Info Edge stock flies on hopes of economic revival, Zomato's upcoming IPO

Shares have rallied 27 per cent in the last one month to a record high of Rs 5,549.25 apiece

A recovery in Info Edge’s core business and potential value unlocking for shareholders with the upcoming IPO of online food delivery startup Zomato have triggered a sharp rally in the company's shares.

Info Edge is one of the key players in India’s online classifieds industry due to large deal wins and sustained demand momentum is seen aiding hiring activity. It also has investments in at least 23 startups including a 22 per cent stake in India’s largest online food delivery platform Zomato.

The recruitment vertical i.e., Naukri accounts for 70 per cent of the company’s standalone revenues and is a market leader in the online recruitment industry with more than 90 per cent domestic traffic share as of March 2020. Recovery in Naukri's prospects is a function of improvement in the domestic economy. “As GDP growth revives in India, it would directly benefit Info Edge’s recruitment segment growth, which has had a 7–8 percentage point (pp) historical multiplier effect for every 1pp uptick in GDP growth,” said Anmol Garg, research analyst, Motilal Oswal Securities. This should be compounded by a pickup in demand for IT resources, added Garg. IT services and technology start-ups contribute 43 per cent of Naukri’s revenue. Large deal wins and sustained demand momentum is seen as aiding hiring activity, which is a positive say analysts.

Despite several setbacks in recent years, the company has managed to grow its real estate search portal 99acres.com and turn operationally break even. However, a weak real estate market meant growth remained subdued. However, going forward analysts remain bullish over the long-term prospects of this business. “The company is seeing improved trajectory in smaller towns; owner listing and brokers are spending higher time on websites,” said ICICI Direct. While a complete recovery will take time, improving trends are visible in 99acres. With growing internet usage, we expect 99acres to witness an improved performance in the long term, said the domestic brokerage.

Media reports suggesting the listing of online food delivery startup Zomato later this year and the potential value unlocking for the shareholders of Info Edge has only added to the optimism.

The food delivery company has seen a spurt in demand on account of restrictions on movement at night (night curfew) and higher preferences for ordering food online. Deepinder Goyal, chief executive officer at Zomato, in a tweet said that the company reported a 60 per cent year-on-year jump in Gross Merchandise Value (GMV) this New Year's Eve.

Despite strong growth in revenue, the company, however, continues to remain loss making according to the latest FY20 results. One reason for this extreme bullishness, according to experts, is the Street giving a higher multiple to internet-based business, as seen with the recent listing of DoorDash Inc, an American online food delivery firm.

Even as investors continue to bet on internet and technology related stocks, valuations remain uncomfortably high at the moment, say analysts. On a 12-month forward basis, the Info Edge stock trades at 165 times offering limited scope of further upside.

“We believe most of the positives are already in the price and the stock may see a breather before further directional move. We advise investors to wait till the company’s quarterly results are out before deciding on fresh investment,” said Ajit Mishra, VP – Research, Religare Broking. Over 60 per cent of the analysts covering the stock have either a 'sell' or a 'hold' rating, according to data from Bloomberg.