Hiring woes blunt the edge

Domestic economic indicators like industrial production index and GDP growth data continue to remain weak, highlighting a sharp slowdown in manufacturing and services over the past one year. This, along with other macro headwinds like higher rates and persistent inflation, has hit the hiring activity and overall business of India Inc in general and Info Edge (India) in particular.

Info Edge, one of the leading online companies that derives more than three-fourths of revenues from its recruitment platform Naukri.com, has seen its stock decline 13% since April. The recruitment service’s revenues slowed 1.7% on quarter while the operating margin dropped 3%.

Info Edge, in a recent study, found that hiring activity slumped by over 4% in August after 1% monthly decline in July. The subdued hiring activity is likely to impact the company’s recruitment segment and its short-term growth prospect. At 19%, the year on year growth for recruitment services does not look bad. The overall sales growth is likely to decline from over 25% in 2011-12 to sub 20% for the current fiscal. However, the long-term business prospect remains bright as the company has been making efforts to grow its non-recruitment business.

The company has made several investments in online portals like policybazaar.com, meritnation.com (education), mydala.com (group deals) and zomato.com (food review). It has recently infused further capital in fashion retail site (99labels.com) and also invested in online photography company Canvera. Given the increasing Internet penetration, a favourable demographic pattern and rising aspirations, the business momentum may pick up, which could translate into higher revenues.

The stock currently trades at 31 times its fiscal 2012 earnings, which is lower than its historical average range. The current P/E is closer to the level witnessed in late 2009 and therefore factoring in the recent hiring lull. Though the stock may continue to remain range bound in the near term, it offers decent upside from the medium to long term perspective.