"We are not a SEBI registered advisor, and this should be considered as a research case study only."

Do you recall the days when we used to flip through the pages of the newspaper to find the "Classified section" and check for job opportunities? I vividly remember doing this during my childhood, searching for jobs for my brother as directed by my father. However, I haven't had to do that for a long time now, thanks to websites like "Naukri.com" and "Freshers.com." These digital classified websites have made it effortless to find both government and private job listings.

Yes, today, we will be discussing the “Badshah(King)” in India's digital classified platform for jobs- Naukri.com, owned by Info Edge. While Info Edge boasts a diversified business portfolio, including Naukri.com, 99acre.com, JeevanSathi.com, Shiksha.com, Zomato, and PolicyBazaar, a significant portion of its revenue (approximately 75%) is generated by Naukri.com. The online job classifieds market has experienced significant disruptions due to various factors, including the COVID-19 pandemic, the Russia-Ukraine war, and the US-Europe banking crisis, the Recession in IT etc. But it's worth noting that India still has a relatively low penetration rate in the digital classified market compared to countries like China and the USA, which earn revenue amounts of 7,190 million and 2,570 million US dollars, respectively. In contrast, India's revenue in the digital classified market stands at 133 million US dollars/per year.

In the provided chart, it is evident that the price of "Info Edge" has experienced a significant decline of nearly 54% from its peak. This substantial drop could potentially instil fear in investors who entered the stock at a price exceeding 7000. It is worth noting that such a drastic fall is historically uncommon for this stock. Consequently, we must explore the possible reasons behind this decline and consider what lies ahead for the company. To gain deeper insights, let's conduct a comprehensive analysis of Info Edge's business fundamentals and growth prospects through our EIC analysis.

Economic Analysis:-

The Info Edge business is influenced by both headwinds (obstacles) and tailwinds (favorable factors) in line with macroeconomic concerns. However, it appears that there are more headwinds in the shorter term than tailwinds affecting the business. Let's discuss these factors individually.

Major concerns ahead(Head Winds):-

• The growing concern of the declining growth of consumer ad spending in the “Global digital classifieds Market”. Research conducted by Statista indicates that ad spending for digital classifieds is projected to experience a decreased annual growth rate (CAGR 2023-2027) of 2.16%.

After initially recovering from the impact of the COVID-19 pandemic, the growth rate has faltered due to economic instability in Europe and other developed regions, as well as the ongoing Russia-Ukraine conflict. As a result, the growth trajectory has started to decline, and there are indications that this downward trend may persist for the next 2-3 years. But India is underpenetrated in the staffing industry, so the above data may not give an accurate picture. The slight recovery in the global scenario can cause great demand and growth in India.

• Global recession fears and a slowdown in IT sector hiring:- According to a report from Financial Express, the IT sector is projected to experience a significant decline in hiring growth rate, potentially reaching half of the current year's rate. This is causing major concerns for companies like Info Edge, as a significant chunk of their hiring comes from the IT sector. Furthermore, the leading staffing firm "Team Lease" anticipates a substantial 40% decrease in net hiring during FY24. Despite these facts, overall recruitment of Info Edge has shown good positive growth.
• Increasing Interest rates:- The recent increase in the government repo rates has resulted in rising borrowing costs for real estate buyers. This development is proving to be a discouragement for companies such as 99acres.com(Infoedge subsidiary).

What’s in favour?(Tail Winds):-

The favourable factors will help in the long term mostly. Such as:-

• Under Penetration of Digital Classified Market in India:- India's digital classified market earns only 133 million USD in revenue, in contrast to China's substantial revenue of 7,190 million USD. Here is a comparison between the countries:

As there is a lot of ground to cover in India, so the opportunity seems big for Info Edge-like companies.

• Indian growing population and demographics:- The median age of the Indian Population is 28yrs, and the working-age population is 65% of the total population. People aged around our median age generally use the job classified platform more.

According to data from the IMF, India is projected to maintain its youthful demographic profile for at least another decade, as depicted in the figure above. This demographic advantage is expected to provide a potential boost to the job classifieds market.

• Apart from this, the growing internet connection and smartphones may continue to fuel the strong demand for Infoedge's diversified online classified businesses.

Industry Analysis

Info Edge is a leading player in the digital classifieds industry, with Naukri.com as its flagship holding, commanding the largest market share at 11%. OLX follows with a 6% market share, while Indeed holds 5%. As an industry leader in the recruitment business, Info Edge enjoys a competitive advantage. The online segments in which Info Edge operates are characterized by intense competition and constant evolution, with various players offering diverse services and features to their customers and users.  Major competitors of Naukri.com include platforms like LinkedIn and Indeed, whose increasing popularity are a threat to the business. The accompanying pie chart visually represents the distribution of market shares.

The growth rate of the digital classifieds industry appears uncertain, given the current economic scenario. As previously discussed, the industry is expected to continue growing, albeit at a slower rate of around 2% over the next two to three years.

Company Analysis

Let's employ our questionnaire method to conduct a thorough analysis of the company.

What is the core business of the company and Revenue mix?

The core business of Info Edge is to provide online classifieds services in various segments such as recruitment, real estate, matrimonial, education and related services through its web portals and mobile applications such as Naukri.com, 99acres.com, Jeevansathi.com, Shiksha.com, etc. It also has investments in several startups and companies in the online space, such as Zomato, Policybazaar, Ustraa, Happily Unmarried, etc.

It’s Recruitment Business

As almost 75% of the revenue comes from Recruitment Business, so let’s discuss it more as per their latest annual report management discussion. According to a report by Nasscom-Zinnov, India is expected to experience a significant shortage of 14-19 lakh tech professionals by 2026. It is projected that the country will need to add approximately 52 lakh IT professionals to its current tech workforce over the next five years.

Despite a slowdown in IT hiring, there is strong demand for Non-IT hiring in key sectors like BFSI (Banking, Financial Services, and Insurance), Retail, Hospitality, and Media Entertainment. These sectors, which collectively account for 45% of Info Edge's overall revenue, continue to show robust growth.

Based on the above picture from Info Edge's annual report, it is evident that the company's new customer acquisition is increasing consistently each year for the recruitment business(Naukri). In the current year, there has been an addition of 1.10 lakh customers.

Real Estate Business(99 acres.com)

99 acres has not been a great contributor to Infoedge business because of prevailing high interest rates.To maintain the competitiveness, the company is heavily spending on it’s Marketing.  Info Edge had made an investment in 4B Networks Limited, a company operating in the real estate broking sector. However, due to the high cash burn and losses incurred by 4B Networks, Info Edge has decided to write down the value of its investment to zero in its financial statements. This development has raised concerns about the real estate broking industry, highlighting the challenges and risks associated with certain players in the market.

Product Portfolio?

Promoter Holding?

The company's promoter holding has remained stable at approximately 38% for the past few years.

Competitors?

Info Edge faces competition from various companies in the digital classifieds sector, both directly and indirectly. Some notable examples of direct competitors include Monster Worldwide Inc, Indeed, IndiaMART, and Just Dial. These companies operate in similar domains and offer services that overlap with Info Edge's offerings in the recruitment, classifieds, and B2B sectors.

Analysing Financials

Revenue and Operating Profit

Despite facing challenges during the COVID-19 pandemic, Info Edge (India) Limited has demonstrated its ability to recover and adapt. The company's financials indicate a significant growth rate in revenue, although it is projected to decrease to around 15%-16% according to many brokers' valuation reports, considering the current outlook on a potential recession in the IT sector.

Over the past five years, the Recruitment business has experienced a compound annual growth rate (CAGR) of 14.6% in revenue.

In the table below, by examining the profitability of different business segments, it becomes apparent that only the Recruitment business and Education segments are generating profits. However, the Real Estate segment (99 acres) and Matrimonial segment (Jeevansathi.com) are operating at a loss after considering operating expenses.

(Figures in Crs)

Debt

The company has been debt-free for a long time now, with a debt-to-equity ratio nearly equal to zero. Furthermore, the company has a robust surplus and cash reserve, which was further increased after the sale of its stake in Zomato in FY-2022. This strong liquidity position provides the company with the necessary financial flexibility to invest in new growth opportunities and withstand economic downturns.

Gross Profit and Gross Profit Margin

The company has impressively maintained a strong gross profit, which represents the profit remaining after accounting for wages and deducting other operating costs. This indicates efficient cost management and sustained profitability for Info Edge.

(Figures in Crs)

The gross profit margin(GPM) has always stayed above 50%.

The company has been able to maintain a healthy operating margin in the range of 24% to 27% continuously for the last five years.

Other Financials

The trade receivables, or credit sales, for the company, are minimal when compared to its overall sales. Additionally, Info Edge demonstrates a robust positive cash flow from its operations, indicating that the company is generating profits through its core activities.

Furthermore, it is worth noting that Info Edge has consistently maintained a Return on Equity (ROE) above 20%(refer above image), indicating strong growth in this area. However, the Return on Capital Employed (ROCE) has witnessed a significant decline due to the company's long-term investments in various subsidiaries and start-ups.

Technical Tadka:-

Although this analysis does not fall under the category of equity research, we still provide it for your consideration. Based on our assessment, Info Edge appears to be a fundamentally strong company. However, it's important to note that its business may be susceptible to economic factors. Now, let's explore the technical chart to identify potential support levels or demand zones for the stock.

In the weekly chart, the stock has never gone below its 200Exponential Moving Average. Now it seems to be taking support on it. Additionally, there is a demand zone created at the 3300 price range where the price has taken support on multiple occasions. The stock gave a break out of a wedge pattern on 26th June. All these signals indicate a bullish momentum.

Disclaimer:-

We are not a SEBI registered Investment Advisor. This is not a recommendation but only a case of sample analysis that might help you to do fundamental research on various companies.

Conclusion

Based on our research, we believe that the current valuation of the stock is fair, and we maintain a neutral stance on its growth prospects until there is an improvement in the global economic scenario. It is unlikely to generate significant returns until the global conditions improve, but it is also not expected to decline significantly as it has already corrected to its base price. While the company does have numerous subsidiaries, we did not identify any major concerns in its financials. However, the extensive subsidiary structure makes financial analysis more complex. In equity research, when no significant negative aspects are found, we generally assume a positive outlook.. And based on our Technical(Bullish) and Fundamental analysis(Neutral):-

Price, CMP:- 4197.75

Target:- 5500 and above.

Broker	Type	Offerings	Invest
	Discount Broker	Mutual Funds, Stocks, IPOs, Bonds	Know more
	Discount Broker	Mutual Funds, Stocks, IPOs, Bonds	Know more
	Discount Broker	Mutual Funds, Stocks, IPOs, Bonds	Know more
	Service Broker	Mutual Funds, Stocks, IPOs, Bonds	Know more