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Info Edge (India) Ltd Result Update: Q3 FY 11

C.M.P: Rs.546.00 Target Price: Rs.628.00 Date: 28 Jan 2011

BUY

Years Net sales EBITDA Net Profit EPS P/E

FY 10 2336.71 948.37 569.27 20.86 26.18

FY 11E 2947.30 1232.82 779.33 14.28 38.25

FY 12E 3359.92 1416.28 893.95 16.38 33.34

Stock Data:

Sector: IT Enabled Services

Face Value Rs. 10.00

52 wk. High/Low (Rs.) 773.00/392.50

Volume (2 wk. Avg.) 12210

BSE Code 532777

Market Cap (Rs.In mn) 29806.69

Share Holding Pattern

1 Year Comparative Graph

INFO EDGE LTD BSE SENSEX

SYNOPSIS

• Info Edge (India) is a leading provider

of various portals related to online

recruitment, matrimonial, real estate

and education classifieds and related

services in India.

• Info Edge India Ltd reported a rise of

27.50% in sales (standalone) for the

quarter ended Dec 2010.

• Info Edge (India) Ltd proposes to invest

upto Rs. 47 million in DC Foodiebay

Online Services Pvt. Ltd.

• Info Edge (India) Ltd issues 1:1 bonus

shares.

• Applect is now subsidiary of Info Edge

in which they have invested an

additional Rs.50 million.

• Net Sales and PAT of the company are

expected to grow at a CAGR of 11%

and 14% over 2009 to 2012E

respectively.

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Peer Group Comparison

Name of the company CMP(Rs.) Market

Cap.(Rs.Mn.) EPS(Rs.) P/E(x) P/Bv(x) Dividend (%)

Info Edge India 546.00 29806.69 12.88 42.70 7.91 7.50

Subex 64.70 421.75 17.86 3.62 1.18 -

Coral Hub 2.53 61.22 0.52 4.87 0.22 6.00

Redington India 71.05 2807.38 2.90 24.50 4.15 50

Investment Highlights

Q3 FY11 Results Update

Info Edge India Ltd reported a rise of 27.50% in sales (standalone) for the quarter

ended December 2010.During the quarter the company disclosed a profit of

Rs.219.24 million against Rs.156.44 million in the same quarter previous year. The

total operating income of the company Rs. 817.80 million against Rs.660.58

million of the same quarter of previous year, a rise of 23.80% over the prior year

period

Quarterly Results - standalone (Rs in mn)

As At Dec-10 Dec-09 %change

Net sales 750.77 588.86 27.50

PAT 219.24 156.44 40.14

Basic EPS 4.02 5.73 (29.93)

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Net Sales & PAT Growth

During the quarter, Net sales rose by 27.50% to Rs.750.77 million from Rs.588.86

million in the same quarter last year and the Total Profit for the quarter ended

December 2010 was Rs.219.24 million grew by 40.14% from Rs.156.44 million

compared to same quarter last year.

Performance of verticals during quarter

� The recruitment business comprising of Naukri, Naukrigulf, Quadrangle,

Resume services and First Naukri accounted for about 83% of their

operating top lines in Q3 as opposed to 84% in Q3 last year. The Q3 top-line

in recruitment grew by 23.7% to 54.8 crores. Naukri top line grew by

approximately 22.5%, Candidate Services grew by about 13% and

Quadrangle grew at about 70%. EBITDA margins in recruitment were at

41.9% versus 39% in Q3 last year. In Naukri the EBITDA margin were at

44.8% up from 41.8% a year ago.

� The other business verticals line Jeevansathi and 99acres and Shiksha

account for the remaining 17% versus 16% last year.

� The other verticals in Q3 net sales grew 28.6% to 11 crores year-on-year.

99acres grew by 80%, Jeevansathi was flat. Shiksha grew 100% on a smaller

base.

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Investment in DC Foodiebay Online Services Pvt. Ltd.

Info Edge (India) Ltd proposes to invest upto Rs. 47 million in DC Foodiebay

Online Services Pvt. Ltd., an online food guide and restaurant directory

business is the fourth investment as a part of Info Edge strategy to invest in

internet startups which has its presence in Delhi NCR, Mumbai, Pune, Banglore

and Kolkata.

Issue of bonus shares

Info Edge (India) has issued bonus shares in the ratio of 1:1, i.e. one new equity

share for every one equity share held, to the existing equity shareholders of the

company, as on the record date, as may be fixed.

Further, the company would shortly take steps to obtain the approval of the

shareholders to increase the authorized share capital from the present Rs 40

crore to Rs 60 crore.

Investment in External Companies

Applect was regarded as a subsidiary in FY10. From this year onwards

eTechAces too would qualify as a subsidiary. In Applect they have invested an

additional Rs.50 million in Q1. The eTechAces site policybazaar.com is

continuing to gain interaction; revenues are primarily from lead generation.

Company Profile

Info Edge (India) incorporated in 1995, owns one of the leading job portals naukri.com.

The company is a leading provider of various portals related to online recruitment,

matrimonial, real estate and education classifieds and related services in India.

Company has a network of 67 offices spread across in 41 cities in India. Company also

operates internationally through 2 offices in Dubai, 1 in Bahrain and 1 in Riyadh.

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These international offices are engaged in business of sales, marketing and payment

collection activities of company’s business division.

The company has employee strength of 1,798 people. Info Edge (India) owns four

subsidiaries namely Naukri Internet Services, Jeevansathi Internet Services, Info Edge

(India) Mauritius and Allcheckdeals India.

Business Recruitment

This division of company is involved in providing recruitment through portals namely

naukri.com, firstnaukri.com, naukrigulf.com, brijj.com and Quadrangle-an executive

search agency. AS on FY 2007-08, more than 10,000 resumes were added daily on

Naukri.com, with a client base of 32,500 corporate clients and 87,000 job listings and

an extensive database of over 13 million resumes.

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Real Estate

Under this company operates 99acres.com. The company has pan India listing of

properties for sale, purchase and rent spanning across more than 25 cities. This portal

offers an online medium to connect brokers, dealers and interested buyers or sellers.

Matrimonial

Company operates jeevansathi.com which is amongst leading matrimonial websites in

the country. As on FY 2007-08 more than 2.36 million profiles registered on the

website.

Education

Company operates Shiksha.com that offers information for over 70,000 colleges,

courses, scholarships and admission notifications.

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SWOT ANALYSIS

Strengths

Info Edge is a leader in the online space in India.

High margins compared with competitors.

Strong management.

Increase in market share.

Weaknesses

Expenditure is being increased.

A Loss is observed in Jeevansathi.com.

Opportunities

Younger population in India and the steady increase in internet penetration

continue to support.

Increase in attrition.

Threats

Economic conditions

Competition in the market.

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Financials Results

12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) FY09A FY10A FY11E FY12E

Description

12m 12m 12m 12m

Net Sales 2451.66 2336.71 2947.30 3359.92

Other Income 286.30 305.66 267.55 320.94

Total Income 2737.96 2642.37 3214.85 3680.86

Expenditure -1799.32 -1694.00 -1982.03 -2264.59

Operating Profit 938.64 948.37 1232.82 1416.28

Interest -0.35 -0.54 -0.82 -0.95

Gross profit 938.29 947.83 1232.00 1415.33

Depreciation -71.10 -61.07 -68.25 -75.08

Profit Before Tax 867.19 886.76 1163.75 1340.25

Tax -270.33 -317.49 -384.42 -446.30

Net Profit 596.86 569.27 779.33 893.95

Equity capital 272.95 272.95 545.91 545.91

Reserves 2966.18 3520.71 4300.04 5193.99

Face Value 10.00 10.00 10.00 10.00

Total No. of Shares 27.30 27.30 54.59 54.59

EPS 21.87 20.86 14.28 16.38

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Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in.mn) Jun-10A Sep-10A Dec-10A Mar-11E

Description 3m 3m 3m 3m

Net sales 658.82 711.86 750.77 825.85

Other income 65.55 65.84 67.03 69.13

Total Income 724.37 777.70 817.80 894.98

Expenditure -454.48 -498.16 -476.07 -553.32

Operating profit 269.89 279.54 341.73 341.66

Interest -0.17 -0.23 -0.20 -0.22

Gross profit 269.72 279.31 341.53 341.44

Depreciation -13.77 -14.03 -19.83 -20.62

Profit Before Tax 255.95 265.28 321.70 320.82

Tax -83.26 -86.41 -102.46 -112.29

Net Profit 172.69 178.87 219.24 208.53

Equity capital 272.95 545.91 545.91 545.91

Face Value 10.00 10.00 10.00 10.00

EPS 6.33 3.28 4.02 3.82

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Key Ratio

Particulars FY09 A FY10 A FY11 E FY12 E

EBIDTA % 38.29% 40.59% 41.83% 42.15%

PAT % 24.35% 24.36% 26.44% 26.61%

P/E ratio (x) 24.97 26.18 38.25 33.34

ROE - % 18.43% 15.01% 16.08% 15.57%

ROCE (%) 26.76% 23.35% 24.00% 23.34%

EV/EBITDA (x) 15.88 15.71 24.18 21.05

Debt-Equity Ratio 0.00 0.00 0.00 0.00

Book Value (Rs.) 118.67 138.99 88.77 105.14

P/BV 4.60 3.93 6.15 5.19

Charts:

1. Net Sales & PAT

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2. P/E Ratio

3. EV/EBDITA

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4. P/BV

5. RoE & RoCE

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Outlook and Conclusion

At the current market price of Rs.546.00, the stock is trading at 38.25 x FY11E

and 33.34 x FY12E respectively.

Price to Book Value of the stock is expected to be at 6.15 x and 5.19 x

respectively for FY11E and FY12E.

Due to increase in equity capital the EPS is decreased, the EPS of the stock

is expected to be at Rs.14.28 and Rs.16.38 for FY11E and FY12E respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 11% and

14% over 2009 to 2012E respectively.

On the basis of EV/EBITDA, the stock trades at 24.18 x for FY11E and 21.05 x

for FY12E.

Info Edge India Ltd reported a rise of 27.50% in sales (standalone) for the

quarter ended December 2010.

Info Edge (India) Ltd proposes to invest upto Rs. 47 million in DC Foodiebay

Online Services Pvt. Ltd.

Info Edge (India) Ltd issued 1:1 bonus shares.

We expect that the company will keep its growth story in the coming quarters

also. We recommend ‘BUY’ in this particular scrip with a target price of

Rs.628.00 for Medium to Long term investment.

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Industry Overview

IT enabled Services (ITeS)

Sector structure

The National Association of Software and Service Companies (NASSCOM) is the apex

body for software services in India. According to its recently released publication-

Strategic Review 2010, the IT-BPO sector's revenue as a proportion of the country's

gross domestic product (GDP) has grown from 1.2 per cent in FY 1998 to an estimated

6.1 per cent in FY 2010. Further, NASSCOM predicts that the Indian IT-BPO revenues

may touch US$ 225 billion by 2020.

As per the Strategic Review 2010, the BPO sector continues to the fastest growing

segment of the industry and is expected to reach US$ 12.4 billion in FY 2010, growing

at 6 per cent.

As per the annual report 2009-10 by the Department of Information Technology (DIT),

the IT-BPO industry is expected to reach US$ 73.1 billion in 2009-10 as compared to

US$ 69.4 billion in 2008-09, witnessing a growth of over 5 per cent.

Further, as per DIT, the ITeS-BPO is being seen as the fastest growing segment within

the Indian IT-BPO sector and is predicted to reach export revenues of about US$ 12.4

billion in 2009-10 as compared to US$ 11.7 billion in 2008-09, growing at 6 per cent.

The domestic BPO revenue is expected to touch US$ 2.29 billion in 2009-10 from US$

1.93 billion in 2008-09, registering a growth of 18.6 per cent, according to the DIT.

Moving up the value-chain

ITeS, which started with basic data entry tasks over a decade ago, is witnessing an

expansion in its scope of services. It now offers services such as knowledge process

outsourcing (KPO), legal process outsourcing (LPO), games process outsourcing (GPO)

and design outsourcing, among others.

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The Indian BPO sector has not only added scale in the last nine years, but has also

matured significantly in terms of scope of service offerings, buyer segments served and

service delivery models. Apart from achieving maturity in the horizontal segment,

providers are increasingly developing vertical/domain specialisation to capture greater

value.

According to the DIT, among the verticals serviced by India's IT/ITES-BPO industry

those that account for the largest share of revenue are banking, financial services and

insurance (BFSI)-41 per cent, Hi-Tech/Telecom (20 per cent), manufacturing (17 per

cent), retail (8 per cent), with smaller contributions coming from media, publishing

and entertainment, construction and utilities, healthcare and airlines and

transportation. Important industry verticals being serviced by the BPO segment are

insurance, retail banking, travel and hospitality, auto manufacturing, telecom and

pharmaceuticals. Horizontals such as Customer Interaction and Support (CIS),

Finance and Accounting (F&A) and Human Resource Management (HRM) are

important areas in the BPO segment.

• The Indian animation market is estimated to touch US$ 1.02 billion by 2014, to

grow at a CAGR of 18.7 per cent on the back of increase in consumption of

animated content and growth of 3D formats, according to a report by an

industry body and KPMG published in March 2010.

• According to the same report, the Indian gaming industry that grew by 22 per

cent in 2009 is expected to reach US$ 703.14 million by 2014, to grow at a

CAGR of 32 per cent.

• As per a report, 'Globalization of Engineering Services', published by NASSCOM

and Booz Allen Hamilton, India may garner 20 to 25 per cent of the global

market for offshored engineering services by 2010. Further, the country may

capture 25 to 30 per cent of projected US$ 150 billion to US$ 225 billion

market, i.e. around US$ 50 billion by 2020.

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• According to a report by consultancy firm ValueNote, the legal process

outsourcing (LPO) revenues in India is estimated to reach US$ 1.1 billion in

2014 from US$ 146 million in 2006.

Advantage India

According to AT Kearney's 'Global Services Location Index 2009', a ranking of the top

50 most attractive offshoring destinations, India continues to be the most preferred

destination for companies looking to offshore their IT and back-office functions. India

has constantly held the number one position since 2004, when the rankings started.

As per the report, India has remained at the forefront of the outsourcing industry and

actually has become an enabler for industry growth through expansion of Indian

offshoring firms into other countries.

According to the Department of Information Technology, India accounts for around 28

per cent of IT and BPO talent among 28 low-cost countries. It has a rapidly growing

urban infrastructure fostering several IT centres in the country. Offshore service

centres are spawning in the country due to operational excellence with low delivery

cost, quality leadership and a conducive business environment. Favourable policy

interventions, enabling infrastructure and augmenting a wide skill base from the

government has further enhanced India's brand image.

Deals

• Mahindra Satyam BPO has entered into an agreement with Johannesburg-

based contact centre and BPO Direct Channel Holding Ltd that has multiple

delivery centres in Africa.

• Hinduja Global Solutions, a BPO company and part of the Hinduja Group, has

bought Careline Services, a UK-based customer relationship management

company.

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• Enterprises Ltd, an engineering services and technology solutions provider, has

signed a long-term agreement with Seawell AS of Norway to provide engineering

support services.

• Avantha Group has acquired US-based Pyramid Healthcare Solutions in a deal

with an estimated value of US$ 20 million.

• IT major Wipro Technologies has entered into a multi-year outsourcing

engagement with British American Tobacco, to help the company improve

effectiveness and efficiency of application support services for its global

business operations.

• Aditya Birla Minacs, the information technology business solutions firm, has

acquired UK-based Compass BPO, finance and accounting (F&A) services

provider.

• Tata Consultancy Services has entered into a global engineering services

partnership with power systems company Rolls-Royce.

Exports

According to DIT, ITeS-BPO exports is expected to reach US$ 12.4 billion in 2009-10

from US$ 11.7 billion in 2008-09, registering a year-on-year (Y-o-Y) growth of 6 per

cent.

Government Initiative

• Setting up of Software Technology Parks of India (STPIs) in 1991 for promotion

of software exports from the country - there are currently 51 STPI centres where

apart from exemption from customs duty available for capital goods there are

also exemptions from service tax, excise duty, and rebate for payment of

Central Sales Tax. But the most important incentive available is 100 per cent

exemption from Income Tax of export profits, which has been extended till 31st

March 2011.

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• Government is also setting up Information Technology Investment Regions

(ITIRs). These regions would be endowed with excellent infrastructure and

would reap the benefits of co-siting, networking and greater efficiency through

use of common infrastructure and support services.

• The government has recently relaxed employment visa norms for the IT and

ITeS sectors, allowing companies in these sectors to employ foreign nationals as

per their requirements, effectively removing the ceiling of 20 such employees

per company. Companies would need to provide a declaration that the skilled

worker has been hired for working in an IT or ITeS company or a software

technology park of India or special economic zone dedicated to IT or an IT unit

in a multi-product zone, while the foreign worker being sponsored would have

to give a declaration to the effect that his annual salary is in excess of US$

25,000 per annum.

________________ ____ _________________________ Disclaimer:

This document prepared by our research analysts does not constitute an offer or solicitation

for the purchase or sale of any financial instrument or as an official confirmation of any

transaction. The information contained herein is from publicly available data or other

sources believed to be reliable but do not represent that it is accurate or complete and it

should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it’s

affiliates shall not be in any way responsible for any loss or damage that may arise to any

person from any inadvertent error in the information contained in this report. This document

is provide for assistance only and is not intended to be and must not alone be taken as the

basis for an investment decision.

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