Info Edge - Improvement in Economic Health = Boost in Hiring

The company’s business can be divided into four divisions, which comprise online recruitment classified division, online matrimonial classified division, online real estate classified division and offline executive search division. ‘Jeevan Sathi’, ‘99 acres’ and ‘Naukri.com’ all enjoy leadership positions and strong presence in their respective segments. The company has leveraged Naukri.com’s leadership in the job market by not only increasing its number of clients, but also raising realizations per client. Moreover, this business has given the company a strong brand recall and head start in other online markets.

The first half of this financial year has witnessed a fall of ~16% in topline and almost flat profits. First half was dull for the company on the back of challenging environment for recruitments and realty. However, one can expect recovery in H2FY10. The recruitment is highly correlated to the economic environment and growth of the corporate sector. As various businesses come out of the recent slowdown, leaving behind issues like cost cuts, stagnant expansion plans, and layoffs, the focus is back on growth. Boost in hiring as well as sentiments would be growth drivers for the stock going forward.

The company’s other two major businesses, i.e. matrimony and realty are currently making negative cash flows and thus impacting overall margins. However, we expect realty business to deliver some positive results on the back of improvement in sentiments in the sector. Also higher liquidity in the market is ready to get invested in various asset classes including realty.

We believe the stock is one of the best bets to capture the ever increasing India’s internet penetration. Internet is becoming a preferred medium of advertising, recruitment and ecommerce and the company offers an attractive opportunity to capitalize on the internet based business model. We expect the company to register close to 25% CAGR in earnings over the next three years. This makes it an attractive investment in the current market scenario.