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Internet Company Behind, Zomato Surges In Stock Market

18-11-2020 Malieka Muzaffar

As optimism about a coronavirus 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.

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As optimism about a coronavirus 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 Tuesday and is the top gainer this month on the National Stock Exchange's 10-member IT index. The company runs, 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.

Zomato is among the two largest players in India's food delivery business.

Info Edge has gained in November despite reporting quarterly profit and revenue that missed analysts' forecasts. The stock's 186 per cent surge over the past two years has it trading at more than 125 times analysts' 12-month forward estimated earnings, data compiled by Bloomberg show. Zomato is in the process of hiring bankers for its initial public offering, local media reported earlier this month.

"The listing of individual portal businesses could be very interesting just because of the fact that, depending on the timing, the market may decide to give it a very nice valuation," said Stephen Lew of JOHCM USA, whose fund counts Info Edge among its top holdings. "Zomato, if managed well, could really turn into one of the first globally important Indian Internet businesses."

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.

"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"

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 24 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."

'Tremendous Potential'

Still, that skepticism 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 the coronavirus 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 toward digitization, Angel Broking's 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 has rebounded, Sanjeev Bikhchandani, Info Edge's vice chairman and founder, said on a call with analysts last week. The stock jumped 8 per cent last week, the most since July, amid a broad equity rally in India.

This is a "must have" stock for investors given the popularity of the internet and technology theme, according to Devang Bhatt, an analyst at ICICI Direct Research. "You first get a job, then you get married, then buy a house, so it's like they are capturing the entire universe of the Indian economy online. That has tremendous growth potential."

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