Info Edge posts Rs 116.5 cr loss in Q3; founder Bikhchandani says being careful in investments

Info Edge founder Sanjeev Bikhchandani

Info Edge, which owns Naukri, Jeevansathi, 99acres and others, posted a net loss of Rs 116.5 crore in Q3FY23, compared to a profit of Rs 4,601.8 crore in the year-ago period.

The recruitment solutions business of Info Edge saw revenue come in at Rs 436.8 crore, an increase of 40.3 percent in the December quarter on year-on-year (YoY) basis. On sequential basis, it's up 4.48 percent at Rs 418.1 crore. This comes as the IT hiring business witnessed a significant slowdown in Q3FY23, which the company’s management called out as well.

Billings for the quarter for the recruitment business came in at Rs 436.6 crore, a growth of 17.7 percent on YoY basis. Of this, Naukri’s billing was Rs 362.7 crore.

“While we are seeing a slowdown in IT hiring, the non-IT hiring market continues to be strong,” said CEO Hitesh Oberoi. He added that sectors such as insurance, hospitality, retail and banking posted robust growth.

The company also wrote down its investments in 4B networks, in which it had a majority stake. The company said an impairment of Rs 276 crore was charged as an exceptional item, and said it wrote down its investments due to concerns around the uncertainty of the funding environment.

Info Edge Founder and Vice Chairman Sanjeev Bikhchandani said in an analyst call that the company is being careful when it comes to investments, and it has raised the bar for evaluation.

“We are now not worried about missing investments, we are more worried that we don't do the wrong one. Especially since we don't know if there'll be a follow-on round from another investor or not. There might be, there might not be, because everybody is being more careful. We are investing, but we are being a little slow,” he said.

Info Edge was an early backer of Zomato and Policybazaar.

The comments around the funding environment come at a time when private equity (PE) and venture capital (VC) funding to Indian start-ups slid to a five-year low in January amid rising macroeconomic uncertainties, which is expected to continue at least in the first half of 2023.

Bikhchandani said that they’ve always been wary of areas such as crypto, adding they follow a system of not investing in anything that they don’t understand.

“We're sort of impaired in our understanding of crypto. Similarly, Web 3.0. I think it's a great idea, a great concept, but we don't know what the use case of that is there to make money. We are slow on crypto and Web 3.0; that's not new. We've been slow for the last couple of years. ...we may have done one or two investments in the flavour of Web 3.0 and crypto. We're likewise sceptical of Meta,” he said.

He added that the company is slow off the blocks in newer areas until they fully comprehend it fully and the fog lifts on what will work and will not.

For Info Edge Ventures Fund 2, Bikhchandani said they look at it with a bottom up perspective.

“If there's a good team chasing a good thing that looks like it could work (and) is getting some traction, we'll look at it closely. And if you really continue to like it as you deep dive, maybe you can go into it,” he said. However, he said, there is caution and they are reducing risk.

“We are looking at possibly co-investing with others to share the risk and to get more deep pockets around the table,” he said.

When asked if more impairment costs could be expected, going forward, CEO Oberoi said that given the funding environment, all companies in their portfolio have gone back to the drawing board and are looking at their growth plans once again.

“Some companies are under more stress than others. Right now, we don't have visibility on any other sort of impairment, or any other asset impairment in our portfolio. But, the situation is dynamic, and will likely change every month, every quarter,” he said.

Recruitment is a significant slice of Info Edge’s billings, primarily from Naukri.

However, the slowdown in IT hiring was apparent even in Naukri’s jobs report for Q3, which showed the IT sector hiring index down 14 percent. “We experienced longer sales cycle and spend optimisation during the quarter with various customers, especially in the IT space,” he said.

IT hiring on a net basis has fallen significantly in the last quarters, with the top five Indian IT companies actually seeing cumulative reduction in headcount. Three out of five top IT companies reported having fewer employees in the December quarter, compared to the September quarter.

Oberoi added that the sales team is focussing on increasing the velocity of closures and monetisation of non-IT customers. He said the non-IT market continues to be hot, which is about 45-50 percent of the business on the recruitment side.

Oberoi said that the company saw great results when IT hiring was on a tear for seven-eight quarters.

“A lot will depend on what happens to IT, going forward. If IT hiring bounces back strongly within a quarter or two and the Indian economy continues to grow at 6 percent or so per annum, we should be fine,” he said.

However, when asked if there could be a degrowth in Naukri’s billings in Q4 due to slower IT hiring, Oberoi said he didn’t rule out such a possibility, as billings growth had slowed for the last three quarters.

For Q4, he said, “We expect non-IT billing to, sort of, continue to be solid …But IT billings, we don't know whether we've hit the bottom as yet. It's hard to predict what's going to happen in Q4,” he said.

Oberoi added that gross hiring, and not net IT hiring, is what applies for their business, as attrition rates continue to be high for many IT companies.

“Attrition rates have started trending south. But, companies need to also replace a lot of people to stay at the same number. They are perhaps adding less people than they were adding earlier. …it’s not as if our business in IT has come to a standstill,” he said.

He added that volume, however, has gone down compared to six months ago, and clients are taking longer to close deals and are negotiating harder.

For the future, he said, a lot will depend on the US market, as sentiments are impacted because of the conditions there.

“What we have seen in the past is whenever there's a slowdown in the US in the short term, for a couple of quarters India slows down. But, in the long term, more and more jobs are outsourced to India. If that happens this time around also, it could pick up in a very big way, going forward. But it's hard for me to predict what will happen at this stage,” he said.