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Avoid Info Edge Limited IPO

October 30, 2006

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.

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