>Info Edge Ltd. (MORGAN STANLEY)

Mar09 Results In-line; Outlook Remains Muted for 1HFY10; Maintain UW

Quick Comment – Impact on our views: Management expects Q1-Q2FY10 to be difficult and expects recovery in the second half of the year. Till then, management hopes to continue working on reducing costs and tightening the operational expenses. Management indicated that its job index might remain close to the bottom seen in Dec08 and may not move meaningfully
higher or lower over the coming months. We believe, if the current pace of revenue decline continues, revenues could disappoint in FY10e. However, management’s ability to cut advertising expenses and employee costs could help cushion the downside to earnings.

Mar09 results: Info Edge reported revenues of Rs577m (-2.1% qoq, -11.2% yoy) significantly below our estimates. EBIT margins were better than expected due to aggressive cost cutting efforts: staff costs down -14% qoq, -2%yoy and ad expenses down -7% qoq, -45% yoy. Lower sales incentive and fewer employees led to lower employee cost in Q409. For FY09 advertising expenses were down -10% yoy. Net income at Rs138m (-20%qoq, -11%yoy) was below our estimates.

Conference call highlights: 1) Hiring in IT accounts for ~26% of revenues. It continues to remain a challenging segment as IT companies have been slow in hiring; 2) Pricing remains a challenge for high value products and the company has not raised prices; 3) Clients are not certain of the future but are hopeful of improvement from October onwards; 4) Management expects its Naukri business to be a lead indicator to the overall economic recovery; and 5) Real estate business all check deals was hived off into a separate subsidiary.

Valuation: Info Edge stock currently trades at 26x FY09 EPS for declining earnings in FY10e. We maintain our UW rating on the stock and in the absence of any near term triggers, we would expect the stock tounderperform over the coming quarters.

To see full report: INFO EDGE