing and brand building. Management also expressed willingness to make tactical investments in Jeevansathi.com, primarily in the mobile space, to evaluate their effectiveness in gaining market share. Non- recruitment businesses accounted for an EBITDA loss of about Rs123mn in the Mar- 15 quarter in total.
Management suggested that advertising investments will pick-up in the Jun-15 quarter as the company is investing in 99acres as well as Jeevansathi.com. We believe that managing advertising investments in a timely manner while keeping potential benefits in view is prudent. We see meaningful flexibility in Info Edge’s business model to manage margins in a period of slower growth by adjusting the level of advertising and promotion spends. Moreover, management reiterated that EBITDA would likely expand if the revenue growth rate remains above the 20% Y/Y level.
Info Edge maintains its leadership in the job portal business by a significant distance so as to be dominant Info Edge maintains its dominance in the online job portal business, with a ~70% traffic share. This share has been consistently rising over the past three years. Monster India, the closest competitor in this business, has just about 15% traffic share, i.e. one-fourth of Info Edge’s. We believe the clear leadership places Info Edge in a very comfortable position in this business. Notably, in the portal business,
5 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
the dividends of leadership are exponential. While Info Edge is making 50%+ EBITDA margins due to its scale and ROE of 100%+, smaller players might be struggling due to losses. Operating leverage in the portal business is quite substantial. With better growth prospects ahead, EBITDA margin in recruitment services could rise to 55%+, on our estimates.
Figure 4: Naukri.com (Info Edge’s flagship portal) is the clear number one in the job portal business with a ~65% traffic share as per third-party estimates i.e. a clear leader; the dividends of leadership are exponential in portal business
Source: Company reports; Notable: the traffic share estimates here do not include mobile traffic
Figure 5: Info Edge generates 50%+ EBITDA margins on its Recruitment Services business due to its scale (with a few exceptions); there is significant leverage in the business model; this can expand further to 55% as growth picks up in response to the broader economy improving
53.0% 52.6% 51.6% 51.6% 50.7% 50.7% 51.0% 50.3% 50.1% 50.0% 49.8% 49.2% 49.3% 49.0% 47.2% 47.0%
45.0% 3 3 3 3 4 4 4 4 5 5 5 5 1 1 1 1 1 1 1 1 1 1 1 1 Y Y Y Y Y Y Y Y Y Y Y Y F F F F F F F F F F F F Q Q Q Q Q Q Q Q Q Q Q Q 1 2 3 4 1 2 3 4 1 2 3 4 Recruitment services EBITDA Margins
Source: Company reports, J.P. Morgan
6 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
To sustain its distinct leadership, Info Edge continues to innovate and launch new products & features in order to maintain/expand its market share. The company launched a product called Career Site Management, where Info Edge manages the Careers page/section of the corporate client’s website. It helps the client keep the ‘Careers’ section of its website up to date and improve the user interface & user experience. Info Edge also creates the recruiter’s profile on its website for networking and to build the recruiter’s brand (among job seekers). The company helps the recruiter client in filtering the resumes as well. Info Edge helps clients manage referrals also now. The company has rolled out mobile applications for different operating systems. Now about 50% of its total traffic originates from mobile. We think that all these initiatives will help Info Edge sustain/expand its market share in the job portal business, which continues to be a cash cow for the company.
99acres is the second-most-important growth lever for Info Edge, but competitive intensity has increased considerably 99acres (the online real estate classifieds of Info Edge) reported revenue growth 32% Y/Y in FY15, which is impressive, in our view. Revenue growth has been relatively muted (on sequential basis) over the last three quarters, but 4Q FY15 registered strong growth. 99acres revenues increased ~30% Q/Q and ~33% Y/Y in 4Q FY15. This business has consistently done well over the last five years (on Y/Y basis). 99acres delivered a revenue CAGR of about 50% over the last five years (from FY10-15) despite macro headwinds in some of these years, which we believe is impressive Notably, In Apr-11, we published a report outlining the potential of 99acres for Info Edge (see our note “It's not just naukri.com; 99acres.com could well be the next big thing; this is available today for free” dated April 6, 2011, for more details).
Although the real estate portal business remains a key opportunity area, competitive intensity in this space has increased significantly (due to the attractiveness of the market). A number of players following different business models (such as housing.co.in, commonfloor.com. makaan.com, magicbricks.com, indiaproperty.com, Olx, Quicker) are fighting for market share in this space. Management said that competitors have spent almost Rs2.5 billion in advertising in the real estate portal business. Notably, 99acres.com is not an established leader in real estate business as Naukri.com is in the job portal business. The company is cognizant of this fact and continues to invest to increase its traffic/market share. Info Edge has hired staff, rolled out verification services, and continued to invest in product development & sales expansion to further differentiate itself from competitors. However, management has sounded a bit cautious on this business recently.
7 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Figure 6: 99acres.com has consistently reported solid revenue growth over the last four years, admittedly off a small base; the company has delivered ~50%+ CAGR over the five years from FY11-15; revenue growth likely to moderate to 25-30% in the coming years due to base effect 99acres.com 1,200 71% 80% 1,004 70% 1,000 60% 759 800 52% 49% 50% 600 516 47% 40% 30% 400 347 32% 228 20% 200 133 10% 0 0% FY10 FY11 FY12 FY13 FY14 FY15 Revenues (in INR mn) Y/Y revenue growth
Source: Company reports, J.P. Morgan calculations
Management indicated that the cost of customer acquisitions has increased considerably. Some competitors are spending heavily in order to gain market share. The prevalent irrationality in the market place might make it imprudent to continue to incur the elevated cost of customer acquisitions. Moreover, market activity remains weak in certain key markets such as Delhi, Noida, Hyderabad and Gurgaon. Hence, growth might remain muted in the near term. Although irrationality in spending might not persist for long, in our view, but we are incrementally cautious on this business. 99acres has all the building blocks in place to grow this business, but we would watch how long the irrationality prevails.
Figure 7: 99acres (Info Edge’s real estate portal) is a market leader in the real estate portal business but its leadership is not as dominant/distinct as Naukri.com’s in the job portal business
Source: Company reports; Notable: the traffic share estimates here do not include mobile traffic
8 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
On a positive note, Info Edge management maintains that the real estate advertising market/opportunity is much larger than even jobs (a business that is 5x 99acres’ size for Info Edge). Hence, the growth opportunity is quite sizable in the real estate market for Info Edge. The online real-estate business is highly underpenetrated and there is significant headroom for growth, in our view. Also, management suggests that there is an incremental shift from print real-estate advertisements to online portals, a trend that we expect to continue as print is a relatively expensive medium to advertise through. Importantly, 99acres is more exposed to the new project/house market (compared to the secondary market) increasing its dependence on new launches. However, the company is making efforts to penetrate the secondary market (property dealers), which is a relatively non-cyclical market.
Moreover, besides competition, revenue growth in this business is also very much dependent on macro factors, such as GDP growth, interest rates, inflation and the regulatory environment. As suggested earlier, the Indian economy seems to be turning the corner, with GDP growth bottoming out in the Dec-13 quarter. Interest rates have also started moderating, while inflation trends have moderated considerably over the last few months (partially driven by lower crude oil price). All these factors should help growth in the real estate business. Hence, we remain confident about the growth prospects of the real estate portal business. We believe 99acres’ success will depend on how long and how fierce the fight for market/traffic share becomes.
Info Edge plans to make investments in Jeevansathi.com to experiment with certain new strategies Jeevansathi.com revenues increased just 9% Y/Y in FY15, which is weak given its low base. Jeevansathi.com revenues have increased at a CAGR of 15% over the last five years, which we see as unimpressive. However, management said that the mobile platform has received good reception. Almost 65% of Jeevansathi.com traffic is through mobile. Management believes that some new initiatives along with its mobile platform investments might help in winning market share. Hence, the company plans to experiment with a few strategies and intends to make investments for that. The company made a loss of about Rs44 million in this segment in FY15 (vs. Rs67 million in FY14), but the losses might increase in FY16.
In the online classified business, the nature of the industry is such that the 'winner takes all'. Hence, market share gain is critical. Despite the non-recurring nature of the business (once a subscriber finds a partner he or she is unlikely to visit the site again), the size of the young and single population in India and the prevalence of arranged marriages make online matrimony an attractive business. About 450 million people are below the age of 21 in India; this constitutes an attractive customer segment for matrimony portals. However, Jeevansathi.com is the distant third player in this market, with Bharatmatrimony.com leading the market, followed by Shaadi.com. Due to the nature of the industry, there is hardly space for a distant third player to be successful, in our view, unless it brings about some disruption that swings the pendulum towards it (which we do not envisage for now).
Jeevansathi.com has larger penetration in North India, but we believe it might have difficulty gaining scale by focusing on specific local markets. Its weak revenue growth is a manifestation of its lack of leadership in this business. Revenues increased from Rs199 million in FY10 to Rs392 million in FY15 i.e. over five years
9 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
implying a CAGR of ~15% on such a small base. 99acres’ revenues grew almost 8x in this period. Hence, we are not too optimistic about Jeevansathi.com. We believe Info Edge might be better off monetizing this business by selling it to the larger players (Bharatmatrimony.com or shaadi.com) or by engineering a merger with the leaders. However, due to the overlap of profiles across portals, the willingness to purchase a competing business might be low in the matrimony portal business.
Figure 8: Jeenansathi.com’s revenue growth performance has been unimpressive; its revenues have just about doubled over the last five years with a revenue CAGR of ~15% on a low base; Jeevansathi is a distant third in its space
450 Jeevansathi.com 30% 27% 392 400 360 25% 350 300 323 20% 17% 254 250 221 15% 200 170 199 15% 150 10% 11% 11% 100 9% 5% 50 0 0% FY09 FY10 FY11 FY12 FY13 FY14 FY15
Revenues (in INR mn) Y/Y revenue growth
Source: Company reports; J.P. Morgan
10 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Investee companies – Zomato has significant potential – it is emerging as the next value driver for Info Edge
Info Edge has made strategic investments in a number of early-stage internet ventures. The company has invested in nine ventures so far, with cumulative investments of Rs5.72 billion (57% of which is in Zomato alone). The company currently has six active investments, while it has written off three investments. We believe Zomato.com, meritnation.com, and policybazaar.com are scaling up and attracting strong follow-on investor interest. Info Edge holds a majority stake in Zomato.com and Meritnation.com. Zomato seems to be shaping up well and will likely be an important value driver for the company.
The underlying principle is that not all succeed (as the mortality rate for young internet companies in a remarkably dynamic industry is high). But those that do manage to break out can succeed to an extend that can compensate for the failure of others. The investee companies will invariably modify their business models as and when earlier assumptions do not prove themselves (which they rarely do in an infant firm in a remarkably variable industry). Info Edge encourages this experimentation and leaves it to the investee founder/management team to rework/modify their business as they deem appropriate.
The current active investments include: www.zomato.com - Restaurant ratings and review site www.meritnation.com – Education site for school children www.policybazaar.com – Financial products (primarily insurance) comparison site www.mydala.com – Deals and discounts site with a merchant platform www.canvera.com – Website for professional photographers www.happilyunmarried.com – Designing and selling fun products
Importantly for these investments, Info Edge adopts a venture capitalist (VC) kind of approach and provides initial/growth capital to these players. We observe that all these businesses are B2C (business to consumer) businesses (that Info Edge has helped get off the ground/funded). The margin profile is better than that for B2B (business to business) businesses as individual customers do not have significant bargaining power. Moreover, these businesses have the potential to grow exponentially with an increase in internet penetration, changed customer behavior (higher purchases through the web) and, most importantly, brand recognition (B2C businesses make it possible to create and sustain strong brands relative to B2B internet). The success of any (or a few) of these ventures could provide significant returns to Info Edge, creating meaningful shareholder value.
11 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Figure 9: Info Edge has made nine investments so far, three of which – Zomato, Meritnation and Policybazaar – are turning out well, in our view; Info Edge has written off three of the nine investments Investee company Website Total amount Approx diluted & % of total Active invested (INR mn) converted shareholding Zomato Media Pvt. Ltd. www.zomato.com 3,283 50% 57% Applect Learning Systems Pvt. Ltd. www.meritnation.com 718 56% 13% Etechaces Marketing & Consulting Pvt. Ltd. www.policybazaar.com 325 18% 6% Kinobeo Software Pvt. Ltd. www.mydala.com 270 45% 5% Canvera Digital Technologies Pvt. Ltd. www.canvera.com 671 32% 12% Happily Unmarried Marketing Pvt. Ltd. www.happilyunmarried.com 94 27% 2% Sub Total 5,361 94% Written off/provisioned for/exited Studyplaces, Inc. www.studyplaces.com 45 13% 1% Ninety Nine Labels Pvt. Ltd. www.99labels.com 285 47% 5% Nogle Technologies Pvt. Ltd. www.floost.com 26 31% 0% Sub Total 356 6% Total 5,717 100% Source: Company reports, J.P. Morgan
Notably, Info Edge had to write off its investments of about Rs285 million in 99labels.com in 4QF Y13, Rs26 million in Floost.com (Nogle Tech.), and Rs45 million in studyplaces.com. For 99labels.com, management suggested that, due to the constrained funding environment, the portal was finding it difficult to get incremental funding, while Info Edge was reluctant to make further investments. However, the company is incrementally positive on 99labels.com now. Due to the exit of some of its competitors, 99labels now has a relatively comfortable operating environment supporting growth. Floost.com is an online content sharing portal. The company blamed a lack of revenue traction to write off Floost.com. We acknowledge that these are one-time charges, but these disrupt the progression of earnings (EPS) for Info Edge. We think further such write-offs might be perceived negatively by investors.
Zomato.com holds the most promise among the investee companies; it could be key value driver for the stock in the near term, in our view Info Edge holds a 50% stake in Zomato.com, the restaurant rating and review portal. The primary revenue sources for Zomato are advertising and lead sales. Zomato is the distant leader in its category and its revenues increased 15x in the two years from Rs20 million in FY12 to Rs306 million in FY14 (on a low base). As the company continues to invest for growth, its EBITDA losses continue to mount. Zomato is currently operating in 19 countries and the company has expanded its reach to Australia, Canada and the US with the Urbanspoon acquisition (hence, access to 22 countries now). Zomato has very strong positioning (market leader) in a number of countries including India, the UAE, New Zealand, South Africa and some ASEAN countries (Philippines, Indonesia). The company is currently monetizing in 7-8 cities in India and the UAE only. It intends to monetize Canada and Australia also after integration of Urbanspoon. Zomato is now a challenger in the large markets including the US and the UK.
12 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Zomato leverages its learning across countries to drive success in specific geographies, has access to capital (private equity) and, most importantly, has scale, which will likely help the company differentiate from other players. Hence, we think the company has a strong footing to be successful, which investors seem to appreciate as well.
Investors like the Zomato story. The company raised US$37 million in Nov-13 from Sequoia Capital and Info Edge in its fifth round of funding. It implied a company valuation of US$161 million, i.e. about 31x FY15E revenues (pre-money valuation of about US$131 million). Just after one year, Zomato raised another US$60 million at a pre-money valuation of about US$600 million (post-money valuation of US$660 million) in Nov-14; i.e. its valuation almost quadrupled in one year. Info Edge invested Rs1.84 billion to maintain its stake at 50.1%. The high valuation despite sizable EBITDA losses points to investors’ confidence in the business model and exponential growth expectations. We think investors are patient for profits but impatient for growth in the internet industry. We expect Zomato to be a significant value driver for Info Edge.
Zomato’s comparable is Yelp in the US market with a market cap of US$3.6 billion and CY14 revenues of US$377 million, i.e. market cap/sales ratio of ~10x. Zomato is still in its nascent stages of growth and has a robust product. It also enjoys leadership in several markets in which is operates. We believe the company has the potential to scale up rapidly once its monetization model gets crystallized.
Figure 10: Zomato has grown its revenues 47x from FY12 to FY15, and losses mount as the company continues to invest; Zomato holds promise in our view; investors seem patient for profits, but impatient for growth (Rs in millions) 1,500 967 1,000
500 306 Operating EBITDA 20 114 0 (72) (100) (500) Operating revenues (414) (1,000)
(1,500) (1,360) FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15
Source: Company reports, J.P. Morgan
13 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Meritnation.com – an emerging business model in its early days, but one that merits watching given the segment in which it operates Info Edge holds a 56% stake in Meritnation.com, an education site for school children. The primary revenue sources for Meritnation are paid products for online assessment and teaching solutions. The portal also caters to competitive examinations such as engineering and medical entrance tests. This is a direct to consumer business model and provides free solutions mainly for mathematics and sciences to students from standard 6 to 12 (primarily for CBSE and ICSE along with some state boards). As we mentioned before, the addressable market in the education segment is quite sizable in India. However, Meritnation is yet to find its niche, in our view, and the business model is still in the experimentation stage.
Figure 11: MeritNation grew at a healthy pace before FY15; FY15 was weak as the company was experimenting with its product (Rs in millions) 300 203 216 200 98 Operating EBITDA 100 41 0
(100) Operating revenues (54) (200) (214) (300) (227) (285) (400) FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15
Source: Company reports, J.P. Morgan
Policybazaar.com is another interesting business that has the potential to scale; other investments have yet to prove themselves Policybazaar.com is a financial products (primarily insurance) comparison site and has seen meaningful adoption. It is also a B2C business where consumers can compare different financial products on different parameters, choose according to their requirements, and purchase products online. It helps consumers save on the commissions which are paid to agents/intermediaries while also ensuring the best deal for themselves. Due to the economic value delivered to consumers, there is potential for growth in this business. However, due to the insurance-related regulatory framework, there are regulatory overhangs in this business. However, this business needs watching, in our view.
Mydala.com offers discount offers and deals platforms for merchants. This space had got crowded previously, but several competitors have left the industry. Mydala.com leverages the mobile platform well and we think Info Edge has incrementally turned positive in this business. However, it faces competition from global portals such as Groupon. We think it is too early to take a call on this business.
14 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Canvera.com provides solutions to professional photographers. This provides ready-to-use websites, software and workflow for managing photograph and designing/printing photo books/albums. The revenues are generated from sale of printed photo books/albums. This business is also in the initial stages, in our view.
Happilyumarried.com is another investee company of Info Edge, which designs and sells “creative and fun” products. This business is also in the initial stages of growth and is yet to gain scale, in our view.
Figure 12: Revenues and operating EBITDA losses from Info Edge’s investee companies where Info Edge does not hold a majority stake; revenues are growing at a healthy pace in these portals as well (Rs in millions) 2,500 2,118 2,000 1,399 1,500
1,000 868 537 500 Operating EBITDA
0
(500) Operating revenues (288) (490) (462) (1,000) (745) FY12 FY13 FY14 FY15 FY12 FY13 FY14 FY15
Source: Company reports; J.P. Morgan
Investment view Investment view: We retain our OW rating with a new Dec-15 PT of Rs1,000. We see multiple growth and value levers converging in this story. Recruitment Services accounts for 70% of the total value of the stock, while Zomato and 99acres make up about 11-12% of total company value each. The competitive intensity in 99acres is rising with the entry of different, well-funded players. Zomato is compensating for this headwind with a consistent uptick in its leadership and business valuation. Some of the smaller businesses that Info Edge has invested in may not play out as expected, but those that prove themselves and win tend to do so in such a manner as to compensate for the relative failures of the others. That’s the nature of early-stage internet investing. As of now, the smaller ventures (excluding Zomato) account for just about 7% of our Dec-15 price target/target market cap, but value accretion for the succeeding internet-centric business models tends to be exponential.
15 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Valuation and price target We maintain our OW rating on Info Edge with a Dec-15 price target of INR 1,000 based on SOTP (up from INR 950 previously). We use SOTP to value the stock as the company owns (fully or partially) multiple portals at different stages of growth. Recruitment Services continues to account for the largest chunk of Info Edge’s value, while 99acres.com and Zomato have also started contributing well to our price target. We expect the share of Zomato and 99acres.com in the company’s value to increase in future.
We value the Recruitment Services business based on EV/EBITDA because this business is relatively mature and generates healthy EBITDA margins consistently. However, other businesses are still in the initial phases of growth and do not generate profits. For fast-growing companies/portals with an earnings trajectory that has not stabilized, we consider multiples-based valuation approaches above the earnings line useful. Info Edge’s non-naukri.com portals are still in the investment phase and generally report EBITDA losses, while they invest for growth. Also, for such growth portals, revenue growth is the key profitability and margin lever. Besides, investors look for market-share dominance in the category and do not mind mounting operating losses in the endeavor to establish category dominance.
Hence, we prefer using EV/sales multiples to value 99acres, Jeevansathi.com, Shiksha+allcheckdeals+Brijj, Meritnation and other investee companies. We value Zomato based on the valuations ascribed to the company in the latest round of funding. We ascribe an EV/sales multiple of 8x (on FY17E sales) to 99acres.com given the robust growth potential of the industry and strong positioning. We ascribe 5x EV/FY17E sales to Shiksha+Allcheckdeals+Brijj and Meritnation.com. We apply 4x EV/FY17E sales to Jeevansathi.com as well given its relatively low revenue growth and market position (third in its respective market). We believe Info Edge would be better off monetizing Jeevansathi.com. We provide 4x EV/FY17E sales to other investee companies which are still proving themselves.
We value Info Edge’s stake in Zomato at Rs114 per share. The latest round of funding values the company at US$660 million, i.e. Info Edge’s stake in the company is valued at about US$330 million. We assume that the story’s buoyancy partially drives the valuation. Hence, we apply a 33% discount to this value and arrive at Rs114 per share. We think Zomato could be much more valuable if the company executes successfully and monetizes well.
Table 1: We value Info Edge’s stake in Zomato at Rs114 per share; we value the stake at a 33% discount to valuation in the latest round of funding Zomato valuation (post money) (in USD mn) 660 Exchange rate 62 Total Value (in INR mn) 40,920 Info Edge's stake 50.1% Value of Info Edge's stake (in INR mn) 20,501 Discount 33% Discounted value of Info Edge's stake (INR mn) 13,667 Value per share for Info Edge (in INR) 114
Source: Company reports, J.P. Morgan
16 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
All in all, the sum of our estimates for Info Edge's different parts is Rs1,000; this is our price target.
Table 2: Info Edge’s recruitment business is worth Rs700 per share, per our estimates (70% of our price target for the stock); we ascribe 20x EV/EBITDA to its recruitment services business given its high return ratios, stable-to-rising EBITDA margin trajectory and relatively visible revenue growth Recruitment Services FY17 Target EV/EBITDA (x) Value attributable to Net Debt Market Cap Shares O/S Value per share EBITDA (Rs) recruitment (Rs MM) (Rs MM) (Rs MM) (MM) (Rs) 3,587 18 64,572 (11,913) 76,485 120 636 3,587 20 72,249 (11,913) 84,162 120 700 3,587 22 78,922 (11,913) 90,835 120 756 3,587 24 86,097 (11,913) 98,009 120 815 Source: Company reports; J.P. Morgan; Note: We assume all net cash is attributable to recruitment services business
Table 3: Breakdown of our price target of Rs1,000; recruitment services business, Zomato and 99acres.com account for about 93% of total company value FY15 revenues FY15-FY17 FY17E revenues EV/Sales Total Value Stake Shares Value per (Rs MM) revenue CAGR (Rs mn) Multiple (Rs mn) O/S share a b c = a*(1+b)^2 d e = c*d f g h = e*f/g Recruitment Services 4,450 23% 6,689 700 99acres.com 1,004 31% 1,715 8 13,723 100% 120 115 Jeevansathi.com 392 14% 508 4 2,032 100% 120 17 Shiksha + Allcheckdeals + Brijj 270 23% 408 5 2,040 100% 120 17 Zomato See table 1 114 Meritnation 216 20% 311 5 1,554 56% 120 7 Other businesses 2,118 15% 2,800 4 11,762 31% 120 30 Price Target 1,000 Source: Company reports; J.P. Morgan; Note: We assume all net cash is attributable to recruitment services business; hence EV = market cap for other businesses; * average share in companies where Info Edge has minority share
17 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Financials
Table 4: Info Edge India: Earnings estimates 2016E 2017E Rs MM, year-end Mar 1QE 2QE 3QE 4QE 1QE 2QE 3QE 4QE 2013 2014 2015 2016E 2017E Revenue 1,778 1,820 1,865 2,114 2,178 2,236 2,315 2,591 4,359 5,059 6,116 7,577 9,320 Gross Profits 1,015 1,053 1,095 1,267 1,298 1,341 1,401 1,607 2,595 2,920 3,422 4,431 5,648 EBIT 457 503 551 661 684 715 757 900 1,390 1,494 1,649 2,172 3,056 EBITDA 501 548 597 708 729 762 804 949 1,485 1,668 1,822 2,355 3,244 Net Other Income 249 253 257 262 264 270 276 281 454 408 1,026 1,021 1,091 Pre Tax Profit 706 757 808 922 948 985 1,033 1,182 1,844 1,902 2,675 3,193 4,147 Tax 219 235 250 286 294 305 320 366 528 591 736 990 1,286 Net Profit 487 522 557 636 654 680 712 815 1,022 1,285 1,939 2,203 2,862 EPS (Rs.) 4.1 4.3 4.6 5.3 5.4 5.7 5.9 6.8 9.4 11.8 16.4 18.3 23.8 Margins (%) Gross Margin 57.1 57.9 58.7 60.0 59.6 60.0 60.5 62.0 59.5 57.7 56.0 58.5 60.6 Operating Margin 25.7 27.7 29.5 31.3 31.4 32.0 32.7 34.7 31.9 29.5 27.0 28.7 32.8 EBITDA Margin 28.2 30.1 32.0 33.5 33.5 34.1 34.7 36.6 34.1 33.0 29.8 31.1 34.8 Net Margin 27.4 28.7 29.9 30.1 30.0 30.4 30.8 31.5 23.5 25.4 31.7 29.1 30.7 Sequential Growth (%) Revenue 2.6 2.3 2.5 13.3 3.0 2.7 3.5 11.9 16.0 16.0 20.9 23.9 23.0 EBIT -10.1 10.1 9.4 20.0 3.5 4.6 5.9 18.9 4.4 7.5 10.4 31.7 40.7 EBITDA -7.9 9.5 8.8 18.6 2.9 4.5 5.6 17.9 5.4 12.3 9.3 29.2 37.8 Net Profit -40.7 7.2 6.8 14.2 2.8 3.9 4.8 14.4 -16.6 25.7 50.9 13.6 29.9 EPS -40.7 7.2 6.8 14.2 2.8 3.9 4.8 14.4 -16.6 25.7 39.8 11.4 29.9 Y/Y Growth (%) Revenue 22.7 23.3 28.0 21.9 22.5 22.9 24.1 22.6 EBIT 1.8 33.9 74.4 30.0 49.6 42.1 37.5 36.2 EBITDA 1.7 29.8 64.3 30.2 45.5 38.9 34.8 33.9 Net Profit 22.3 57.1 44.3 -22.6 34.3 30.2 27.8 28.1 EPS 11.7 56.7 44.3 -22.6 34.3 30.2 27.8 28.1 Source: Company data, J.P. Morgan estimates
Table 5: Estimate changes New Old Change Rs MM, YE Mar 2015A 2016E 2017E 2015E 2016E 2017E 2015 2016E 2017E Revenue 6,116 7,577 9,320 5,966 7,206 8,831 2.5 5.1 5.5 EBIT 1,649 2,172 3,056 1,549 2,106 3,035 6.5 3.2 0.7 EBITDA 1,822 2,355 3,244 1,735 2,297 3,229 5.1 2.5 0.5 Pre Tax Profit 2,675 3,193 4,147 2,224 2,871 3,899 20.3 11.2 6.4 Net Profit 1,939 2,203 2,862 1,538 1,981 2,690 26.1 11.2 6.4 EPS (Rs.) 16.4 18.3 23.8 13.1 16.5 22.4 25.4 11.2 6.4 Margins (%) Operating Margin 27.0 28.7 32.8 26.0 29.2 34.4 100 -55 -157 EBITDA Margin 29.8 31.1 34.8 29.1 31.9 36.6 72 -80 -176 Net Margin 31.7 29.1 30.7 25.8 27.5 30.5 592 158 24 Sequential growth (%) Revenue 20.9 23.9 23.0 17.9 20.8 22.5 EBIT 10.4 31.7 40.7 3.7 35.9 44.1 EBITDA 9.3 29.2 37.8 4.0 32.4 40.6 Net Profit 50.9 13.6 29.9 19.7 28.8 35.8 EPS 39.8 11.4 29.9 11.4 25.7 35.8 Source: Company data, J.P. Morgan estimates
18 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Investment Thesis, Valuation and Risks
Info Edge India (Overweight; Price Target: Rs1,000.00) Investment Thesis Info Edge holds a leadership position in both the online recruitment classifieds business and real estate classified business (but not established leadership in real estate). In recruitment services, the company is the undisputed leader, with a ~70% traffic share – about 4x that of its closest competitor. The company continues to invest in an effort to maintain/expand its traffic share. The Indian economy also seems to be improving. Recruitment services revenue growth is leveraged to gross job additions in the economy, which is dependent on GDP growth. Expected improvement in GDP growth will likely have a multiplier effect on recruitment services revenues. 99acres is also delivering consistent performance with a revenue CAGR of ~50% over the last five years. This business has the potential to become the next Naukri.com for Info Edge, in our view, but the company might face significant competitive pressure in the near-term. In addition to these two businesses, Info Edge has made investments in nine start-ups. Zomato seems to hold significant potential and will likely be an important value driver for Info Edge shareholders. We believe meritnation.com and policybazaar.com also have meaningful potential. The success of any of these ventures could create meaningful value for Info Edge.
Valuation We maintain our OW rating on Info Edge. Our Dec-15 price target of Rs1,000 is based on our SOTP valuation. We value the recruitment services based on EV/EBITDA multiple, Zomato is valued based on market valuations for recent funding, while other businesses are valued based on EV/Sales multiple as all these businesses are still making losses. We value recruitment services business at Rs700 per share, and Zomato and 99acres at Rs114 and Rs115, respectively. We value other Info Edge businesses and investee companies at about Rs71.
Risks to Rating and Price Target The primary risks we see to our rating and price target include: 1. Unexpected macro weakness, i.e. low GDP growth. 2. Continued high competitive intensity in real estate portal business. 3. Traffic share contraction due to competitive threat from LinkedIn and Monster’s semantic search (Trovix) technology. 4. Increasing interest rates and inflation may hurt the real estate market, impacting 99acres.com business for a relatively long period of time. 5. Naukri.com or 99acres lose their market leadership position. 6. None of the investee companies turn out to be a success. 7. Advertising expenses pick up in response to competitors’ actions. 8. Weakness in Zomato business.
19 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Info Edge India: Summary of Financials Income Statement Ratio Analysis Rs in millions, year end Mar FY14 FY15 FY16E FY17E FY18E Rs in millions, year end Mar FY14 FY15 FY16E FY17E FY18E Revenues 5,059 6,116 7,577 9,320 - Gross margin 57.7% 56.0% 58.5% 60.6% - Cost of goods sold (1,966) (2,520) (2,963) (3,485) - EBITDA margin 33.0% 29.8% 31.1% 34.8% - Gross Profit 2,920 3,422 4,431 5,648 - Operating margin 29.5% 27.0% 28.7% 32.8% - R&D expenses - - - - - Net margin 25.9% 31.7% 29.1% 30.7% - SG&A expenses (1,265) (1,577) (2,013) (2,298) - R&D/sales - - - - - Operating profit (EBIT) 1,494 1,649 2,172 3,056 - SG&A/Sales 25.0% 25.8% 26.6% 24.7% - EBITDA 1,668 1,822 2,355 3,244 - Interest income 0 0 0 0 - Sales growth 16.0% 20.9% 23.9% 23.0% - Interest expense (25) (30) (47) (47) - Operating profit growth 7.5% 10.4% 31.7% 40.7% - Investment income (Exp.) (25) (30) (47) (47) - Net profit growth 25.7% 50.9% 13.6% 29.9% - Non-operating Income (expense) 0 292 0 0 - EPS (reported) growth 25.7% 40.1% 11.1% 29.9% - Earnings before tax 1,902 2,675 3,193 4,147 - Tax (591) (736) (990) (1,286) - Interest coverage (x) 67.5 60.5 50.3 69.3 - Net income (reported) 1,285 1,939 2,203 2,862 - Net income (adjusted) 1,311 1,939 2,203 2,862 - Net debt to total capital (169.8%) (252.9%) (320.2%) (421.6%) - Net debt to equity (62.9%) (71.7%) (76.2%) (80.8%) - EPS (reported) 11.77 16.49 18.32 23.80 - EPS (adjusted) 12.01 16.13 18.32 23.80 - Asset turnover 0.6 0.4 0.4 0.4 - BVPS 69.81 138.28 152.62 171.86 - Working capital turns (x) 2.3 0.9 0.7 0.7 - DPS - - - - - ROE 18.4% 16.0% 12.6% 14.7% - Shares outstanding (in mn) 109 118 120 120 - CORE ROIC - - - - - Balance sheet Cash flow statement Rs in millions, year end Mar FY14 FY15 FY16E FY17E FY18E Rs in millions, year end Mar FY14 FY15 FY16E FY17E FY18E Cash and cash equivalents 4,842 11,981 14,049 16,768 - Net income 1,285 1,939 2,203 2,862 - Accounts receivable 50 98 119 146 - Depr. & amortization 174 173 183 187 - Inventories - - - - - Change in working capital 338 (99) 282 338 - Others 132 765 933 1,144 - Other - - - - - Current assets 5,025 12,844 15,101 18,057 - Cash flow from operations 1,822 2,013 2,668 3,387 - LT investments 3,621 5,410 5,410 5,410 - Capex (119) (114) (120) (120) - Net fixed assets 951 935 872 805 - Disposal/(purchase) - - - - Others 218 232 232 232 - Cash flow from investing 246 (1,918) (120) (120) - Total Assets 9,815 19,421 21,616 24,504 - Free cash flow 1,720 1,920 2,580 3,299 - Liabilities Equity raised/(repaid) 0 110 0 0 - ST Loans 0 0 0 0 - Debt raised/(repaid) 0 22 0 0 - Payables - - - - - Other (33) 7,353 0 0 - Others 2,148 2,729 3,200 3,776 - Dividends paid (311) (399) (480) (548) - Total current liabilities 2,148 2,729 3,200 3,776 - Cash flow from financing (344) 7,086 (480) (548) - Long-term debt 45 68 68 68 - Net change in cash 1,725 7,181 2,068 2,719 - Other liabilities 0 0 0 0 - Beginning cash 3,076 4,842 11,981 14,049 - Total Liabilities 2,193 2,797 3,268 3,843 - Ending cash 4,801 12,023 14,049 16,768 - Shareholders' equity 7,622 16,624 18,347 20,661 - Source: Company reports and J.P. Morgan estimates.
20 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
JPM Q-Profile Info Edge India Ltd. (INDIA / Information Technology) As Of: 29-May-2015 [email protected] Local Share Price Current: 784.45 12 Mth Forward EPS Current: 16.18
1,200.00 20.00 18.00 1,000.00 16.00 14.00 800.00 12.00 600.00 10.00 8.00 400.00 6.00 200.00 4.00 2.00 0.00 0.00 0 1 1 2 3 4 4 5 6 7 7 8 9 0 0 1 2 3 3 4 5 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 0 0 1 2 2 3 4 4 5 6 6 7 8 8 9 0 0 1 2 2 3 4 4 / / / / / / / / / / / / / / / / / / / / / l l l l l t t t t t r r r r r r 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 n n n n n c u c u c u c u c u / / / / / / / / / / / / / / / / / / / / / / / p p p p p p a a a a a r r r r r r r r J J J J J c c c c c c c c g g g g g g g A O A O A O A O A O A J J J J J p p p p p p p p e e e e e e e e u u u u u u u A A A A A A A A D A D A D A D A D A D A D A D
PE (1Yr Forward) Current: 48.5x P/E Relative to India Index Current: 3.00 60.0x 4.00
50.0x 3.50 3.00 40.0x 2.50 30.0x 2.00 1.50 20.0x 1.00 10.0x 0.50
0.0x 0.00 0 0 1 2 2 3 4 4 5 6 6 7 8 8 9 0 0 1 2 2 3 4 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 0 0 1 2 2 3 4 4 5 6 6 7 8 8 9 0 0 1 2 2 3 4 4 / / / / / / / / / / / / / / / / / / / / / / / 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 r r r r r r r r c c c c c c c c g g g g g g g / / / / / / / / / / / / / / / / / / / / / / / p p p p p p p p r r r r r r r r e e e e e e e e c c c c c c c c u u u u u u u g g g g g g g p p p p p p p p A A A A A A A A e e e e e e e e u u u u u u u D A D A D A D A D A D A D A D A A A A A A A A D A D A D A D A D A D A D A D
Earnings Yield (& Local Bond Yield) Current: 2% Dividend Yield (Trailing) Current: 0.33 0.5 14% 12Mth fwd EY India BY Proxy 0.4 12% 0.4 10% 0.3 8% 0.3
6% 0.2 0.2 4% 0.1 2% 0.1 0% 0.0 0 0 1 2 2 3 4 4 5 6 6 7 8 8 9 0 0 1 2 2 3 4 4 0 0 1 2 2 3 4 4 5 6 6 7 8 8 9 0 0 1 2 2 3 4 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 / / / / / / / / / / / / / / / / / / / / / / / 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 r r r r r r r r / / / / / / / / / / / / / / / / / / / / / / / c c c c c c c c g g g g g g g r r r r r r r r c c c c c c c c g g g g g g g p p p p p p p p e e e e e e e e u u u u u u u p p p p p p p p e e e e e e e e u u u u u u u A A A A A A A A D A D A D A D A D A D A D A D A A A A A A A A D A D A D A D A D A D A D A D
ROE (Trailing) Current: 14.01 Price/Book (Value) Current: 12.7x 60.00 25.0x P/B Trailing P/B Forward 50.00 20.0x 40.00 15.0x 30.00
10.0x 20.00
10.00 5.0x
0.00 0.0x 0 0 1 2 2 3 4 4 5 6 6 7 8 8 9 0 0 1 2 2 3 4 4 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 0 0 1 2 2 3 4 4 5 6 6 7 8 8 9 0 0 1 2 2 3 4 4 / / / / / / / / / / / / / / / / / / / / / / / r r r r r r r r 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 c c c c c c c c g g g g g g g / / / / / / / / / / / / / / / / / / / / / / / p p p p p p p p e e e e e e e e u u u u u u u r r r r r r r r c c c c c c c c g g g g g g g A A A A A A A A p p p p p p p p D A D A D A D A D A D A D A D e e e e e e e e u u u u u u u A A A A A A A A D A D A D A D A D A D A D A D Summary Info Edge India Ltd. 1472.11 As Of: 29-May-15 INDIA 0.344559 TICKER INFOE IN Local Price: 784.45 Information Technology Internet Software & Services EPS: 16.18 Latest Min Max Median Average 2 S.D.+ 2 S.D. - % to Min % to Max % to Med % to Avg 12mth Forward PE 48.47x P/BV (Trailing) 12.75 3.60 25.00 8.37 9.34 18.01 0.66 -72% 96% -34% -27% Dividend Yield (Trailing) 0.33x 0.00 0.43 0.12 0.15 0.35 -0.05 -100% 31% -64% -53% ROE (Trailing) 14.01 3.02 50.00 16.13 20.46 43.80 -2.88 -78% 257% 15% 46%
Source: Bloomberg, Reuters Global Fundamentals, IBES CONSENSUS, JPMorgan Quantitative & Derivative Strategy
21 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report. For all Korea-based research analysts listed on the front cover, they also certify, as per KOFIA requirements, that their analysis was made in good faith and that the views reflect their own opinion, without undue influence or intervention. Important Disclosures
Debt position: J.P. Morgan may own a position in the debt securities of Info Edge India. Company-Specific Disclosures: Important disclosures, including price charts and credit opinion history tables, are available for compendium reports and all J.P. Morgan–covered companies by visiting https://jpmm.com/research/disclosures, calling 1-800-477-0406, or e-mailing [email protected] with your request. J.P. Morgan’s Strategy, Technical, and Quantitative Research teams may screen companies not covered by J.P. Morgan. For important disclosures for these companies, please call 1-800-477- 0406 or e-mail [email protected].
Date Rating Share Price Price Target Info Edge India (INED.BO, INFOE IN) Price Chart (Rs) (Rs) 02-Jun-08 N 492.90 250.00 29-Jul-08 N 429.08 237.50 1,602 OW Rs225 12-Nov-08 UW 204.07 75.00 23-Jan-09 UW 214.25 62.50 1,335 N Rs237.5UW Rs62.5UW Rs112.5 OW Rs422.5OW Rs360OW Rs400 OW Rs400 05-May-09 UW 261.50 75.00 02-Aug-09 UW 151.25 112.50 1,068 N Rs250UW Rs75UW Rs75 OW Rs262.5OW Rs317.5OW Rs410OW Rs425OW Rs420OW Rs360 OW Rs800OW Rs950 04-Nov-09 OW 180.05 225.00 Price(Rs) 26-Jul-10 OW 224.54 262.50 801 17-Feb-11 OW 275.75 317.50 06-Apr-11 OW 325.00 422.50 534 21-Oct-11 OW 340.50 410.00 20-Jan-12 OW 295.52 360.00 267 04-May-12 OW 378.77 425.00 26-Jul-12 OW 339.75 400.00 0 22-Jan-13 OW 334.90 420.00 Feb Aug Feb Aug Feb 08 09 11 12 14 19-Jul-13 OW 317.75 360.00 19-Oct-13 OW 348.65 400.00 Source: Bloomberg and J.P. Morgan; price data adjusted for stock splits and dividends. Initiated coverage Jun 02, 2008. 06-Aug-14 OW 701.20 800.00 27-Jan-15 OW 796.15 950.00
The chart(s) show J.P. Morgan's continuing coverage of the stocks; the current analysts may or may not have covered it over the entire period. J.P. Morgan ratings or designations: OW = Overweight, N= Neutral, UW = Underweight, NR = Not Rated Explanation of Equity Research Ratings, Designations and Analyst(s) Coverage Universe: J.P. Morgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Not Rated (NR): J.P. Morgan has removed the rating and, if applicable, the price target, for this stock because of either a lack of a sufficient fundamental basis or for legal, regulatory or policy reasons. The previous rating and, if applicable, the price target, no longer should be relied upon. An NR designation is not a recommendation or a rating. In our Asia (ex-Australia) and U.K. small- and mid-cap equity research, each stock’s expected total return is compared to the expected total return of a benchmark country market index, not to those analysts’ coverage universe. If it does not appear in the Important Disclosures section of this report, the certifying analyst’s coverage universe can be found on J.P. Morgan’s research website, www.jpmorganmarkets.com.
22 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
Coverage Universe: George, Viju K: Bharti Airtel Limited (BRTI.BO), Bharti Infratel Ltd. (BHRI.NS), HCL-Technologies (HCLT.BO), IGATE Corporation (IGTE), Idea Cellular Limited (IDEA.BO), Info Edge India (INED.BO), Infosys (INFY.BO), MakeMyTrip Ltd. (MMYT), Persistent Systems Ltd. (PERS.BO), Reliance Communications Limited (RLCM.BO), Tata Consultancy Services (TCS.BO), Tech Mahindra Ltd. (TEML.BO), Wipro Ltd. (WIPR.BO)
J.P. Morgan Equity Research Ratings Distribution, as of March 31, 2015 Overweight Neutral Underweight (buy) (hold) (sell) J.P. Morgan Global Equity Research Coverage 43% 44% 13% IB clients* 55% 49% 37% JPMS Equity Research Coverage 44% 48% 9% IB clients* 75% 68% 54% *Percentage of investment banking clients in each rating category. For purposes only of FINRA/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category. Please note that stocks with an NR designation are not included in the table above.
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23 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
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24 Viju K George Asia Pacific Equity Research (91-22) 6157-3597 30 May 2015 [email protected]
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"Other Disclosures" last revised March 28, 2015. Copyright 2015 JPMorgan Chase & Co. All rights reserved. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of J.P. Morgan. #$J&098$#*P
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