Although Info Edge delivered good results in the October-December quarter of the 2022-23 financial year (Q3FY23), the management guidance flagged visible weakness in the IT segment.
That seems to have spooked investors who downgraded valuations for a very highly-valued company.
The stock dropped by over 9 per cent as the market responded to the guidance and its implications more than the results.
The firm delivered strong revenue growth in Q3FY23, with standalone revenue growth of 33 per cent year-on-year (YoY), led by 40 per cent growth in the recruitment vertical.
The earnings before interest, tax, depreciation and amortisation (Ebitda) margin rose 450 basis points (bps) quarter-on-quarter (QoQ) to 39.1 per cent due to reduced employee costs, lower advertisement spends, and cutting of other expenses.
Billings remained good, up 14.5 per cent YoY to Rs 555 crore.
Over 9 months, revenue, Ebitda and profit after tax (PAT) have risen 47 per cent, 73 per cent and 58 per cent, respectively.
The guidance says there are clear signs of a slowdown in IT hiring, with supply pressure easing and lower attrition.
This is a key risk, since IT contributes 36 per cent of Naukri’s revenues.
The management expects 16 per cent revenue on compound annual growth rate basis during FY23-25.
In other negative news, rising interest rates have started impacting the real-estate business.
Marketing spends in this area are also elevated due to high competition.
As such, it could be a few years before 99acres turns profitable.
The IT hiring was down
25 per cent, but overall hiring was up 2 per cent.
The guidance is for longer sales cycles and spends optimisation in IT but a strong bounce in demand for the non-IT segment may compensate.
The demand for IT, which was driven by high attrition rates, has moderated across the last two quarters.
In real-estate, the high interest rates have adversely impacted real-estate demand, but the company will continue to invest, as competitive intensity remains high.
The matrimonial portal Jeevansathi saw a 25 per cent decline in top-line.
Revenues in Shiksha, the education portal, also declined 10 per cent.
The company has decided to completely impair investment worth Rs 76 crore in the 4B Network, citing high cash-burn.
This is a conservative decision.
Analysts seem divided on the future of the company, with recommendations ranging between ‘neutral’ and ‘hold’ to ‘buy’.
Targets in this company are all likely to be calculated on the DCF (discounted cash flow) basis, given the separate revenue streams and verticals. The share price is down to Rs 3,453 after the sell-off.
Price targets range netween Rs 5,050 on the upside to Rs 4,600, Rs 4,650 and Rs 3,800.
This does indicate an upside of at least 10 per cent and more.
However, investors would be well-advised to wait for the current sell-off to be completed before making fresh entries in the stock.
