Investors with a high-risk appetite can consider taking an exposure in the book-built initial public offering of Info Edge (India).
The price band for the IPO has been fixed at Rs 290-320 per share.
For investors aiming to broad base their overall portfolio, `online classifieds' (for recruitment, marriage or real estate among others) opens up another avenue from an investment standpoint.
Info Edge that operates naukri.com (the premier job recruitment site), Jeevansathi.com (matrimonial site) and 99acres.com (real estate) represents an early stage of investment whose success depends on innovation/customisation of services, brand recall and corporate online budgets. This is also evident from the five per cent exposure taken by Murugan Capital (100 per cent subsidiary of the US-based private equity investor, Kleiner Perkins, Caufield and Byers) and Sherpalo Mauritius in the company at $5.495 per equity share in April.
Investment rationale
For an early stage venture, the IPO is stiffly valued. Bidding at the cut-off price will be prudent, as investors will remain eligible to participate even if the final offer price is fixed at a lower level. Also considering the overall competitive risks, an offer price fixed at the lower end of the price band would be more comforting.
The price-earnings multiple at the lower- and upper-end of the price band works out to 43-50 times its consolidated 2005-06 per share earnings on its existing equity base. Despite its revenues growing at a robust clip of 75-125 per cent year-on-year for the past few years, the company's price/revenues at 7-8 times are higher than the mid-cap software industry average. As it is the first player to list in the online classifieds space, there are no comparable benchmarks.
The Up side and
the flip side
The positives linked to this offer are the early mover advantage, strong brand recall, a good management team and long-standing relationships with corporates that naukri.com enjoys in the online recruitment classifieds business. Moreover, its recent move to diversify its revenue stream through a foray into marriage and real estate business is also encouraging.
On the flip side, as its financials are predominantly dependent on online recruitment, it remains exposed to high risks arising from a slowdown in the recruitment budgets of corporates and the overall demand environment, especially for IT and IT enabled services.
Secondly, the competition in the online recruitment space is hotting up through consolidation, and with entry of newer players such as Dice, its scorching growth may slow down.
Core business
The recruitment classified and related services that are being offered through naukri.com and Quadrangle (an offline executive search business) accounted for 92 per cent revenues (including other income) of Rs 84 crore for the year ended March 31. The other verticals — Jeevansathi.com and 99 acres.com — contributed about 5-6 per cent during this period.
Info Edge acquired Jeevansathi.com in September 2004 and 99acres.com was launched in September 2005. Jeevansathi.com is the third most popular website in marriage services and faces online competition from Shaadi.com and Bharatmatrimony.com.
99acres.com, however, is competing primarily with the print media, real estate brokers and online real estate classified providers.
The overall revenues have grown by 86 per cent in 2005-06 compared to 130 per cent and 115 per cent in the last two years. On account of an all-round increase in total expenditure, particularly the step-up in advertising, marketing and promotion expenses following the acquisition/launch of Jeevansathi and 99 acres, the operating margins have been in the 25-28 per cent bracket in the past couple of years (after taking into account some adjustments for employee stock option scheme).
The improvement in operating margins will hinge on the scale of marketing and branding expenses in the coming years. If the company manages to get a better bang for its marketing buck (leaving its new ventures apart), it will show up in improved margins. In turn, this will improve the bottomline, which clearly has not kept pace with growth in revenues.
The offer document also states that as of June 30 Naukri.com had a database of over six million registered job seekers, including their resumes and over 82,000 live job listings from corporate customers.
According to data available from Comscore and furnished in the offer document, in terms of the share of total traffic, Naukri.com was the most popular website among its key online recruitment competitors, such as MonsterIndia.com, JobsAhead.com and Timesjobs.com.
In July, its traffic share at 54.84 per cent (based on unique visitors and average page hits) was higher than 34.9 per cent for Monster and Jobs Ahead and 10.27 per cent for Timesjobs.
Offer details: The company plans to raise around Rs 154-170 crore through this book-built IPO. Of this, Rs 20 crore is to be utilised for diversifying into other online classifieds market such as automobile, educational and industrial products and expand the current business to West Asia and South Asia. Of the balance, Rs 25 crore is to be used for development of Jeevansathi and 99acres,
Rs 25 crore towards product enhancement and alternate delivery models such as mobiles and Rs 30 crore towards acquisitions/alliances. The lead managers to the offer are ICICI Securities and Citigroup. The offer opens on October 30 and closes on November 2.