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
. 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.
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.
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".