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Slowdown in IT & real estate a pain point for Info Edge
Business Standard  |  February 25, 2020


Info Edge’s December quarter (Q3) earnings clearly indicate that weakness in the overall economy has started catching up. The company, which had been an outlier before the third quarter, has been hit by a slowdown in the two key sectors of IT and real estate.


Subdued hiring in the IT sector and prolonged stress in the real estate sector are likely to keep growth of Info Edge’s recruitment (Naukri) and real estate (99acres) business under pressure, at least, in the near term.


The two segments accounted for 90 per cent of Info Edge’s revenues in Q3. Further, slowdown in consumer goods and retail, among others, is expected to hit overall hiring trends.


Many analysts have revised the near-term revenue estimates for the company. Analysts at ICICI Direct, for instance, have slashed Info Edge’s FY20 and FY21 revenue estimates by around 2 per cent and 5 percent, respectively.


Info Edge’s Q3 earnings also showed a sharp decline in billing growth of Naukri (mainly because of lower hiring in the IT sector) and 99acres.


Billing growth of Naukri fell to 8.5 percent in Q3 from 14 per cent in the previous quarter, and that of 99acres declined to 10.8 per cent from 20.8 percent in Q2.


The billing growth in these segments was the lowest atleast in the last seven quarters. Though, bill book is a long-term obligation, if the billing growth continues to decelerate in the following quarters, it would be a cause of worry for Info Edge’s investors.


The stock has shed 9.5 per cent since Q3 results, and has also underperformed the Sensex, which has fallen 2 percent during the same period.


Nonetheless, cost efficiency and lower advertising spends, mainly for the two key segments, should offer some support to Info Edge’s operating profitability despite concerns over the near-term growth and higher marketing spends in segments such as Jeevansathi.


Also, Info Edge’s key market position in its business segments, and its investments should translate in to higher growth in the long term.


Yet, near-term growth concerns and the recent rally in the stock (up 36 percent in the last 6 months) have turned valuations expensive. Thus, investors should wait for some correction in the stock before investing.