Indian Equity Research and Investment Strategy
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Does HDFC AMC deserve High Valuation ? Review
Valuation of Indian Markets & Relentless FII Selling
Why Indian StockMarket Quoting at High P-E ?
Why Value Investing Does not Work in India ?
As promised, I looked into the finer details of draft RHP of Info Edge India Limited. I feel it’s very risky to apply and hence recommending all small investors to avoid. You can read the details about this in our IPO section.
Info Edge India Limited IPO opened for subscription today. We feel the company is a little bit shady in disclosures. Requests for past quarterly results and second quarter results went unanswered.
Info Edge is a pure Dot Com Classifieds play. It generates 90% of it’s revenues from Naukri.Com and is a leader with upto 50% market share. Business World in its estimate expects the online job search market and online matrimony market to grow at 35% YoY. Also with poor internet penetration in India, don’t expect exponential growth.
Earnings Analysis:
According to our analysis, annualizing the first quarter PAT, we expect an EPS of Rs 7.64 for FY2007.
FY2004 – Income=9.076 EPS=1.12
FY2005 – Income=19.472 EPS=0.15
FY2006 – Income=84.057 ESP=6.08
FY2007 – Income=117.2 EPS=7.64 (Expected)
The Hindu Business Line Analysis says,
Investors with a high-risk appetite can consider taking an exposure in the book-built initial public offering of Info Edge (India).
DalalStreet.Biz recommends a AVOID recommendation on Info Edge India Limited. Why ?
The revenues of Dot Coms are highly unpredictable. In 1999-2000, companies like Yahoo!, eBay and Amazon made waves, because they had a sound business model and that’s why they are still leaders today. Pure classifieds is a risky business as tomorrow social networking sites will come up with targeted classifieds which will be more effective. Also note that Info edge India Limited issued shares in September-2006, to Sherpalo Ventures and Murugan Capital, VCs from the Valley at just Rs245. If the VCs had confidence in the management why aren’t they picking stake at Rs 290 to Rs 320 per share ?
Worldwide, any Dot Com that is a leader is only because of innovation and the Patents it holds. Info Edge, unfortunately doesn’t hold any patent. Free classifieds like kijiji have gained lot of momentum in India which can threaten the whole revenue model of Info Edge. Considering all this background and the pricing which comes at price-earnings multiple at the lower- and upper-end of the price band works out to 43-50 times its consolidated 2005-06 per share earnings on its existing equity base and, the company’s price/revenues at 7-8 times are higher than the mid-cap software industry average. Instead buy any of the other IT companies available at attractive valuations.
We recommend investors not to subscribe to the IPO of Info Edge India Limited.
Disclosure: We are not applying.
Tags:IPO India, Invest India ,Info Edge India
Mumbai based broking and research firm, PrabhuDas Liladhar has reiterated its BUY rating on Satyam Computers Limited. They have set a target price of Rs505. The full report can be accessed here.[PDF] I am not very BULLISH on Satyam. Why ? They don’t seem to be consistent in their earnings growth which has disappointed lot of fund managers. Read On…
Tags: Invest India, Dalal Street
Tech Mahindra Limited is promoted by the Keshub and Anand Mahindra Group. Their IPO was reasonably priced and was heavily oversubscribed.
I have been optimistic about the prospects of this company mainly because of the promoters background on Dalal Street and ethical business practices. (Anand Mahindra refused to make any forward looking statements for the company after announcing the Q2-07 results).
Here is a brief research and analysis of their performance.
Tech Mahindra’s QoQ growth in Income and PAT(in Rs crores) since Q2-2006 are as follows.
Q2-2006. Income 257.64 (+4.89%) and PAT 37.4(+10.9%)
Q3-2006. Income 340 (+32.2%) and PAT 75 (+100%)
Q4-2006. Income 421.2 (+23.8%) and PAT 89 (+18.7%)
Q1-2007. Income 587 (+39.5%) and PAT 106 (+19%) 100 ? Not Sure.
Q2-2007. Income 647 (+10%) and PAT 141 (+33%)
Their has been a phenomenal growth in terms of Income and PAT for the past 6 quarters. Why is this necessary ? Read my Satyam Computers Case Study. Fund Managers like to chase stocks which report consistent growth in PAT. Tech Mahindra gets A+ for all other parameters except its Income concentration from British Telecom, another promoter. This issue is also mitigated since their is no slowdown expected in the European Telecom Market.
Earnings Front:
Now lets have a look at Tech Mahindra’s YoY growth in Income and PAT
FY2005 Income 954.19 (+24%) and PAT 102 (+51.3% )
FY2006 Income 1276.6(+33%) and PAT 235 (+129%)
For the Half year ending, sept-30-2006, it’s income was 1204.4 and PAT of 241.4.
DalalStreet.Biz to mitigate risks models on 3 fronts, Conservative, Moderate and Optimistic for short term predictions (6 Months to 12 Months).
Conservative Estimates:
Half Yearly Income and earnings 1204.4 and 241.4. Assume it grows at 10% QoQ for the next 2 quarters which will bring it’s PAT for the whole Year to 241 + 155 + 170 = 566 crores.
FY2007 EPS Estimated = 48.83 after dilution say Rs45. Discounting its FY07 earnings @ 20 times, Price Target for the stock will be Rs900.
Moderate Estimates:
Half Yearly Income and earnings 1204.4 and 241.4. Assume it grows at 15% QoQ for the next 2 quarters which will bring it’s PAT for the whole Year to 241 + 162 + 186 = 589 crores
FY2007 EPS Estimated = 50.81 after dilution say Rs48. Discounting its FY07 earnings @ 22.5 times, Price Target for the stock will be Rs1080
Optimistic Estimates:
Half Yearly Income and earnings 1204.4 and 241.4. Assume it grows at 15% QoQ for the next 2 quarters which will bring it’s PAT for the whole Year to 241 + 169 + 203 = 613 crores
FY2007 EPS Estimated = 52.89 after dilution say Rs50. Discounting its FY07 earnings @ 25 times, Price Target for the stock will be Rs1250.
Take either of the estimation model and you will see its PAT grow 100% YoY. Fund Managers would also like to know the revenue mix of different verticals and different geographies before they initiate a coverage. In any case we are upbeat on Tech Mahindra and we also believe it will be a $1 Billion company by FY2009 and not a year later FY2010 as projected by its management during IPO.
Update: Many on the MoneyControl board think I have been very conservative in my expectations of the stock price. Maybe, I will always be so and anything over it is a bonus 😉
Samir Arora the infamous fund manager of Alliance Capital Limited during the Dot Com Boom who is now a Singapore based FII said to CNBC TV 18 that the Indian Real Estate Stocks are overvalued.
He also said that Indian market looked over valued because of the fundamental flaw in how the SENSEX stocks are chosen. Sensex only has the high growth and market value stocks, which always trade at higher PE multiple and hence it looks for an outsider that Indian stock market is over valued. However, if you exclude those stocks, then other Indian stocks are available at the same PE multiple as their peers in China, Russia and Brazil.
Naukri.Com holding and promoter company Info Edge India Limited’s IPO will open for subscription on Oct-30th and closes on Nov-2nd. Here is an analysis of the same. First, I am very disappointed by the way the company management has arranged the financial figures of EPS, RONW, etc without tabulating on page 10 of the application form.
IPO of 5,323,851 equity shares of Rs10 each through 100% book building process. The price band has been fixed at Rs290 to Rs320 per equity share. This translates the issue size to be in the range of Rs154.39 crores and Rs170.36 crores.
Retail Investors have 30% of the issue reserved for them. Non-Institutional investors have 10% of the issue reserved for them.
Background on Info Edge India Limited:
The company derives major part of its revenues from recruitment classifieds and related services. 92.73% for the past year. rest of the revenue is contributed by Jeevansathi (Matrimonial Site) and 99Acres (Real Estate Site). Naukri.Com is the leader in online recruitment in India. Jeevansathi made it to the top-3 in online matrimony in India. 99Acres is relatively young trying to establish itself.
Brief Financials about Info Edge India Limited:
Income in crores.
FY2004 – Income=9.076 EPS=1.12
FY2005 – Income=19.472 EPS=0.15
FY2006 – Income=84.057 ESP=6.08
Post-Issue Share Holding and Financials:
Number of Eq. Shares = 2,72,95,256 of Rs10 each
If Promoters don’t sell their shares upon listing then, they will hold 54.6%
The company reported a net profit of Rs5.219 crores for Q1-2006. If the figures are annualised, then the company is expected to report a Net Profit of Rs20.87 crores and an EPS of Rs7.64.
At EPS of 7.64, the issue price of Rs290 or Rs320 translates into a forward P/E Multiple of 37.95 or 41.88.
I have requested for some more details from the company and will write my recommendation whether to APPLY or AVOID the issue after I receive a reply from the company.
Tags: India IPO, Naukri, Dalal Street , India Invest
