One of the best Internet plays in the world

85% are between 12-39, which highlights India’s young population and well a strong desire for these youth to be online. Highlighting India’s internet penetration is statistics like number of Facebook users rising from 136m in 2015 to 346m in 2020. Mobile internet has been such a positive development in the country’s digital progress. In 2019, over 73 percent of India’s total web traffic coming from mobile phones.

Imagine such fundamentals for an internet focused business. Info Edge (India) is the only pure play, internet company in India. The India Avenue Equity Fund owns 3% of its weight in this company. The business was founded in 1995 and went public in 2006 and runs the following businesses:

The company currently trades at a P/E multiple of over 100x earnings due to its positioning, infinite growth opportunity (digital business, unicorns, rapidly rising penetration, and youthful demographic), strong and recognisable brand names, astute and insightful management (who have illustrated a culture of fantastic capital management). The company recently raised (August 2020) A$350m of equity. This was timely in allowing a stronger balance sheet to invest in existing businesses, improve existing platforms, build new products, technology upgrades and bolstering data science and machine learning capabilities. It will also be used for the set-up of a VC fund to invest in internet related investments. This further adds to appeal for investors seeking to play India’s internet penetration and a switch from physical to digital / online.

The company believes that in a developing country like India its activities will increase in importance given they are extremely high involvement services. These market segments are huge and continue to have significant opportunities and immense potential for growth. Pleasingly for investors the company’s has stated its motto going forward is to focus on financial and operating prudence, whilst maintaining flexibility and being accepting of new challenges and opportunities.

Info Edge (India) in our opinion assessing the company by its one year forward P/E is meaningless as we expect earnings growth could be explosive.

Financials

Despite slowing GDP growth in India from circa 7% in 2016 to 3% in 2020, the business has grown revenues by 15.4% and EBITA by 23.0% per annum, with EBITDA margins of 36%. EPS has been diluted at times on issue of shares as the company has made value creating acquisitions and built a war chest to take advantage of COVID-19 pivot for many businesses seeking to build their online presence.

COVID Impact

Info Edge (India) has dealt with COVID-19 by continuing to work on product and service upgrades, maintained its customer connect and effectively managed its entire operations from a “work from home” environment. As India's economy is now emerging from lockdown the company’s businesses have started returning to pre-COVID activity. Jobseeker traffic on Naukri is back to 95 % of pre-COVID levels, in 99acres buyer and owner, traffic is back to 90% and in Jeevansathi and Shiksha, traffic is now higher than the same time last year.

This stock is unlikely to be found in passive or ETF exposure to India but will grow into these indices shortly (A$8.2bn market cap). Ideally an actively managed fund will have substantially more exposure and be willing to trim and top-up appropriately.