Investing INR 1,000 Crores Into IE Venture Investment Fund III And AI Will Broaden Future Opportunities

Key Takeaways

• Investing in startups and AI-powered platform enhancements positions the company for diversified revenue growth and improved operational efficiency.
  
• Growing recruitment and niche businesses contribute to strong revenue streams, supported by a positive macro environment and potential market share gains.
  
• Info Edge faces challenges in recruitment and real estate growth, risks from tech startup investments, and education sector uncertainties impacting revenue and competitive position.

Catalysts

Operates as an online classifieds company in the areas of recruitment, matrimony, real estate, and education and related services in India and internationally.

• The company is investing ₹1,000 crores into IE Venture Investment Fund III, focusing on early-stage tech-driven startups, which can drive future revenue and earnings growth through diversification and potential high returns from successful investments.
  
• Introduction of a share split to enhance market liquidity and increase retail investor participation, potentially supporting future revenue through higher trading volumes and market confidence.
  
• Strategic focus on AI-powered enhancements across platforms to improve user engagement and operational efficiency, likely leading to improvements in net margins over time as the company reduces costs and enhances service offerings.
  
• The recruitment business is showing sustained growth across IT and non-IT sectors, benefiting from a positive macro environment with a potential for price increases, which could contribute to revenue growth and improvement in net margins as market conditions improve.
  
• Expansion and performance improvements in niche and adjacent businesses such as AmbitionBox, JobHai, and branding solutions suggest the potential for future revenue diversification and growth, contributing to overall earnings.

Info Edge (India) Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Info Edge (India)'s revenue will grow by 15.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 20.3% today to 43.2% in 3 years time.
• Analysts expect earnings to reach ₹18.3 billion (and earnings per share of ₹141.04) by about March 2028, up from ₹5.6 billion today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 88.1x on those 2028 earnings, down from 154.7x today. This future PE is greater than the current PE for the IN Interactive Media and Services industry at 23.6x.
• Analysts expect the number of shares outstanding to grow by 0.2% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.39%, as per the Simply Wall St company report.

Info Edge (India) Future Earnings Per Share Growth

Risks

• The IT sector, which significantly impacts Info Edge's recruitment revenue, has experienced a slowdown, with uncertain recovery prospects due to potential changes in hiring trends influenced by AI-driven efficiencies. This could lead to reduced growth in revenue from IT recruitment.
  
• Despite improvements, the real estate business (99acres) remains challenged, facing competitive pressures and slower penetration in the lucrative new homes market, which may impede revenue growth and delay achieving sustainable profitability.
  
• The new initiative to invest ₹1,000 crores in early-stage tech startups via the IE Venture Investment Fund III carries inherent risks, including potential write-downs from underperforming investments, impacting net margins and earnings.
  
• The education segment faces declining interest in overseas studies due to geopolitical and visa-related uncertainties, potentially hindering revenue growth from the international education sector.
  
• Increased reliance on AI and machine learning features, while enhancing operational efficiency, introduces risks of market disruption if competitors deploy more advanced AI solutions that could affect Info Edge's competitive edge and revenue sustainability.

Valuation

• The analysts have a consensus price target of ₹8326.909 for Info Edge (India) based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹9100.0, and the most bearish reporting a price target of just ₹5200.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹42.2 billion, earnings will come to ₹18.3 billion, and it would be trading on a PE ratio of 88.1x, assuming you use a discount rate of 14.4%.
  
• Given the current share price of ₹6697.1, the analyst price target of ₹8326.91 is 19.6% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.