Avoid Info Edge Limited IPO

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.


Prabhudas Liladhar Maintains a BUY on Satyam

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…

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Tech Mahindra – Company Analysis and Review

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 😉

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