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A few years ago, Mr. Sanjeev Bikhchandani got five calls from Housing.com investors saying, “You’ve got the business (99 acres was generating 70-80 Cr of revenue)”. They said, “We’ve got the product right with Housing.com. Why don’t we merge?”
Mr. Bikhchandani replied, “If you have got the product, how come we have the business? You merge with the complimentary product, not with the substitute”.
This one line summarizes how a self-made billionaire built an empire, made profitable investments in the start up world & runs a listed VC fund from India.
In this article we look at the evolution of Info Edge from a recruitment website into a breeding ground for technology startups looking to capitalise on “The India opportunity”.
Info Edge is a multi-brand online classifieds company with its principal market in India. Over a period of more than two decades, it has steadily developed a portfolio of brands across different domains that primarily provide online classified services. While the company’s business has evolved around the phenomenal growth of its flagship brand – Naukri, the other brands including 99acres, Jeevansathi and shiksha are fast gaining traction in the market and growing revenues.
The impressive success of Naukri over the years has provided Info Edge with a strong annual Free cash flow that has helped build solid cash reserves. The company has invested this cash into some of the highly successful technology based start-ups like Zomato, Policybazaar, Ustraa, Shopkirana, Printo, Shoekonnect etc. Each of the brands addresses specific customer domains and are in different stages of their growth life cycle.
The recruitment services business is built around naukri.com and comprises the following portals:
It is a business of the virtuous circle. Maximum traffic resulting in most responses attracting the most clients leading to the most job postings, which in turn propels maximum traffic.
Daily activity on Naukri:
To grow the recruitment portfolio, the company is test marketing two new job sites.
Both are in nascent stages but could provide synergies over the long term.
Naurki contributed 69% of the consolidated revenue and generated a PBT of 481 Cr as of March’ 20.
99acress is the market leader in real estate classified with a traffic market share of 45%. The online real estate classified addressable market across all media categories ranges between 3,000 Cr to 4,000 Cr annually.
Revenue streams for 99acres.com originate from:
While in terms of number of customers, the broker community is dominant with 21,600 out of a total of 26,600 customers, in terms of billing they contribute 52%, while builders contribute 42%, with much higher revenue per customer compared to brokers.
99acress contributed 18% of the consolidated revenue and generated a loss of (-5.8) Cr as of March’ 20. The losses have been reduced from 106 Cr in 2016 to 5 Cr as of 2020. This year it turned profitable at operating level with an EBITDA of 8.4 Cr as of March 2020.
Jeevansathi offers a free platform for listing, searching, expressing interest and accepting others’ expression of interest in the online matrimonial space. Revenues are generated from sharing of contact details and some value added services.
On an average, nearly 12-14 million weddings take place in India every year, of which 80% are arranged marriages. Online matrimonial classified market is estimated to be between 700 Cr to 800 Cr in India & is expected to grow to 1200 Cr by 2023.
Marriage matchmaking is a highly fragmented market in terms of regions within India and communities. Consequently, there are around 1500 matchmaking sites in India. Many of these sites cater to a specific region or community, instead of becoming pan-Indian, cross-community players.
In terms of market share:
Jeevansathi contributed 6.5% of the consolidated revenue and generated a loss of (-63) Cr as of March’ 20. Info Edge continues to invest in it to gain market share.
Shiksha is the company’s offering in the online education classifieds space. It is a platform that helps students research and apply UG and PG programs, by providing information on careers, exams, colleges and courses.
The business generates revenues from:
Shiksha contributes 4% of the consolidated revenue and generated an EBITDA of 3 Cr as of March 2020.
In addition to promoting businesses internally, the company has made investments in emerging brands. These are typically in early stage ventures and their subsequent rounds of funding for growth. Most of these companies are still in the investment stage and are loss-making.
The objective of the investment strategy is to:
Undoubtedly the best investment till date for Info Edge. Zomato is one of the largest online restaurant search and discovery platforms with three key businesses.
Zomato posted revenue of 2604 Cr during FY20 as against 1312.5 Cr during FY19 (a growth of 98.5% YoY). It had an EBITDA loss of 2197 Cr in FY 20 as against 2077.5 Cr in FY19.
Info Edge’s aggregate investments in Zomato is about 152.2 Cr as of March 2020. In 2018, the company had partly monetized its stake by selling 6.66% for $50Mn to Ant Financials. As per the latest management commentary, Zomato is planning for an IPO in 2021.
PolicyBazaar is India’s online price comparison site for insurance. It is a market leader in its category garnering an estimated 95% share of insurance comparison activity and 50% of online Insurance transactions.
The revenue is derived from various services provided to insurance companies and banks like,
The PolicyBazaar Group also operates Paisabazaar.com, which is an online financial services comparison platform and allows its users to apply for loans via its platform.
PolicyBazaar posted a revenue of 310 Cr in FY19 & 158.3 Cr in FY18. It had a loss of 213 Cr in FY19 & 9.4 Cr in FY18. The management of Policybazaar is expecting to reach revenue of 1100 Cr by 2021 & to be profitable during the same period.
Investments in Policybazaar are held by Info Edge directly (7.59%) and indirectly through a JV subsidiary with Temasek (8.26%) via MakeSense Technologies.
The Company through its subsidiaries has invested 575.8 Cr in PolicyBazaar as on March 31, 2020. PolicyBazaar is also planning for an IPO in 2021.
Happily Unmarried is an e-commerce platform running brand like Ustraa, a leading grooming & personal care brand aimed at the young Indian male.
The company is majorly into, Beard Care, Hair care, Fragrances & Washes. It sells through its own website, online marketplaces and through super markets across the country.
Happily Unmarried posted revenue of 57.3 Cr during FY20 as against 39.6 Cr during FY19 (a growth of 44.6% YoY). It had a loss of (-17.6) Cr in FY 20 as against (-11.7) Cr in FY19.
The company is currently valued at 220 Cr & Info Edge owns 30% of the company. Info Edge’s aggregate investments in Happily Unmarried is about 32.3 Cr as of March 2020.
The company had recently set up an AIF in sectors other than the four verticals the company operates in (recruitment, real estate, education and matrimony, online classifieds).
Info Edge has proposed 750 Cr for this fund. Out of which 150 Cr has already been disbursed. They are in discussions with potential investors to form a JV & raise 50% of the total corpus.
Sanjeev Bikhchandani & Hitesh Oberoi proved to be good at capital allocation. Just 14% of the cash generated by recruitment has been used to fund other businesses.
Revenues have compounded by 19% in the last 10Y. It is a debt free company with an EBITDA margin of 31.6% and ROE of 23.7%. The company has an exposure of 1081 Cr in Investee companies. This excludes the 314.7 Cr that have been written-off, exited or provisioned for.
Source: Info Edge Sep 2020 Presentation
Because of the nature of the business, Info Edge always carries huge cash balances on its books. Even though it dilutes its ROE, it contributes to a large extent of its EBITDA.
So, is it an Operating Company or Holding Company ? Both.
The company recently raised 1875 Cr in Aug 2020 via QIP. Post the recent dilution, promoter holds 40.4% without any pledge.
Naukri will continue to be the cash cow for Info Edge for the foreseeable future. Even though LinkedIn is trying hard to gain market share from Naukri, it hasn’t made any significant impact yet. 99acress is on the verge of break even & will turn profitable in the next couple of years. Info Edge had guided for more marketing spends in Jeevansathi & that will continue to be a dragger.
The company currently trades at 76 times (considering FY19 PAT). Even though this is on a higher side, historically Info Edge had always commanded higher valuations. We also expect immediate triggers in the form of Zomato & PolicyBazaar IPO. Overall it’s a decent & direct bet on India’s e-commerce industry & an opportunity to get a pie of the start-up world.
NOTE: As a disclosure, some Capitalmind authors & the company may be invested in the mentioned stock in their portfolios. Please do not consider this article as a recommendation, It is for informational purposes only.
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