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Making online bonds happen
(Financial Express Via Thomson Dialog NewsEdge) Whether it is checking e-mail, chatting, searching for information or for that matter finding a job or even seeking a life partner, the Internet today has become an integral part of everybody's life. The advent of online portals has made it simple by providing information at a click of a mouse. This factor has created a big business opportunity for entrepreneurs. Globally, online portals such as Google, Yahoo! and Monster Worldwide are gaining investor attention. In India, this buzz seems to have caught on. Info Edge (India) has grown from being a Rs 3.63 crore turnover company four years back to Rs 84.05 crore in FY06, growing at a CAGR of 117%. One of its portals, Naukri.com, which generates around 90% of its revenues from recruitment services, is one of the leading and oldest job portals launched in the year 1997. Revenue model Naukri.com's revenue model is such that the company does not have to depend on advertisement revenue alone. Online recruitment services are paid services. The company charges a fee to the job seeker as well as to those companies or the organisations, who are looking for the right candidates. The recruitment process is faster and has lower costs of reach as compared to newspapers and other forms of recruitment such as personal contact calling. Employers can search from about 6 million resumes on its website, for a fee. Considering the growth of the economy and the demand for IT and other professionals, combined with a highly skilled and large labour market, the business of online recruitment is set to be on the high growth path. Besides the successful launch of Naukri.com, Info Edge has also developed two more portals. Jeevansathi.com is a matrimonial site and 99acres.com offers real estate based services. The company lost around Rs 10 crore on these businesses last year. However, the revenue growth has been excellent. In FY 2006, both the portals did business worth Rs 4.4 crores. Considering the low penetration and the stumpy awareness about the online business in India, the growth of these two businesses, which is in the nascent stage, has higher growth potential. Besides the growth potential, however it is also important to consider the increasing competition. Intense competition Being a low capital-intensive business, the entry barrier is low and many players have lined up to launch portals with snazzy features. Several have entered the Indian space already. This includes the world's biggest online jobs portal, Monster.com. However, being the first mover into the recruitment business, Info Edge has developed a large client base. In the other business segment such as matrimonial classifieds, the company faces higher competition from the existing leading matrimonial websites. The successful take-off of these two websites will be a key factor in the growth of the company. To charge up this growth, the company will be infusing about Rs 130 crore for diversifying into other segments of the online classifieds market, establishment of new offices, acquisitions and strategic alliances and further development of its recently launched websites. The infusion of new capital into existing as well as new business lines will help the company strengthen its presence and provide better products and services. It will also help the company remain competitive and face competition from larger players. Outlook On fully diluted equity, the P/E works out to 59.6-73.9 at a price of Rs 290-360 on its FY 2006 earnings of Rs 4.86 per share. Globally the online business has shown significant growth coupled with high margins. Despite this, international companies trade at a PE multiple of about 30 times their earnings. The management intends to invest in new and existing business lines and expects significant improvement in FY07 and FY08 earnings. In a market like India, which is not considered as matured as the international market, and where entry barriers are low, analysts reckon that the valuations appear a tad stretched. Investors will therefore have to wait and watch the management's performance closely.
Copyright 2006 The Indian Express Online Media Ltd.. Source: Financial Times Information Limited.
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