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Hottest India Internet stock surging despite valuation fears

AS optimism about a Covid-19 vaccine drives a shift away from technology shares, one such stock in India keeps rallying as market watchers bet its investments in startups will start to pay off.

Info Edge India Ltd climbed to a record on Wednesday and is the top gainer this month on the National Stock Exchange's 10-member IT index.

The company runs Naukri.com, the nation's leading job-hunting platform, and has investments in at least 23 startups, according to its website. It owns about a fifth of Zomato, the largest Indian Web-based food delivery platform that counts Jack Ma's Ant Group among investors.

Info Edge has gained in November despite reporting quarterly profit and revenue that missed analysts' forecasts. The stock's 187 per cent surge over the past two years has it trading at more than 125 times analysts' 12-month forward estimated earnings, Bloomberg data show. Zomato is hiring bankers for its initial public offering, it was reported earlier this month.

Founded in 1995 during the dot-com boom, Info Edge was the first Internet-related company to list on Indian stock exchanges in November 2006. The recruitment website, along with search portals for matrimony and real estate, are its key revenue generators.

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"Info Edge is a one-of-its-kind company in the Internet space in India and therefore, commands a certain premium," according to Jyoti Roy, an equity strategist at Angel Broking Ltd. "The re-rating of the stock has been driven by the consistent performance of the recruitment business and due to a significant increase in valuations of its investments in Zomato and policybazaar.com." Info Edge is the biggest player in India's Internet media and services sector and its stock is the best performer this year among companies in this space with a market cap of at least US$500 million.

Not everyone is bullish, however. Chokkalingam G, chief investment officer at Equinomics Research & Advisory Ltd in Mumbai, is "not comfortable" with the valuation of the stock, which is now trading almost 25 per cent higher than analysts' 12-month average price target. "The future story has to be convincing at right valuations," he said. "So I am not buying." Still, that scepticism hasn't stopped the stock's advance as it heads for a ninth straight year of gains.

Apart from the potential to unlock value from investments in other online businesses, Info Edge's niche position in India and bets that the technology and e-commerce trends boosted by Covid-19 will likely stay popular beyond the pandemic are also keeping buyers interested in the stock.

The recruitment business remains a key valuation driver and is growing more and more towards digitalisation, Angel Broking's Mr Roy said, adding that Info Edge has an advantage over traditional recruiters and it will be difficult for any newcomer to develop such capabilities soon.

Zomato's revenue is expected to return to pre-Covid levels in one or two months while revenue from IT companies' recruitment on Naukri.com has rebounded, Sanjeev Bikhchandani, Info Edge's vice-chairman and founder, said on a call with analysts last week. BLOOMBERG

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