>INFO EDGE (EDELWEISS)

■ Strength in one of the fastest growing internet markets
Internet is increasingly becoming an attractive medium for advertising, recruitment, and e-commerce, and is still at an embryonic stage in India. India’s internet penetration is low at 7% (81 mn internet users), but fastest growing across Asia. This offers an attractive opportunity to monetise a credible internet based business model. Info Edge (IEL) with lead in the online recruitment market (through Naukri.com) and presence in the online classified space has the potential to establish a market leading position and grab large pie of increasing online adoption.

Innovation’s the name of the game

■ Hiring to gain steam after a lull on back of improving corporate health
The recruitment industry is highly correlated to the economic health and growth of the corporate sector. As various businesses come out of the recent slowdown, leaving behind issues like cost cuts, stagnant expansion plans, and layoffs, the focus is back on growth. We expect hiring in financial services, retail, and infrastructure sectors to pick up and, more importantly, in the IT sector (major vertical for IEL) as utilisation has reached peak levels. We see IEL as a direct beneficiary of this trend.

■ Network effect playing out for Naukri.com
Strong growth in new resume registrations (and overall database) has attracted higher number of recruiters at Naukri.com, which in turn has been attracting more new candidate resumes creating a self propelling growth cycle. IEL’s current resume database stands at ~19mn and is growing impressively at a pace of 12,000 new daily additions. The company’s synchronised effort to constantly improvise user interface, algorithms for better job searches, and relevant profiles has led to it achieving and sustaining lead in the recruitment market, and helping it command pricing. Almost 15% of its workforce is dedicated to solutions enhancement, and Naukri.com serviced 34,000 unique customers (FY09).

■ Outlook and valuations: Long term non-linear play; initiate with ‘BUY’
We believe IEL is a long term play and investors looking at internet space in India should take a 2 year plus view. The company’s business model allows it to maximise earnings in a strong environment. We value IEL at INR 1,100 per share using target P/E of 32x (based on PEG of 1.1x on earnings CAGR of 29% over FY10- 12E) on FY12E earnings. We initiate coverage on IEL with a ‘BUY’ recommendation. On relative return basis the stock is rated ‘Sector Outperformer’.

To read the full report: INFO EDGE