Just Dial, Info Edge: Will the under-performance continue?

Sentiments have taken a hit; core biz prospects remain healthy

Stocks of internet companies Info Edge India (Info Edge) and Just Dial have underperformed the Sensex in the past three months and are trading very close to their 52-week lows. In fact, the Just Dial scrip scaled to its 23-month low of Rs 749 on August 25.

Weakness in Indian markets as well as pressure on global internet stocks are a few reasons for this under-performance. In case of Just Dial, the delay in launch of its Search Plus offering along with expectations of high advertising spends towards the same have weighed on the stock. On the other hand, slowing revenue growth and aggressive marketing spends have impacted the performance of Info Edge's real estate portal — 99acres.com. While Naukri.com's (the key contributor for Info Edge) revenue growth has remained steady, choppy domestic job market is a key risk.

Strong economic moat enjoyed by Just Dial in search business and Info Edge's Naukri.com in job portal business seems to suggest that these are good times to consider these companies. Also, both these companies are direct beneficiaries of the boom in India's internet sector, which is growing at a rapid pace, given high under-penetration. Improvement in economic cycle will aid Info Edge's recruitment business and improving valuations of its online food guide portal, Zomato.com, will push up Info Edge's sum-of-the-parts valuations. In fact, Zomato recently raised funds of about Rs 390 crore from Temasek Holdings, Singapore and existing investor Vy Capital, taking its valuation closer to $1 billion. Info Edge still holds a 47 per cent stake in Zomato and should benefit from this. 99acres is likely to remain under pressure for sometime. Most analysts are positive on Info Edge and their average target price of Rs 976 indicates an upside potential of 29 per cent.

For Just Dial, too, continued healthy traction in its search business and likelihood of scaling up proportion of paid listings are key positives. Analysts expect its search business to post a compounded annual growth of 26 per cent in revenue during FY15-18. Upcoming buyback worth Rs 170 crore at maximum price of Rs 1,550 apiece is positive. Of the 19 analysts polled by Bloomberg since July 2015, 15 have a ‘buy’ rating on the Just Dial stock. Their average target price of Rs 1,377 indicates upside of 68 per cent.