SPA Research`s view on Info Edge

SPA Research has come out with its report on Info Edge.
 
We recently met with the management of Info Edge to understand the internet business and the various investments it is making into other internet startups. We also discussed the philosophy and direction of the company as seen from the management's perspective. Info Edge started out with Naukri.com (one of the early online job-search-websites and presently the number one in India) and is now expanding into other domains through its subsidiaries and associate companies by the means of early stage investments.
 
Internet Penetration & Demography: Internet users in India have grown to 120mn at 25% CAGR over the past 5 years. With increasing penetration of smartphones and broadband connections this rate will continue for some more time, across the country. Small Towns (population less than 5lakh) have overtaken top-8-metros in terms of number of internet users. The penetration has improved to 10% but still presents significant headroom for growth considering penetration of developing economies close to 30%+ and developed ~67%. Thus internet based businesses would continue seeing significant pickup going forward.
 
Recruitment Business: Info Edge (earlier known as Naukri) started out as a job-portal, Naukri.com working as a match maker between candidates and companies through internet. It presently has more than 30mn resumes posted on its website with more than 10,000 added every day. It has been a leader in this segment due to superior products, business model and active sales team (~75% of work force). Some of the other brands in recruitment business are Quadrangle, FirstNaukri, NaukriGulf and Brijj.com.
 
Outlook and Recommendation: Naukri.com contributes ~80% to the company's topline and recruitment business being highly correlated to economic growth is exposed to its vagaries as the company witnessed in 2008-09. However the company has done well in 2011-12 period but is seeing increased competition from new entrants like LinkedIn. We thus feel diversification into different domains to be a good strategy although it would be a while, before company realizes any material impact. We also feel that increased competition would also have some bearing on the probability of success of a venture. At CMP of 355, the stock trades at a PE multiple of 29x LTM EPS.

FIIs holding more than 30% in Indian cos

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