Despite good Q2 numbers, cloud over Info Edge's near-term prospects

While billing growth may remain under pressure for recruitment business naukri.com, analysts are sceptical about real estate segment 99acres.com sustaining profits

Companies that have delivered good performance in the September quarter (Q2) of 2019-20 have also been well rewarded by investors. Online classified company Info Edge is one such example — its stock surged over 30 per cent in three months until last Friday, sharply outperforming the BSE Sensex’s 10 per cent gains during the same period. However, feeble macro conditions, which seem to be catching up, may spoil Info Edge’s prospects in the near term, leading to a correction in the stock.

Info Edge's two key business segments i.e. recruitment (naukri.com) and real estate (99acres.com), which accounted for almost 90 per cent of its FY19 revenues, reported good 19-26 per cent year-on-year topline growth in Q2, despite an ongoing slowdown. But, some indicators also point to downside risks to the overall performance of Info Edge in the near term.

The recruitment segment, for instance, reported a weak billing growth of 14 per cent year-on-year in Q2. Muted hiring activities in non-IT (information technology) sectors like non-banking financial companies and travel & tourism weighed on naukri.com's billing numbers in Q2, which were the lowest in at least five quarters. This trend is likely to continue; it could also pull down revenue growth. Analyst at ICICI Securities, say: “The billings could be volatile in the near term, driven by weakness in core sectors, and additional pressure from financial and travel-tourism segments on account of a slowdown.”

On the other hand, while billing of 99acres had risen by around 21 per cent year-on-year and it sustained earnings before interest, tax, depreciation and amortization (Ebitda) for a second straight quarter in Q2, the latter was mainly led by lower marketing spends. Given the real estate scenario, analysts are sceptical about a continuation of such levels of profit for 99acres. Some also believe the stress in the real estate sector could hurt billing, and topline growth of 99acres thereby. However, some support from start-up or investee companies like Zomato, Jeevansathi, etc, is expected.

Overall, investors are recommended to wait till signs of a recovery in the overall economy emerge, as analysts believe the recent rally has factored in a lot of the positives.