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Monday, October 30, 2006

Info Edge (India) IPO


Info Edge (India), promoted by Sanjeev Bikhchandani, Hitesh Oberoi and Ambarish Raghuvanshi, is a leading provider of online recruitment and matrimonial classified and related services in India. It launched Naukri.com, an online recruitment classified website, in March 1997; acquired Jeevansathi.com, an online matrimonial classified website, in September 2004; launched 99acres.com, an online real estate classified website, in September 2005; and acquired Quandrangle, an offline executive search engine, in November 2000.

With a network of 45 offices in 30 cities in India as well as an office in Dubai, which primarily engage in sales, marketing and payment collection activities, Info Edge (India) has two subsidiaries, Naukri Internet Services Pvt Ltd and Jeevansathi Internet Services Pvt Ltd, which own internet domain names and related trademarks used in the business.

From the net proceeds of the issue Rs 20 crore are to be used for diversification and expansion into new markets, Rs 25 crore on enhancing its products, Rs 25 crore on developing alternate delivery models for its products, Rs 30 crore to purchase/lease real estate for its offices, Rs 30 crore on acquiring other companies and businesses, and Rs 25 crore to develop 99acres.com and Jeevansathi.com.

Strengths

  • As per a study by Businessworld, about 10% of the job market has already moved online. The size of the online recruitment industry is estimated to be Rs 135 crore with a 35% growth rate last year. The service sector has a significantly higher employee turnover. Nasscom has estimated telecom, media, retail and IT&ITES to grow at a CAGR of 11.4%, 16.7%, 30% and 23.1% in FY 2005, FY 2006, FY 2007, FY 2008, respectively, generating recruitment requirements at much higher multiple. Moreover these sectors are more receptive to online recruiting.
  • India has one of the lowest Internet penetration in the world. Internet users have grown at a CAGR of 68%, from 6.67 million in 2001 to 52.88 million in 2005. Despite the tremendous growth seen over the years, there is still a lot of potential to grow. Also, India has witnessed increase in urbanisation and literacy rates, and this trend is likely to continue.
  • The online advertising market has grown from Rs 42 crore in FY 2004 to Rs 107 crore in FY 2005. This is expected to grow to Rs 162 crore in FY 2006 and reach Rs 218 crore in FY 2007 (Source: Internet and Mobile Association of India, IAMAI). The share of online advertising is still only about 2% of media advertising industry.
  • Info Edge (India) has well-recognized and strong brand names. Naukri.com is currently India’s number one website for online recruitment services and Jeevansathi.com is presently India’s number three website for online matrimonial classified services in terms of number of unique visitors to the website, as per data provided by Comscore.

Weaknesses

  • The online classified industry in India is highly competitive and the competition in this industry will continue to increase. The key competitors for Naukri.com and Quandrangle will be Monsterindia.com, Jobsahead.com and Timesjobs.com. Similarly, for Jeevansathi.com, the competition will be from Bharatmatrimony.com and Shaadi.com and the more traditional brick and mortar marriage bureaus and match making services. 99acres.com faces competition from the print media and some other Internet-based providers. Info Edge (India) competes indirectly with Yahoo and Google.
  • Info Edge (India) is currently over-dependant on only recruitment services. Naukri.com contributed 93.47% (94.6% in FY 2006) of the operating revenue in the quarter ended June 2006. Other services and the planned entry into new businesses will require substantial investment of money and management time with the attendant risks of losses and failures.

Valuation

From FY 2003 to FY 2006, the operating revenue of Info Edge (India) has grown at a CAGR of 110%, though a significant profit was made only in FY 2006.

The quarterly annualised EPS in the quarter ended June 2006 on post-issue equity works out to be Rs 7.7. At the price band of Rs 290 – 320, PE is 37.6 to 41.5.