InfoEdge

Naukri Shows 40% EPS Growth in Q3 FY11

Comments Off Written on January 20th, 2011 by
Categories: InfoEdge

Naukri (InfoEdge) showed some growth in the Q3 results.

Naukri Results

Revenue grew 28% over last year, to 75 crores, and profits grew over 40%, as did EPS. So where did they spend lesser? Turns out nearly 3 crores lesser than the last quarter in promotion and marketing. We'll have to wait and see what management has to say.

But overall, this is a very overvalued stock. TTM EPS is sluggish at just 12.89. The Current market price is 574, and that means the P/E is an obscene 45+.

Naukri Chart

(Click for larger chart)

I'd mentioned once that the rule with the Naukri stock was: If they announce bad results, the stock goes up. (Read: InfoEdge Results: EPS down 4%, Stock Up 4%)

The converse seems to also be true. With this result the stock did absolutely nothing. Technically it's very weak - and sitting at an important support line; a recovery from here should take the stock back to 600 at least (watch for it crossing 620). A break down from here has a 100 points more before it finds some strength. Very low volumes though.

InfoEdge Results: EPS down 4%, Stock Up 4%

4 comments Written on April 30th, 2010 by
Categories: InfoEdge

There is only one rule for the NAUKRI stock. If they announce bad results, the stock goes up.

image

For the last two years, the Trailing Twelve Month EPS has been between 20 and 23 and it is now near the low of the range. The profits have hardly grown much, even in a job market that has seen a substantial recovery, or so we are told.

image

This time, the cash flows are negative. But that’s just a little accounting thing – they’ve moved from fixed deposits to mutual funds (the latter being “investments” and therefore not cash equivalents). Overall, they have 107 cr. in MFs and 277 cr. in FDs, making for a cashable hoard of 384 cr, up from 340 cr. last year. With 2.73 cr. shares, that’s Rs. 140 per share in just cash.

The stock though, is at Rs. 955, up Rs. 40 today, or 4.4%. While it is strange, consider this – the volume traded was a piddly 3,881 shares, for a total turnover of 36 lakhs. Heck, anyone can manipulate this stock up or down with such low volume, so I shouldn’t even harp on the 4% increase.

Scary bits: insiders are selling hand over fist. Kapil Kapoor, the non-exec Chairman, has sold 68,000 shares just this quarter. That should have netted over 4 crores, and he’s sold another 70,000 last quarter. Sandeep Murthy, another big-name director, has sold around 50,000 shares in the year. The plus point is that management – Sanjeev Bikhchandani, Hitesh Oberoi etc. have not sold their shares.

Naukri’s been doing some improvements to their sites lately, though I’ve not used their main site (naukri.com) too much, or the jeevansathi type portals. I do use 99acres.com a fair bit, and I’ve seen allcheckdeals too. But I doubt it’s worth the 45 P/E they are getting now, especially since they have shown an EPS growth of about zero in the last eight quarters.

And it’s equally important to say that every time I have dissed their EPS growth, the stock has gone up, so if you’re the quant type, this is probably a great time to buy. (I don’t have any holding and don’t plan to either)

Links for 29 Mar 2010

Comments Off Written on March 29th, 2010 by
Categories: InfoEdge, Readings

It’s one of those days I have too much to read, so…

  • Day Traders 2.0 – Wired, Angry and Loving It (NYT). Indian markets are also full of day traders, and it’s as difficult a deal here. The interesting part is in a web offering I think will make a lot of sense for India as well, but more on that later.
  • Shankar Sharma, the person toted as the big angry bear on CNBC, has a one-year ban reinstated by SAT, and steps down from the board of First Global.
  • Brett Steenbarger on the Longer Term View (Weekly) of Risky asset performance. The global recovery may not exactly be gaining steam.
  • Sunk Costs, an invisible, pervasive peril : This line made me think - “Just touching an item in a store makes you more likely to purchase it.”
  • KPCB and Sherpalo exit Info Edge. They sold 4.05% of stake for 86 cr. a few days back. Remember they bought it for Rs. 245 in 2006, and the share’s quoting above Rs. 800 now. It seems that Insiders are selling the shares in HUGE numbers; Kapil Kapoor, the exec chairman, recently sold 50,000 shares. Info edge might see negative sales growth for FY10, says Hitesh Oberoi, COO.
  • (In the above article – turns out StudyPlaces.com got $3m funding, $1m each from KPCB, Sherpalo and InfoEdge, and was recently acquired by Educomp for half - $1.5m. Another unfortunate money losing story of the Indian Internet)

 

Info Edge (Naukri) Results: Another Down Quarter

1 Comment » Written on February 1st, 2010 by
Categories: InfoEdge

Info Edge released it’s December 2009 quarter results:

image

A little disappointing in terms of growth, because they’ve stagnated in a way. True, the industry has been in a sorry state of affairs, but the hiring situation was supposed to be good last quarter and either it’s not, or Naukri wasn’t the beneficiary.

Info Edge’s primary business is Naukri.com, and they own sites like jeevansathi.com, 99acres.com, Brijj, AllCheckDeals and Shiksha.

Revenues at 59 cr. were 6% higher than the last quarter, but flat from December 09. Is it okay to compare Quarter on Quarter, or year-on-year? I’d say hiring is a seasonal business – that means what you might see in March is different from what you see in December. For multiple reasons – bonus handouts (people wait to quit after annual bonuses), school switchovers, festive seasons and so on.  And yet, Naukri’s business must come from HR consultants to a large extent – those will keep their subscriptions going regardless. Still, I’d use the YoY growth as a base indicator and let’s see where Naukri is, spectacularly graphed:

image

Both the Trailing Twelve Month (TTM) EPS Growth and Quarterly EPS Growth (compared YoY) have turned negative.

Yet, they have 355 cr. in cash. This has yielded them lower other income, but 355 cr. is a reasonable chunk of money. Unfortunately, it doesn’t help too much in acquisitions, if that’s what you might think will help them scale. That’s because of the topsy-turvy nature of the VC investment model in the business.

Why Naukri can’t acquire it’s way out of the cash load:

VCs invest in businesses – and in the west, they are famous for investing in tech businesses. In India there are a number of them, with corpuses of between 400 and 2000 crores. Now each VC will invest in about 25 companies otherwise it gets unmanageable. That means they want to invest between 15 and 80 crores per company. They take around 30% of the company, I’d imagine; so the  company will be valued, at the lower end, around 50 crores post funding.

If the VC invested at a 50 crore valuation, he would consider a successful exit only if the company is worth 100 crores or more; otherwise, it’s a fire sale, nothing big.

Now if you consider the P/E ratio that Naukri commands – it’s trading at Rs. 870 for a TTM EPS of Rs. 21 – that’s nearly a 40 P/E ratio. Let’s assume the startup they acquire will be available for half that, and forget the big Indian Internet Hope of selling companies for 100 crores on eyeballs alone. A 100 crore buyout at a 20 P/E will add only 5 crores to bottom-line (a company needs to make 5 crores at 20 p/e to get valued at 100 cr.).

For the Rs. 350 cr. they have, and considering they only paid half their p/e ratio, they would get just Rs. 17 cr. additional in bottom line.

But they would lose all their “other income” which adds up to – believe it or not – Rs. 32 crores for the last four quarters. The businesses they buy must grow at 100% so that Info Edge just about breaks even on them in a year!

They’re stuck – the businesses they will want to buy will be funded by VCs looking for big exits. And at that price they can’t buy enough of them to make up even the lost interest income in a year.

So if they must acquire, they must get the new properties really cheap, and the acquisitions should have so much synergy that they start scaling up bottomlines very quickly. Or, they should acquire using their shares – richly priced as they are, they’re great currency; but that’s going to skewer EPS just as badly. (Fortunately though, no one in India gives a rat’s ass about EPS growth – they keep buying stocks like ICICI Bank or Reliance Power at insane P/Es)

Naukri isn’t a technology leader – you don’t hear of “high-tech” innovations that they do. They’re a first mover in the jobs space, and they have very good management (clean/suave/open). That commands a premium valuation – but I would seriously question the kind of P/E ratios they get. We have to wait for their conf call transcript to find out how the individual businesses fared, and I look forward to reading about what they have for the near future.

But as stocks go, this one’s expensive; as much as I love the industry – the Indian Internet – I don’t think I’ll go buy InfoEdge just yet.

InfoEdge: No EPS Growth, But Great Stock Price!

8 comments Written on December 13th, 2009 by
Categories: InfoEdge, Stocks
Info Edge (NAUKRI) continues to astound me. They're literally flatlining EPS for the last six quarters, and yet, command a P/E of 35!

To talk less and show more, here's a graph of their revenues, stock price and PE/EPS comparison.

(Click for a larger image)

  • Revenues have flattened since Jan 2008, and aren't recovering much at all.
  • "Other Income" forms a substantial part of their profits even today. The most recent quarter had 14.74 cr. of net profit, and they had "other income" of 8.35 cr. The business literally hinges on the other income figure!
  • They have around 320 cr. in the bank, going from their recent financial statements. That is generating most of the other income - at 8% yield you'll get about 6 cr. per quarter of income.
  • Other income is useful, but paying 35 P/E for a company whose biggest contributor to the bottom line has been other income for the past four quarters is, in my opinion, crazy. They might as well return the money to investors if they aren't using it. (The cash comes to Rs. 115 per share)
  • Look at the EPS - it's flat throughout. The last two quarters add up to a measly Rs. 10.27, and the earlier financial year was Rs. 21.87. No serious growth in EPS since last year.
  • But as you see the stock price and went up beyond 800 and a P/E ratio of nearly 40 - it has since dipped to 770 and p/e of 35. But such a high P/E for a stock which has barely grown in the last two years - very surprising.
  • Like in 2007-08, the annual report for 2008-09 also contains a scary piece of information: If option grants were calculated using "fair value" versus "intrinsic value", profit would have been lower by Rs. 10.8 crores and the EPS would have been Rs. 17.91, nearly 1/5th lower than the 21.67 they reported.
  • Insiders have been consistently selling over the last year. Some Info Edge insiders seem to have sold between 5-20% of their holding over the last year, but note that usually insider sells don't mean much to stock prices.
Maybe people expect great things of Info Edge, but it's been a disappointing set of results so far. The stock meanwhile doesn't give a damn; it's near 1 year highs. But at some point all this optimism must translate into numbers, no?

(Related: All Info Edge Posts)

InfoEdge Q1 09 results out

2 comments Written on July 27th, 2008 by
Categories: InfoEdge, Results
Info Edge's Q1 09 results are not very encouraging. They have grown EPS from 4.27 to 4.75, a y-o-y growth of 11.25%. Further a very large amount of money - 88% - comes from recruitment alone.

Their other sites include the matrimonial portal JeevanSaathi.com, real estate portal 99acres.com, other sites like brijj.com and shiskha. All these are losing money, though top lines seem to be growing. In fact they are losing MORE money than they did last year, inspite of growing top lines.

They've bought some FMPs which are going to mature in April 09, so their near 265 cr. of mutual funds is most likely going to yield profits then (not recorded now). So this year, the EPS may not have a huge other income component.

They made an EPS of 20 odd last year. If we annualise this quarter's growth (11.25%) and add a bit here and there, we come to an EPS of Rs. 23. At the current price of Rs. 860 that's a forward P/E of 35.

Info Edge May Issue 500 cr. FCCBs

1 Comment » Written on December 25th, 2007 by
Categories: InfoEdge, Stocks
Info Edge, the owner of Naukri.com and Jeevansathi.com is looking to issue upto Rs. 500 cr. worth of FCCBs for a new portal, Shiksha.com, and for further acquisitions.

I have been fairly negative on the stock in the past but it looks like the market has decided I am stupid. The share has zoomed from Rs. 320 offered in the IPO to a high of Rs. 1600 recently, from which it has retraced to around Rs. 1400 now. Even with less than 10 cr. worth of shares trading daily on the NSE, it's in the F&O segment now, no mean achievement. So this share, like GBN and GMR, is one of the shares I cannot understand but will wholeheartedly admit that I have been proved wrong.

So what's the new announcement all about? Firstly, that the company intends to issue fresh shares (which is what FCCBs will amount to) partly to finance a new portal, shiksha.com and to build a new office in Noida, and of course for some acquisitions. Very nice, but that is nearly what they said with the IPO last year and guess what, they haven't used any of the 170 cr. Other than, perhaps, a $500,000 (2 cr. Rs.) investment in an education company called Study Places, Inc.

That investment might result in a bigger shiksha.com - an education portal. This is an interesting space and depending on how the company approaches it there is a huge value waiting to be tapped. But a pure listing portal may not be of much use especially if there is no transaction capability (i.e. I cannot apply online or buy a short term course etc.) Let's wait and see how this pans out.

A new office - the budget in their IPO report was 30 cr. which has now become 60cr. I guess real estate has gone up in cost, but still this money doesn't use up even the IPO proceeds.

Now in their annual report they have around 215 cr. in cash or debt funds. That, plus the new 500 cr. is going to be used for acquisitions and stuff. Plus, they have the right to take further debt on, uptil another 500 cr. and then invest a FURTHER 300 cr. above their reserves if required. I can't work it out off hand but this results in total accessible funds of more than 1000 cr.!

All I can say is that they should use this money wisely, not put it into a bank account to get FD level interest.

But do I like the company? I admire the company for being one of the few real players in the fledgling internet space in India, and I think there is a huge scope for more such companies. I also think the level of FII interest in this company is very high because it's the only real listed player in the space, and very few shares are available. A large number of shares are "locked" as promoter shares, for one to three years since the IPO in Oct last year.

Another thing I like is their effort to provide information to all investors, through their corporate web site. This will attract more foreign investors, surely.

Now what are my thoughts?

  • For the half year ended Sep 2007, turnover was 110 cr. and profits, 27 cr. Of which, 11 cr. were "other income". So 40% of their profit was "other income" - income resulting from the 215 cr. in cash that they own.
  • There's some note in their annual report regarding stock option expensing. The auditors say: In respect of options vesting during the year under the intrinsic value method, had the fair value method been used, the profit for the year would be lower by Rs 35,706 Thousand (Previous Year Rs. 1809 Thousand) and the EPS would be Rs. 9.82 (Previous Year Rs. 6.00). This is a 10% lower profit if accounting terms were different.
  • The projected EPS for the year is around Rs. 20. At current prices, the P/E is 70. Now they've grown at 100% (with help from the "other income" of course) so the P/E may be sustainable, but remember that once they get another 500 cr. their other income will straightaway increase to around 70 cr. (greater than this year's projected profits!) and EPS will skyrocket (because they don't need to consider FCCB dilution until it is "in-the-money")
  • They may become the next google, acquiring their way to glory. I personally don't believe the Indian internet space has the breadth required, but then I have been wrong in the past.
  • This is perhaps the best time to issue FCCBs. Given that their stock is way overvalued, they can get the best return for their money.
  • I think there will be a downturn in the US, in the next year. This will result in much lower hiring and a serious downturn for the "recruitment consultancy" business, a sector that I am sure accounts for a very large percentage of Naukri's revenues. Secondly, with real estate slowing down and the marriage portals losing their sheen, revenues from their other portals will show lower growth.
So is this stock an investment I would skip? For fundamental reasons, yes, and even technically the stock is below its near term moving averages. Yet, I have a feeling the market will prove me wrong again and push this stock to stratospheric highs. I feel the need for caution, but also the need to tell you one thing: The stock has steady news flow, it has a lot of FII support and is an easily manipulated stock (low volumes, low floating stock). Plus, the near term (6 months to 1 year) results will sound spectacular if you consider the cash flow from investment (which will reach above 70 cr. if they get FCCBs worth 500 cr. and sit on it for a year).

The point is: there may be a higher rise for this stock, purely based on momentum and exuberance. Either you participate and make the best of it - and remember to respect your stop loss - or you stay away from this stock altogether. No middle ground.

Disclosure: No positions on the stock.

Info Edge Q4 – A mathematical error?

10 comments Written on May 4th, 2007 by
Categories: InfoEdge, Stocks
InfoEdge has announced it's 4th Quarter 2007 results:

Like earlier, they seem to have their mathematics wrong. This time they note an annual revenue for 2006-07 at Rs. 147 cr. and a net profit of Rs. 27.08 cr. The number of shares they have outstanding, is 2.7295 cr. shares.

My high school mathematics tells me Earning per share = Earnings divided by number of shares. EPS therefore is Rs. 9.92 per share. But they report it at Rs. 11.31!

They've done this for TWO quarters now, and this is not an accident anymore - someone's trying to pull wool over our eyes. I understand that this is a new business, but reporting the wrong EPS twice in a row is plain incompetance.

More problems:
1) Company makes 27 cr. net profit, out of which “other income” is 7.6 crores. 28% of their profit comes from “other income”?

This is perhaps through the interest they received on their debt investments - I would say around 3% of their investments - which are about 170 cr. - would be the dividend income they would receive from debt funds. This is about Rs. 5 cr.

2) They got Rs. 170 cr. from their IPO, unused till now. Out of this Rs. 10 cr. was used for IPO expenses (wow) - so 160 cr. or so is left, but they had earlier reserves so I'm guessing they still have around 170 cr. in the bank. That's about Rs. 75 per share. This itself can be a cash yield of 9% post tax - meaning, 15 cr. of “other income” in the next year. Great for the bottomline, but bad return on equity.

Now I'm not happy about the EPS misinformation at all. I will await their annual report and cash flow statement to check further - and I will report to the company and SEBI about this EPS business. Let's see what I get back.

Note that with my calculated EPS of Rs. 9.92 per share, this company's current stock price of Rs. 750 gives it a P/E of 75. Going forward how much will they earn? they will earn Rs. 15 cr. from interest (if they don't use the IPO money), which is Rs. 6 per share or so. THe operations this time earned about Rs. 20 cr. and if they grow at about 50% they will make Rs. 30 cr. next year - which is about Rs. 11 per share. That's about Rs. 17 per share, making the forward P/E about 44.

I reckon that is still high. With TimesJobs hot on Naukri's trail, and Monster doing the ad-rounds on TV, and clickjobs.com muddying the turf even more, there is serious competition in the recruitment business, which is still 92% of revenues. Their property business (99acres.com) has competition in at least 10 visible sites, most obvious of them being magicbricks.com, indiaproperty.com and even craigslist. The jeevansathi matrimonial business has the big shaadi.com and a ton of smaller sites as competition.

Apart from the competition, it may just be that the dollar's fall, riding at Rs. 41 today, is going to seriously impact revenues - and this may put recruitment plans of exporters and MNCs on hold. The bench size, which is typically 10-30% for infotech companies, is probably going to shrink and thus, recruiting revenues. Additionally, portals are ineffective recruitment sources in comparison with references and job fairs; therefore I predict that horizontal portals like Naukri.com will have a serious problem going forward.

When everyone and his uncle started a property broker business in 1995, my first thought was that it was time to exit the property business. When my local shopkeeper asked me to "buy digital equipment, it will go to 2000" , in 1999 - it was time to exit infotech. Now everyone and his uncle and auntie has a recruitment agency; time for the headhunters to head home?

Info Edge (India) IPO : Too Many Questions.

9 comments Written on October 31st, 2006 by
Categories: InfoEdge, IPO
Info Edge India Ltd. has an Initial Public Offer (IPO) going at a price of (between) 290 and 320 Rs. per share. The company is better known for its portals: Naukri.com, JeevanSathi.com and 99Acres.com. The offer document contains a lot of data and makes me ask a few questions I believe are relevant to my analysis of the issue.

But first, the basic details: The issue is about 170 Cr. in size at the upper end of the band. Post issue, they will have 2.729 crore shares. They've made profits of 13.2 cr. in FY 06, and 5.9 cr.* in Q1 FY07. Very wayward before that - 31 lakhs (2005), 2.43 cr. (2004), 1.67 cr. (2003).

* Update: I got this figure wrong. I took a consolidated profit figure, which is irrelevant. You should use Rs. 5.2 cr. instead.

The post issue EPS is Rs. 4.84 for FY06, and Rs. 2.16 for Q107. The P/E at the higher band is 66 (past) and 37.04 (FY07, prorated from Q107). I think the Q107 results are a bit of an aberration, and that is to be expected as a "dress-up" of results pre-IPO. We don't have Q2 figures yet. (Why not? It's end of October, and you're going IPO, for heaven's sake)

They have around Rs. 25 cr. in Investments and cash.

Naukri.com makes for 92% of it's FY 2006 revenue, and that share has been above 90% over the last five years. They're focussed on IT and ITES, and any slowdown there is a hurdle in Naukri.com's growth.

My questions:

What's the "other income" stuff?

FY06 has a total of 1.6 cr. other income, on investments (which were around 12.5 cr.) That grew to an income of Rs. 1.4 cr in Q107, with investments of 22 cr. Around 3.78 cr. has FURTHER been added through pre-IPO placements.

Basically, out of the 5.9 cr. Net profit for Q107, 1.4 cr. has come from Other income. Meaning that operationally, they earn lesser profits - the rise of the other income figure is quite dramatic, and not explained at all.

Why did promoters sell their shares at a discount immediately before the IPO?

Sanjeev Bikhchandani sold 410,400 shares to Murugan Capital at Rs. 245 per share on Sep 14, 2006. Hitesh Oberoi sold 109,181 shares to Sherpalo LLC at Rs. 245 per share on the same date. Why did the promoters sell their shares at a discount? Granted, their lock in is one to three years, so they may have wanted some money up front. But this is like losing 30% by selling one and a half months before the issue!

If they wanted cash, they could have placed the shares with a bank after the issue, and the bank would give them a loan, surely at less than 30% a year. At 15% bank interest, and if the shares were only at Rs. 320 per share (upper band) at the end of one year, the promoters would have made a lot more money than selling pre-IPO. (Plus they pay capital gains tax, since the shares weren't sold on an exchange). To give you figures, Sanjeev Bikhchandani stands to lose at least 1.5 crores (plus capital gains tax) and Hitesh Oberoi Rs. 40 lakhs (plus cap gains) by selling pre-IPO.

Note also that Surabhi Bikhchandani also sold 436,723 shares to Sherpalo at Rs. 245 per share on Sep. 14, 2006. Another loss of money, by another promoter.

What if this means the promoters themselves don't have enough confidence to stay invested for a year? If the VCs (Sherpalo and Murugan) wanted more shares, the company can issue them, and they have done to the tune of Rs. 3.5 crores. True, this is KPCB and Sherpalo, but please, no one hands out money for free.

Note here that some directors have PURCHASED shares in the pre-IPO placements on August 7 and September 7, 2006 at Rs. 280 per share. How did the price fall to Rs. 245 per share when the promoters were selling them?

What's the money being used for?

The issue is between 154 and 170 crores. Expansion will be 20 cr. (10 in 2006, 10 in 2007), office space takes 30 crores (all in 2006, one single big office in Delhi).

Product enhancement will be 25 cr. (10 and 15), and 30 cr. is for acquisition. 25 cr. is kept for Jeevansathi.com and 99acres.com.

The remaining, they say, is for "General Corporate Purposes". This is an amount between 24 and 40 cr. rupees.

My recommendation

I'm a little concerned about the valuation - it seems to be quite high at nearly 66 past, and 40 forward. But they are collecting more than 150 crores, twice their annual turnover. If they return profits of about 15% of the money they collect, their net profit should scale up. I would estimate a forward earning of Rs. 13.78 per share in FY 2008, which translates to a forward P/E of 23.2. That's quite high.

Secondly, I'm concerned about the questions I've raised. I'm very suspicious of promoters selling their stake for a discount a month or so before the IPO. I don't know what to make of it, but it can be nothing positive.

Overall, given these factors my vote to this IPO is "Do not subscribe".