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# Info Edge Q4 – A mathematical error?

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InfoEdge has announced it’s 4th Quarter 2007 results:

Like earlier, they seem to have their mathematics wrong. This time they note an annual revenue for 2006-07 at Rs. 147 cr. and a net profit of Rs. 27.08 cr. The number of shares they have outstanding, is 2.7295 cr. shares.

My high school mathematics tells me Earning per share = Earnings divided by number of shares. EPS therefore is Rs. 9.92 per share. But they report it at Rs. 11.31!

They’ve done this for TWO quarters now, and this is not an accident anymore – someone’s trying to pull wool over our eyes. I understand that this is a new business, but reporting the wrong EPS twice in a row is plain incompetance.

More problems:
1) Company makes 27 cr. net profit, out of which “other income” is 7.6 crores. 28% of their profit comes from “other income”?

This is perhaps through the interest they received on their debt investments – I would say around 3% of their investments – which are about 170 cr. – would be the dividend income they would receive from debt funds. This is about Rs. 5 cr.

2) They got Rs. 170 cr. from their IPO, unused till now. Out of this Rs. 10 cr. was used for IPO expenses (wow) – so 160 cr. or so is left, but they had earlier reserves so I’m guessing they still have around 170 cr. in the bank. That’s about Rs. 75 per share. This itself can be a cash yield of 9% post tax – meaning, 15 cr. of “other income” in the next year. Great for the bottomline, but bad return on equity.

Now I’m not happy about the EPS misinformation at all. I will await their annual report and cash flow statement to check further – and I will report to the company and SEBI about this EPS business. Let’s see what I get back.

Note that with my calculated EPS of Rs. 9.92 per share, this company’s current stock price of Rs. 750 gives it a P/E of 75. Going forward how much will they earn? they will earn Rs. 15 cr. from interest (if they don’t use the IPO money), which is Rs. 6 per share or so. THe operations this time earned about Rs. 20 cr. and if they grow at about 50% they will make Rs. 30 cr. next year – which is about Rs. 11 per share. That’s about Rs. 17 per share, making the forward P/E about 44.

I reckon that is still high. With TimesJobs hot on Naukri’s trail, and Monster doing the ad-rounds on TV, and clickjobs.com muddying the turf even more, there is serious competition in the recruitment business, which is still 92% of revenues. Their property business (99acres.com) has competition in at least 10 visible sites, most obvious of them being magicbricks.com, indiaproperty.com and even craigslist. The jeevansathi matrimonial business has the big shaadi.com and a ton of smaller sites as competition.

Apart from the competition, it may just be that the dollar’s fall, riding at Rs. 41 today, is going to seriously impact revenues – and this may put recruitment plans of exporters and MNCs on hold. The bench size, which is typically 10-30% for infotech companies, is probably going to shrink and thus, recruiting revenues. Additionally, portals are ineffective recruitment sources in comparison with references and job fairs; therefore I predict that horizontal portals like Naukri.com will have a serious problem going forward.

When everyone and his uncle started a property broker business in 1995, my first thought was that it was time to exit the property business. When my local shopkeeper asked me to “buy digital equipment, it will go to 2000” , in 1999 – it was time to exit infotech. Now everyone and his uncle and auntie has a recruitment agency; time for the headhunters to head home?

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