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InfoEdge: No EPS Growth, But Great Stock Price!

Info Edge (NAUKRI) continues to astound me. They’re literally flatlining EPS for the last six quarters, and yet, command a P/E of 35!

To talk less and show more, here’s a graph of their revenues, stock price and PE/EPS comparison.

InfoEdge: No EPS Growth, But Great Stock Price!

(Click for a larger image)

  • Revenues have flattened since Jan 2008, and aren’t recovering much at all.
  • “Other Income” forms a substantial part of their profits even today. The most recent quarter had 14.74 cr. of net profit, and they had “other income” of 8.35 cr. The business literally hinges on the other income figure!
  • They have around 320 cr. in the bank, going from their recent financial statements. That is generating most of the other income – at 8% yield you’ll get about 6 cr. per quarter of income.
  • Other income is useful, but paying 35 P/E for a company whose biggest contributor to the bottom line has been other income for the past four quarters is, in my opinion, crazy. They might as well return the money to investors if they aren’t using it. (The cash comes to Rs. 115 per share)
  • Look at the EPS – it’s flat throughout. The last two quarters add up to a measly Rs. 10.27, and the earlier financial year was Rs. 21.87. No serious growth in EPS since last year.
  • But as you see the stock price and went up beyond 800 and a P/E ratio of nearly 40 – it has since dipped to 770 and p/e of 35. But such a high P/E for a stock which has barely grown in the last two years – very surprising.
  • Like in 2007-08, the annual report for 2008-09 also contains a scary piece of information: If option grants were calculated using “fair value” versus “intrinsic value”, profit would have been lower by Rs. 10.8 crores and the EPS would have been Rs. 17.91, nearly 1/5th lower than the 21.67 they reported.
  • Insiders have been consistently selling over the last year. Some Info Edge insiders seem to have sold between 5-20% of their holding over the last year, but note that usually insider sells don’t mean much to stock prices.

Maybe people expect great things of Info Edge, but it’s been a disappointing set of results so far. The stock meanwhile doesn’t give a damn; it’s near 1 year highs. But at some point all this optimism must translate into numbers, no?

(Related: All Info Edge Posts)

  • abhikush says:

    >I guess one of the reason that it persists is because there is no way to short the stock.

    After reading the analysis I was thinking of buying Puts but found out this not a F&O stock. Thus, I know of no way to short and profit from it.

    Also, one month average of the volumes traded in the stock is around 12,000 (includes quite a few outliers) with average turnover of 100 Lac (1 crore). I am not sure whether this is average for non F&O stocks. But it indicates that institutions are staying away it.

    In addition as a result of low volumes the bid-ask spread is 775-786 i.e. Rs 11 or approximately 1.5%. Opportunity for market makers to make a lot of money.

  • Anonymous says:

    >Multiple Reasons to justify these valuations. (Playing devil's advocate just to show a different view.)

    1. They are the only internet company listed on exchange. Scarcity means a premium.

    2. They are profit making. Stating the obvious, but many companies which are losing loads of money quarter after quarter get outstanding valuation (See media space) Some companies with just a project plan get great valuation (See power sector.)

    3. Profit margins. InfoEdge enjoys margin in excess of 40%. That's super-high.

    4. They have a lot of cash in the bank which they can use when required. Contrast this with most of the companies neck deep in debt.

    5. Excellent management deserves a premium.

  • Deepak Shenoy says:

    >abhikush: there was a way – it was listed in the F&O section for a while, so there was "shortability", so to speak. But yeah, you're right, liquidity in the stock is a concern.

    Anon: Good points. There are other internet stocks though (The infamous Northgate for ex.) but profitability is suspect.

    profit margins wise – they just made 55 cr. in revenue, and EBIDTA (before other income) is 14 cr. That's more like 25% margins – if you consider that net profit is 14 cr., and other income (post tax) is like 5 cr. – they made just 9 cr. this quarter as net profit from operations, a margin of 16%. That's pretty low for a P/E of 35?

    I agree, cash matters -but lots of companies quote close to or below cash nowadays. And management has not at all delivered for six quarters, so perhaps there will be a breaking point for excellence versus performance.

    But your points are valid for some premium. I can see them getting a 15-20 P/E – but 35 is incredibly high.

  • Anonymous says:

    >Adding onto Anon 1

    1) Very high ROCE

    2) Have a great moat around their biggest business Naukri.com. Its a nice property to own.

    3) Well run sales organisation with clear revenue focus. Also u are taking PE for a phase where the entire job market collapsed and their revenues with that.

    I agree that it is on the expensive side but as anon 1 put there are a lot of companies with nothing on the plate and are available on far more expensive valuations.

  • Anonymous says:

    >Markets have the tendency to remain imperfect as long as most of us remain solvent and ofcourse stocks like info edge too. Infodege valuation is like the valuation given to Amazon in Nasdaq. Amazon trades almost double the valuations and its generating almost billion dollars of cash and has high growth potential than info edge. However by valuation wise Amazon is higher than combined valuation Costco and ebay. Does anyone dare to short Info Edge or Amazon based on valuations? You would burn your money!

  • Anonymous says:

    >Actually if you see the Info Edge investor presentations on their corporate website you will see that almost all the float is held by institutions – and there are some marquee names there.

    It would appear that institutions like the stock – so much so that they keep holding and not trading. They seem to be taking a two to three year view on the stock.

    The reluctance on the part of these institutions to sell would account for low liquidity in the stock.

  • Anonymous says:

    >But, other income is added to income calculations (revenue calculations). Why is it being considered as a part of net profit calculations? Whatever they earned as interest is just added to the total income and expenses are deducted from it.

    So how does their profit depend so much on the 20/30 crores they generate in interests? Consider it 10% additional sales.

  • Deepak Shenoy says:

    >Agreed – no point shorting this stock, technically very strong.

    ANd yes, liquidity is a factor. At some point, that will work against it – if these institutions dump the stock.

    Other income is not a part of main revenue – and I've excluded only 5 cr. as other income (post tax after the 8 odd they made). They make a total of about 50 cr a year, of which half is contributed by other income.

    Thing is – even Infy has tons of cash. But the income is not substantial compared to the amount they earn otherwise. With InfoEdge it's a good 40% of what it makes, and has been so for the last 6 qtrs.

    If the money was for acquisitions – wasn't the last year the best for acquiring weakened players?