Info Edge (India) Limited (NAUKRI) Q1 FY23 Earnings Concall Transcript

Info Edge (India) Ltd (NSE:NAUKRI) Q1 FY23 Earnings Concall dated Aug. 12, 2022

Corporate Participants:

Hitesh Oberoi — Co-Promoter and Managing Director

Sanjeev Bikhchandani — Founder and Executive Vice Chairman

Unidentified Speaker —

Analysts:

Vivekanand Subbaraman — Ambit Capital — Analyst

Unidentified Participant — — Analyst

Mohit Motwani — Edelweiss Financial Services Limited — Analyst

Srinath Vasan — Bellwether Capital — Analyst

Aditya Suresh — Macquarie — Analyst

Vijit Jain — Citi — Analyst

Presentation:

Operator

Hello, everyone. Good evening, and welcome to Info Edge India Limited Q1 ’23 Financial Results Conference call. [Operator Instructions]

Joining us today from the management side, we have Mr. Sanjeev Bikhchandani, Founder and Vice Chairman; Mr. Hitesh Oberoi, Co-Promoter and Managing Director; and Mr. Chintan Thakkar, CFO.

Before we begin today, I would like to remind you that some of the statements made in today’s conference call may be forward looking in nature and may involve risks and uncertainties. Kindly refer to Slide number 2 of investor presentation for detailed disclaimer.

Now, I would hand over the call to Mr. Hitesh for his opening remarks. Thank you, and over to you, Hitesh.

Hitesh Oberoi — Co-Promoter and Managing Director

Thank you, Vivek. And good evening, everyone, and welcome to our first quarter earnings call. As always, we will start with an update on standalone financials, market conditions for each of our operating verticals and then cover each business financials in more detail, to be followed by Q&A. The audited financial statements and other schedules on segmental billing, revenues, etc, along with the datasheet have been uploaded on our website, www.infoedge.in.

Talking about our Q1 standalone financials, overall billings in Q1 grew to INR524.2 crores, up 62.4% over Q1 of last year. Revenue in Q1 stood at INR507.7 crores or 54.6% from Q1 of last year. Billing and revenues along with acquired businesses like Zwayam and DoSelect stood at INR537 crores and INR521 crores, respectively.

Operating expenses for the quarter, excluding depreciation and amortization were INR344.5 crores, up 53.6% over Q1 of last year and operating EBITDA for the quarter stood at INR163.1 crores versus INR104 crores last year, a growth of 56.8% over Q1 of last year. And operating EBITDA margin for the quarter stood at 32.1% compared to 31.7% for the same quarter last year. And operating EBITDA for Info Edge including acquired businesses stood at INR165.4 crores, a year-on-year growth of 59%. Cash from operations for standalone business for the quarter stood at INR164.5 crores, compared to INR110.4 crores for Q1 of last year.

Deferred sales revenue grew to INR825.4 crores as of June 30, 2022 versus INR506.9 crores as of June 30, 2021, a year-on-year growth of 62.8%. And the cash balance of Info Edge in doing the wholly-owned subsidiary stand at INR3,439 crores as of June 30, 2022 versus INR3,561 crores as of June 30, 2021.

Talking about the recruitment space, hiring sentiment across sectors remained strong. The Naukri JobSpeak Index for the quarter was up 32%. Monthly IT clients, we continue to see — continue to see strong momentum, high attrition and strong pipeline driving recruitment continues to drive — high attrition and a strong pipeline continue to drive recruitment in this vertical, increased focused on fresher hiring was also noticed during the quarter. As far as non-IT customers go, we saw a revival of hiring in sectors like retail, education, insurance, real estate, travel and tourism in the last two quarters. There seems to be a strong manpower demand across sectors and that is also driving up engagement of Headhunters on the platform. The demand for talent continues to be high in both the metros and non-metros across skill levels.

Moving on to the real estate vertical, we witnessed a good momentum in new home sales across top cities in Q1, while home price is on an upward trend in most markets, affordability continues to be solid. We expect reasonable number of new launches to continue in the residential buy segment despite recent increase in the post-stroke home loan rates. Rental supply also saw fast uptake in the market as more offices opened up to work from office or hybrid working models. Commercial space is also sort of saw faster uptake with negligible stroke no impact of the third wave of COVID.

The Matchmaking category recovered from last year’s slowdown caused by multiple sort of COVID waves, users are back and engagement levels are up higher than what sort of we were — they were doing pre-COVID times. We also experienced a change in our target sort of audience in the last couple of quarters with more prospects now increasingly taking a charge of the matrimony, search process instead of [Phonetic] their parents or guardians. This is more developed in the top metro cities, where high intent dating space is also fast emerging.

Moving on to the quarterly financial of recruitment business, in Q1 of 2021 — ’22-’23, the recruitment segment billings were INR415 crores, up 64.6% from Q1 of last year, while revenues were INR387.1 crores, up 67.5% from Q1 of last year. Operating EBITDA stood at INR230.6 crores, up 80.2% from Q1 of last year. Margins stood at 59.6% versus 55.4% in Q1 of last year. Cash flow from operations for the recruitment vertical during the quarter stood at INR235.4 crores, up from INR148 crores reported in Q1 of last year. Billings for Naukri India for the quarter stood at INR354 crores, up 72.3% year-on-year, while revenue for the quarter for Naukri India stood at INR326.8 crores, up 76.3% year-on-year.

Recruitment segment billings include acquired businesses like Zwayam — including acquired businesses like Zwayam and DoSelect stood at INR427.9 crores, a growth of 69.7% year-on-year for this quarter. IIMjobs and the company also has reported strong 64.8% Y-o-Y growth in their billing numbers closing at INR15.3 crores, up from INR9.3 crores reported in Q1 of last year. A well integrated GTM, a go-to-market with Naukri India team worked well for Zwayam and DoSelect with both these businesses in the quarter with billings of INR6.25 crores and INR6.59 crores respectively.

The Naukri business as you can see continues to sort of grow strongly and this — and it’s been now six quarters. Naukri India witnessed higher recruiter and jobseeker activity during the quarter. On the jobseeker side, we saw 23,365 new registrations per day last quarter and we crossed 10 million plus active installed base on the Android app.

Our sales strategy for the quarter focused on creating awareness of value proposition of our products to drive value optimization with our customers. The quarter also witnessed 49% year-on-year growth in new client acquisition. The other sort of vertical we have ambition box, which is our play in the career sort of reviews and ratings space, grew handsomely to overtake our sort of the leading competitor in this space and ambition box reported 6.29 million unique visitors in Q1 2023, making it the largest sort of careers and review and ratings platform in India.

Our marketing team recently launched series of new digital video campaigns, Hashtag kind of Naukri targeting the Gen Z audience. This would further cement Naukri’s leadership in traffic share and improve its top of mind recall amongst new generations of jobseekers, that’s the idea.

Moving on to the Shiksha business, in Q1 Shiksha billings grew 30.7% year-on-year and stood at INR30.4 crores, while revenue grew 37.4% year-on-year to INR31.3 crores. The Shiksha business made an EBITDA of INR6.2 crores in the quarter versus INR7.7 crores in Q1 of last year. Cash from operations for the quarter stood at INR5.3 crores against INR8 crores reported in Q1 of last year. The Shiksha business has now delivered strong and consistent revenue growth for the last seven quarters and has been generating cash. The delayed closure of academic year 2022 had an impact on new students registering on the platform. As it concerns regarding COVID subside, we expect that trend to normalize in a few quarters.

The new sort of private universities in India we believe will offer an opportunity for Shiksha to expand its footprint further. We also saw our study abroad business, which is relatively new, saw strong recovery in students opting for study in the U.K. and the U.S. and we continue to invest in making our content more comprehensive and most user-friendly and in building deep domain expertise in this space.

Moving on to the 99acres business, billings in 99acres grew 173.2% year-on-year on a COVID impacted Q1 and stood at INR61.1 crores, while revenue grew from INR49.2 crores in Q1 of last year to INR66.3 crores in Q1 of this year. The operating loss for the quarter stood at INR35.4 crores against profit of INR10 lakh, reported in Q1 of last year. The business reported a cash outflow from operations of INR46.6 crores for the quarter against the cash outflow of INR36.4 crores in the same quarter of last year.

In 99acres, we recorded revenue growth across all major categories, resale, rental, commercial and new homes, concerted efforts were put — during the quarter to increase, improve the quality of listings on the platform. Owner listings grew 7% year-on-year, while broker listings grew 9% year-on-year, premium listings continued to see good adoption from brokers. The review from residence and recent transaction prices were further scaled up to help buyers and owners get more insights about the real estate market on the platform and we continue to invest on platform content, client delivery and marketing in this business.

Moving on to the matrimony business, given the certain free offerings launched in March 2022, billings in Q1 declined by 29.8% year-on-year to INR17.6 crores and revenue declined 9.1% year-on-year to INR22.9 crores. The operating EBITDA loss stood at INR27.6 crores for the quarter against a loss of INR23.2 crores in the same quarter of last year.

Cash outflow from operations for the quarter stood at INR49.8 crores against an outflow of INR18.4 crores in Q1 of last year. As we discussed in our last call, Jeevansathi has made chat for users free on the platform, the platform is seeing strong traction in this feature, resulting in more chat engagement on the platform. In addition, several TV celebrities and influencers across communities were opt in to drive the chat in free — is free on Jeevansathi message to our users. In addition to this, the business will continue to focus on doing the platform experience and building brand salience in the yea ahead.

As far as consolidated financial highlights of the company go, at the consolidated level, the net sales of the company stood at INR547.3 crores during Q1 versus INR328.6 crores for Q1 of last year. With the consolidated entity and the total comprehensive income level, there is a loss of INR3,342 crores versus an income of INR158.2 crores for the corresponding previous year quarter ending June 30, 2021. Adjusted for the exceptional items, PBT stood at profit of INR339.4 crores in Q1 ’23 versus for INR45 crores in Q1 of last year.

Thank you. That’s all from us. We are now happy to take questions.

Questions and Answers:

Operator

Thank you, Hitesh. [Operator Instructions]

Unidentified Speaker —

Thank you, Vivek. So we have first question from Vivekanand from Ambit Capital. Vivek, go ahead and ask your question.

Vivekanand Subbaraman — Ambit Capital — Analyst

Hello, thank you very much for the opportunity. Sanjeev, now that we have instituted a near-term structure of making financial investments via AIS and the Zomato lock in is now behind us. Why not recycle capital by monetizing your stake? I mean, we’ve taken [Indecipherable] being early-stage investors and having a solid bracket [Indecipherable] share. So that’s question one.

Second one is for Hitesh. You now had a chance to work with strategic investments like www.naukri.com, Unilever IT for several years now, three years almost. So did these investments contribute to Shiksha’s revenue scale up, almost 2x of — I mean more than 2x of the pre-COVID levels. This question is more in the context of the investments made in the last 12 to 18 months like Zwayam, DoSelect and more recently 4B Networks and

Aisle Network. Thank you.

Sanjeev Bikhchandani — Founder and Executive Vice Chairman

Yeah. Shall I answer Zomato question, first, Hitesh?

Hitesh Oberoi — Co-Promoter and Managing Director

Yeah, please.

Sanjeev Bikhchandani — Founder and Executive Vice Chairman

So look, we don’t need to sell Zomato stock in order to invest in start-ups. We have funds in place, we have enough money on the balance sheet to put into those funds, we have half the money comes from Temasek. And the truth is that, it’s not easy to sort of find Zomato on a Policybazaar, right. You invest today hopefully five, seven years, one or two become highly successful. And while we can exit from these investments from both Zomato and Policybazaar, maybe Policybazaar in a couple of months later, the truth is, if you ask us to deploy that amount of money productively into early-stage companies within two, three years, we will end up making suboptimal investments in all likelihood, right.

Now, we could sell and keep cash, we could sell and give cash back to shareholders, but what I like to believe is that if the business has got legs, why not stay for a while. Now, this is just my sort of belief, obviously, the Board will decide. So we are not getting 100% in stocks, we will — but you know it’s not as if we have — we sort of evolve to sell a company, the moment it goes public. If the business does [Indecipherable] perhaps it should hold on. But these are ongoing conversations in the Board all the time, it’s not written in stone. It’s up for review periodically.

But you know what, I also believe is that, if the business got legs and you hold on, you have a future, right. If you sell, you only have cash and cash is valued at Monex, a futures is valued at a multiple of whatever the future is. Yeah. So we like to hold on if we believe the business got legs.

Yeah, Hitesh, you want to answer second question?

Hitesh Oberoi — Co-Promoter and Managing Director

Yeah, I guess, your question was around whether the strategic investments we’ve made in companies like Unilever IT and people helped us sort of scale up the Shiksha business over the last two years. Is that correct?

Vivekanand Subbaraman — Ambit Capital — Analyst

Yes. Under extension to that was the aspiration that you have across your operating businesses to make strategic investments and either enhance your revenue or bring down costs, right?

Hitesh Oberoi — Co-Promoter and Managing Director

Yeah. So there are two or three types of strategic investments we are making. One is of course outright acquisitions, so ambition box which I sort of spoke about was an acquisition we made a few years ago, IIMjobs is a company we acquired 100% a few years ago. Zwayam is a 100% acquisition. So DoSelect is a 100% acquisition. Now in these cases, of course, we are driving tremendous value from the Naukri network, because we are taking these businesses in — and the hope is that, we scale them up massively because of our distribution and other capabilities.

Now then there are companies where we are investors, but we’ve already done the opposition like Unilever IT like, NoPaperForms, like greytHR. Now, here, right now, it’s not as if our internal businesses are cooperating or collaborating with these companies on a regular basis. There is an periodically exchange ideas, but there is no sort of business cooperation between these businesses. The idea here is that we sort of — we are in these companies, we like them. And if they continue to scale up, we would like to invest, if we continue to scale and perform well, we would like to sort of own more and more of these companies over time, if the entrepreneurs are okay with it.

So that’s the nature of these sort of investments. Now — so let’s see how this plays out because where we are — Aisle is somewhere in the middle — where in Aisle, we own 76% now. And there is a path to getting to 100%, but we want the entrepreneur to run the show for some time because we believe that’s the best way to scale the business and we don’t think we can take on that business internally and do a better job of what — maybe that we can do right now.

So that’s the third type of investment sort of we’ve made, where we own majority, we are working very closely with the entrepreneur, ultimately we would want to go to 100%. But we would like the entrepreneurs to run the show for some time. I don’t know whether I answered your question.

Vivekanand Subbaraman — Ambit Capital — Analyst

No, no. This made a lot of sense. I guess, what you’re saying is Shiksha scale-up versus pre-COVID levels primarily happened internally other than collaborating with new startups.

Hitesh Oberoi — Co-Promoter and Managing Director

Yes, yes.

Vivekanand Subbaraman — Ambit Capital — Analyst

So Sanjeev, just one small follow-up. So you said that sure you’re going to exit with [Indecipherable] but deploying money — this kind of money in start-ups may lead you to not be that prudent if it has to be done —

Sanjeev Bikhchandani — Founder and Executive Vice Chairman

Almost — it’s almost certainly will — almost certainly will lead us to be not prudent.

Vivekanand Subbaraman — Ambit Capital — Analyst

So is it — is that because of the — but have the shallow nature of the start-up universe still in India or is it something else? I’m just trying to understand this —

Sanjeev Bikhchandani — Founder and Executive Vice Chairman

No. Let me put it this way. See, you — typically when you have a fund, right, you will say, okay, fine. From three years of close of the fund, you will need to write all your first checks. Now if you are going to invest INR10,000 crores, let’s say, which if you exit from both these companies, we want to invest INR10,000 crores, right. You’re talking about investing INR3,000 crores within three years, right, as first checks and the remaining goes on follow-on checks. Now that’s a tough ask. Because we like going early stage, early stage if you want to invest INR3,000 crores as a first check into a company with the average XIC [Phonetic] of INR10 crores, you’re talking about 300 investments.

300 investments is a lot for — from a team management perspective, right, and sooner or later, you will slip up. Where you have to have a very large number of people working with you and these are — we are tough things to manage and tough to grow the early-stage companies, perhaps the risk level will also be different.

Vivekanand Subbaraman — Ambit Capital — Analyst

Okay, understood. Thank you and all the best.

Unidentified Speaker —

Thanks, Vivek. The next question is from Ruchi Mukhija from Elara Capital. Ruchi, go ahead and ask your question. Ruchi, you’re there. Maybe we’ll go to the next person. The next question is from Jaideep Gerardi [Phonetic] CIO from Advent Securities. Jaideep, go ahead and ask your question.

Unidentified Participant — — Analyst

Yeah. Am I audible?

Unidentified Speaker —

Yeah, go ahead, Jaideep.

Unidentified Participant — — Analyst

Yeah. So, Hitesh, my question was specific to 99acres. So 99acres, we have mentioned in our investor deck saying that owing to higher A&P spends for this quarter, EBITDA loss is INR35 crores. So I want to know if this is a one-off, will this sustain in Q2 of this year and hence is the going forward trajectory of this business. We are burning close to INR50 crores of cash per quarter here. So want to know how long will this sustain and if it will not for this A&P spend, what would this number be for, this INR35 crores of EBITDA loss?

Hitesh Oberoi — Co-Promoter and Managing Director

So — see right now, actually for a while, now the space has been very competitive and a lot of our competitors having spending a lot of money and there’s a lot of new money has come into the space. And therefore we’ve been forced to respond and also we’ve been out of media for a while last year because post-COVID, we didn’t spend as much money as we spend normally.

Now going forward, the A&P spend will continue, it might moderately if the competitive intensity eases and hopefully our revenue will also look up over time. Our billings will sort of hopefully increase over time, but it’s hard to say how this will play out at this point in time. Is this, I mean, of course our — internally, we will target to sort of reduce our burn in the coming quarters, but one can’t be sure. So I can’t give you a number and say listen, this is what burn is likely to be going forward. All I can say is, we will try and optimize our costs and we will try and grow revenue and hopefully, the burn will sort of over time go down, but if competitive intensity increase and all else breaks loose and we’ll be forced to respond to maintain our share.

The space has become a lot more competitive than it was a couple of years ago. At the same time, the real estate market is also bouncing back, so the market was in the dumps for many years for various reasons, but for the first time, it looks like the real estate is sort of back. Prices are going up, the number of transactions have gone up in the last few quarters. So we are hoping that the real estate market will continue to be buoyant for some more time.

Unidentified Participant — — Analyst

Yeah, sure. That’s helpful. Only point that I wanted to have a follow-up one was, what was the absolute marketing spend that we incurred for this campaign that we have been doing for quite some time? I’ve been seeing the ads coming on CNBC and all of that. So —

Hitesh Oberoi — Co-Promoter and Managing Director

So it’s good to have that you’ve been seeing this ad, because you’re at RPG, but how much will be exactly spent, do we give out that breakup?

Sanjeev Bikhchandani — Founder and Executive Vice Chairman

I don’t think — we don’t give out of the business segment level.

Unidentified Participant — — Analyst

Okay.

Hitesh Oberoi — Co-Promoter and Managing Director

But it was substantially higher than —

Unidentified Participant — — Analyst

See, the idea is just to know how much of this will wither away with time. So how do I look at this business going forward in terms of EBITDA and all of that.

Hitesh Oberoi — Co-Promoter and Managing Director

See whether it will wither away with time, I do know, because we — like I said, we continue to — we intend to continue to spend on advertising and promotion, at least for some more time, right. And then a lot will depend on what sort of competition does in this space. But just to give you a sense, this number will be at least around INR30 crores, INR35 crores a quarter.

Unidentified Participant — — Analyst

Okay, that’s very helpful. And did we see any tangible impact on sales because of campaign, because it’s been going around for quite some time?

Hitesh Oberoi — Co-Promoter and Managing Director

So like as I said earlier, we are seeing a lot of competition in this space. So our competitors are spending a lot of money and that is beginning to hurt us. And we had to respond to get our traffic share back. Sales will follow over time, sales don’t — because we sell subscriptions and clients sort of like to watch response — and see what happens to response and then the basis that response they get on the platform, they sort of renewal and upgrade over time. So whether this will result in more sale or not, will be known to us only after a couple of quarters.

Unidentified Participant — — Analyst

Thanks, Hitesh.

Hitesh Oberoi — Co-Promoter and Managing Director

Yeah.

Unidentified Speaker —

Thanks, Jaideep. Next question is from Mohit Motwani from Edelweiss. Mohit, go ahead and ask your question.

Mohit Motwani — Edelweiss Financial Services Limited — Analyst

Am I audible?

Unidentified Speaker —

Yeah, go ahead.

Mohit Motwani — Edelweiss Financial Services Limited — Analyst

Yeah. Thanks for the opportunity and congratulations for the great set of numbers. My first question is on the ad spends for Jeevansathi. So we have seen a quarter-on-quarter decline in ad spends and you have mentioned that you will maintain high ad spends because the competitive intensity is quite high. So does this decline in quarterly ad spend align with the fact that you are providing most of the services in Jeevansathi for free?

Hitesh Oberoi — Co-Promoter and Managing Director

You’re right. So we have changed the model in Jeevansathi and we’re experimenting with the new model. We’ve gone free on — a lot of services, which were paid earlier have — are now available for free and that’s helping us to acquire more users. Our hope in the long run is that if this model works for us, then we will not have to spend as much money on marketing as we used to spend earlier, right, and that’s the goal. Of course, you know revenue is going to take a beating. But if we believe — if we believe that if we are able to get more traffic and if we’re able to make more matches and have more marriages happening through the platform, ultimately we’ll be able to figure out a way to monetize that traffic.

But for a few quarters, revenue will go down and it’s already down 30% over last year. And — but the hope is that our spend will also go down overnight and after a few quarters, we should be in a much healthier position with a lot more users, lot more traffic and a lot more engagement on the platform and then hopefully we’ll figure out a way to monetize at some point in time.

Mohit Motwani — Edelweiss Financial Services Limited — Analyst

So how long do you plan to continue to stream your model for Jeevansathi and what leads us to believe that once we start monetizing this after the free service when — which starts charging, they’re not realistic with the platform, want users to believe that, is it because — maybe well a customer the features and what this is — what is the thought behind that?

Hitesh Oberoi — Co-Promoter and Managing Director

So this model — yes, as far as we are concerned, at this point in time, this model is here to stay. We are not — we are looking to stay free for a long time and they maybe start charging, it is not as if we will sort of pay it again, we will probably figure out other services we charge for and other features and functionalities we charge for over time. Like I said, it’s early days, our hope right now is that this change in strategy will help us get more traffic, more engagement, will enable us to sort of get the network effect going for us and will hopefully make the largest player in this space after a while in terms of users and traffic and engagement. And once that happens, then monetization will follow.

Mohit Motwani — Edelweiss Financial Services Limited — Analyst

That’s helpful. One other question on recruitment rate, so we are blocking a great set of numbers on growth track and this is definitely because of how digitization has become a must today for the enterprises, right. So you’re normalized — over the last 10 years if I see, it has grown at 16%, 17% of compounded annual growth rate. So do you expect this — the current high growth phase to normalize in the next few years or you expect this to — this high growth levers to continue over a foreseeable future?

Hitesh Oberoi — Co-Promoter and Managing Director

See, it’s very hard to say — it will depend on two, three things, one, of course, the IT market. So IT is — in our sense, now close to more than half our sort of revenue. And if the IT market continues to do well, then the business will continue to grow fast, that part of the business. And right now, IT sort of grow our growth, responsible for our high growth rates last year and continues to be. IT hiring has slowed down a little bit in the last one or two quarters, but it continues to be strong. So that’s one.

The second, of course, which impacts our growth is, the economy and how fast the economy grows, went into COVID, the economy has started slow down for the last couple of years before COVID and during COVID also. You can see much growth because the economy was growing at 4%, 5% per annum. So if the economy is sort of — right now we are seeing a surge in growth in non-IT as well because the market is opening up, the businesses were shut because of COVID now they’re back to sort of operating like they used to earlier. But if the economy starts growing faster and it was growing earlier, then that should also help.

The third thing of course, like — which I spoke about is that we are driving better price realization for ourselves because we are sort of helping our clients understand the value that we’re delivering to them and that is helping us realize better prices. And also because the economy is sort of doing well and you mentioned digitization, everybody is going digital, we’re adding more customers and we were adding them earlier.

Lastly, we’ve got these new sort of set of products like I mentioned, Zwayam, DoSelect, IIMjobs and hirist. So we have a much bigger portfolio of products today than we had earlier. And we are hoping and expecting that these new products in our portfolio will continue to grow at a fast rate going forward. Today, they’re of course, proportion of our business, but hopefully they’ll grow much faster than the rest of the business even if there is a slowdown tomorrow.

Mohit Motwani — Edelweiss Financial Services Limited — Analyst

That’s all helpful. Thank you for taking my questions. Thank you.

Unidentified Speaker —

Thank you, Mohit. Next question is from Srinath from Bellwether. Srinath, go ahead and ask your question.

Srinath Vasan — Bellwether Capital — Analyst

Hi, Sanjeev, just wanted to ask you what are your views on the ESOPs that have been issued by the newer tech companies in and around listing and subsequently these ESOPs have seen large write-offs that kick in and of course there’s an accounting ankle to it, but they front ended, but from a good governance practice, in the context of good governance practice and in the context of our ownership in this space, how should one look at these large ESOP issuances?

Sanjeev Bikhchandani — Founder and Executive Vice Chairman

Yeah. So I think it’s important to look at each case separately, okay, for each case with individual. I would not like to generalize. But a couple of things. See, if — first of all, was the disclosure prior to the IPO or during the IPO document or — and the road shows that is — this is the situation this is going to happen or this has happened has been, it’s a prior disclosure. It’s one thing, there was no prior disclosure, is quite minimal. And no prior disclosure is a problem, okay.

The second thing I’d like to point out is that if founders have been diluted too much, right, will they have an incentive to stay for three, five years post the IPO, seven years post the IPO to actually run the ship. And if they hadn’t diluted too much, maybe some amount of ESOP is justified and this may not be just in tens of thousands, just it could run to 1%, 2%, 3%, 4% to the company. And if the dilution was forced upon them simply because of the competitive environment and competition raising too much money and you had to raise an response, then perhaps a more sympathetic view can be taken, which is what has happened in a couple of cases that we were involved in.

The third is — was the right process followed, in writing the ESOP. Did the founder not [Indecipherable] the ESOP or sell the ESOP or was there NRC accomplishing committee where there were no executive directors involved and it was either independents or investor directors. But the entities, who are involved and not relatively a promoter, now those are the touchstones I would use to determine what is the accessible orders not.

Srinath Vasan — Bellwether Capital — Analyst

Thanks, Sanjeev. That was really useful given the confusion as in the listed analysts are finding it a bit difficult to make the bridge, because of the concept of adjusted EBITDA is kind of new to us, so it’s nice of you to share your view. Hitesh, wanted to kind of get an understanding of impact of the tech sector to us now including tech hiring by tech companies as well as tech hiring by non-tech companies like banks and so on. So where is that now and how is that broadly growing?

Hitesh Oberoi — Co-Promoter and Managing Director

So, see, tech hiring was in fire for the last five quarters and attrition rates at most companies beat and talent is hard to get, offers are getting exactly left, right center, all kinds of stories around people getting double, triple, the salary they were getting earlier. So now, of course, the start-up hiring market has slowed down because of what we’re seeing around us but start-ups are not a big part of our revenue stream. Now are we — anecdotally what we are hearing from our sales team, etc is that, tech hiring has slowed down a little bit. Having said so, attrition rates are still recently high at most companies and talent is still hard to get, right.

So it’s not as crazy as it was maybe three quarters back, where companies were — attrition rates were running at 40%, 50% in most companies and offers sort of reduction rates were 70%, 80% and 90%, but it’s still very, very hard to hire in tech and there are still enough jobs in the market for people who are looking. And so — but has it slowed down over the last two, three, four months, maybe it has a little bit. Will it — Is it likely to slow down going — slow down further going forward, I suspect it’s going to be a function of what happened in the U.S.

There’s lot of — there was some talk of a recession in the U.S., and companies became cautious a little. I don’t know whether they are seeing business slowdown, but because of the talk sort of companies became a little careful. If the U.S. market turns and if the U.S. starts growing once again, then who knows, I mean, we may go back to the market we had two quarters back. Very difficult to say what is going to happen going forward. Clearly in the U.S., there is no slowdown in hiring on the non-tech side. So I was in U.S. for a couple of weeks and there are so many people who are [Indecipherable] in the U.S. recently.

There’s a huge shortage of talent in at least areas like retail, hospitality, travel, there’s complete shortage. IT hiring did slow down — I mean, there was some talk of a recession and because the NASDAQ went down by 30% and start-ups by 70%, 80%. There was a sort of whole thing around, tech hiring is slowing down. But my sense is that if the U.S. goes back to sort of growing like it was growing earlier, then the stock will go away and companies, which have become careful, will start hiring once again. But even right now, like I said, it’s not as it’s hiring in tech is easy, it’s still very, very hard.

Srinath Vasan — Bellwether Capital — Analyst

Got it. And it’s still about 60% of our revenues, the tech and non-tech also?

Hitesh Oberoi — Co-Promoter and Managing Director

If you include, the tech guys are getting hired in non-tech companies.

Srinath Vasan — Bellwether Capital — Analyst

It’s still about 60%.

Hitesh Oberoi — Co-Promoter and Managing Director

Yes, it’s still about 60%. If you include the tech guys who are getting hired in non-tech companies.

Srinath Vasan — Bellwether Capital — Analyst

Got it. My last question is on 99acres. So after some understanding of the Policybazaar business model, won’t a business model similar to that, how do you see that kind of fitting in the real estate space where there is a lead generation and then subsequently a call center offline, you know, feet on street where we do our own kind of transactions subsequently build an ancillary landscape in real estate with other tech products that we could sell builders and kind of take a much more ecosystem approach to this, of course, the burns will be significantly probably 5x, 6x higher than where it is now. But would that also translate into us kind of having a significant better pie of the real estate space, any idea on how one should kind of look at a completely holistic approach of working on the industry or just looking at a listings platform, Hitesh, Sanjeev, whoever? I was just curious.

Hitesh Oberoi — Co-Promoter and Managing Director

So that’s a very good question. And you see there are all kinds of players who exist in the real estate space overseas and India as well. There are brokerages, there are marketplaces like ours. We’ve invested in a company called 4B networks, they’re trying the aggregation model, which is very different from any of these models. See, we’ve actually experimented with the brokerage marketing many years ago, we had set up a company called Allcheckdeals and we run that business for a while and then we shut it down.

See our — while you’re right in saying that if we go end-to-end and sort of do the transaction, we can monetize a lot better, but then it’s also more expensive if you go down that path. You have to invest in the sales team, you have to do transactions, you have to sort of — so it’s a different business and different model. Our belief so far has been that perhaps it is possible to create more value in the marketplace model, but then the thing with these models and especially marketplace models is that you have to be the number one player, you have to sort of be a leader in the market.

If you’re a number three player, you won’t create value. And so you have to break away from the rest of the back to be able to create disproportionate value. As a brokerage, perhaps, many brokers can survive in the market and do well, but if you are — if you want to be marketplace and you can create disproportionate value, but then you have to be a leader like we are in Naukri. So, also the models compete with each other. So it’s very difficult to do both. So, for example, if you become a brokerage avatar, our clients may sort of not like it and they may not want to advertise with us. So it’s a choice.

So far, we are of the view that we should look what has continued to sort of invest behind the model, we have sort of have been working on for the last few years. If we have to do anything in — if — so we could make investments in sort of other models like we have invested in 4B networks, but inside the company, we would like to persist with what we’ve been doing for years. It may not be a good idea now to sort of give up on this module and start something from scratch. So that’s — we do believe that it’s going be very difficult to be able to do both.

Srinath Vasan — Bellwether Capital — Analyst

Got it. Thanks, Hitesh and thanks Sanjeev for taking your time off and giving a very detailed answer to all my questions. Thanks a lot. I’ll get back into the question queue.

Unidentified Speaker —

Thank you, Srinath. The next person we have Aditya Suresh from Macquarie. Aditya, go ahead and ask your question.

Srinath Vasan — Bellwether Capital — Analyst

Hi, Hitesh, hi Sanjeev. So thank you so much for the presentation and for your candid responses around the great numbers this quarter. So I have two questions. So firstly, on the Naukri business and I guess the question really is about the sustenance of the strong growth rate and based on kind of what is showing as billings and deferred revenue and the likes. Would it be fair to conclude that what you’re showing a sales that momentum probably sustains at least over the next few quarters? And if so therefore your margins also going to sustain. And I guess the context of what is the question really is that, your EBITDA margin has really been between 50% to 60% and today we’re closer to the beat of your Naukri business. And so, I’m just wondering about the sustenance that EBITDA margin in response to where you’re seeing revenues at? So that’s the first question. I have the second question as well.

Hitesh Oberoi — Co-Promoter and Managing Director

Yeah. So this is one of the great six quarters in Naukri. Last year, it was primarily because of IT hiring this year what we — I mean, in Q1 of this year, our Naukri India B2B business billings grew by 80% actually, right, which is — so even the billing growth has accelerated, we were growing at 60%, 70% then now last quarter, we grew at 80%. Will this sustain? It will not. See, what we’re seeing is non-IT hiring pickup. But there are some murmurs around IT hiring slowing down. In Q1, we saw IT hiring was at peak, non-IT hiring was at peak, which is why our billings grew by 80%. I don’t know what’s going to happen to IT hiring going forward if IT hiring sustains if it continues to be as strong as it was last year. Then maybe we can maintain these growth rates. But it’s a wait and watch situation.

So margins, a lot will depend on how much we want to — so given that you’re making so much money in Naukri, I mean, last quarter I think we generated — last to last quarter, we generated about INR300 crores of cash in the Naukri business this last quarter, which is our weakest quarter actually, our smallest quarter we generated INR230 crores of cash in the Naukri business. So clearly, we can invest a lot more in Naukri. We are, for example, in back in media after a long time, not because we have to be in media, but we think it’s a good idea to sort of be in media and continue to be top of mind in the market.

We are investing behind new verticals like Job Hai and BigShyft, which we are building in-house, these verticals don’t make any money, ambition box, we’re investing in ambition box does not make any money. We are investing behind Zwayam, we’re investing behind First Naukri, we are investing behind DoSelect. These are tiny businesses right now, we’re investing in hirist, again a tiny business. So there are lots of new sort of verticals — adjacent verticals, we are investing behind inside Info Edge. So that when the market slows down, we continue to sort of — these new products continue to sort of get us growth going forward.

So the margins, we can improve our margins substantially, we can grow even 70% EBITDA margin if you stop investing in these businesses. But we’ve taken a call to invest more and — but at the same time, we don’t want to sort of compromise too much in margin, we would like to maintain the margin in a certain range, so that — so there’d be a sort of discipline about it also.

Aditya Suresh — Macquarie — Analyst

Thanks, Hitesh, that’s very clear. And I guess in terms of the other verticals, do you have any updated kind of plan in terms of — if there is any kind of upper limit in terms of the amount of losses you might be able to fund here or does the position remain that I guess we’ll see how it goes and we kind of wait for the consolidation to happen?

Hitesh Oberoi — Co-Promoter and Managing Director

So I think we should — let’s take the Jeevansathi business. So I think we should give it another two, three quarters to play out because we’ve just changed our model. If this model succeeds, if this model succeeds, then our take on the business is that, it may not require the kind of marketing spend we’ve been doing in this space going forward. Because — but it’s a wait and watch. I mean, we don’t know whether this will succeed or not. We’ll have to give another two quarters to see how it goes. We are okay with losing revenue — sacrificing revenue as long as we get the effect going, we get traffic, we get engagement on the platform, we figure out a way to monetize later. So we’re trying to change the game here, but a lot will depend on how competition responds, what happens in over the next two, three quarters. So let’s wait and watch.

Clearly, we don’t want to invest much more than what we were investing last year, right. So the idea here is to change the game, so that we don’t have to make those kind of investments in the business to grow it. So that’s the Jeevansathi vertical. Now 99acres, see — the truth is, we lost some ground in 99acres over the last two years because of COVID and we want to regain the ground. The space has become a lot more competitive, there are many more new — many new players in this space is, no broker, there’s housing, there’s square yard, there are a bunch of other people who are trying. The market is looking good after a long time. So — and we’ve got some things we’re working on and if those — if some of those sort of things work out as planned, then we are hoping that our burn will go down with every sort of passing quarter but those things have to work out. So again, I think we’ll have a much clearer answer on what will happen in this business perhaps maybe three quarters from now.

Aditya Suresh — Macquarie — Analyst

Thanks, Hitesh for your kind responses. Much appreciated. Thank you.

Unidentified Speaker —

Thank you, Aditya. Next we have Vivekanand from Ambit Capital. Vivek, go ahead and ask your question.

Vivekanand Subbaraman — Ambit Capital — Analyst

Yes, thank you for the follow-up. So Hitesh, you said that you will persist with this strategy in Jeevansathi. So what’s your take on the time it takes for this model to scale up traffic without the kind of intensity of A&P that you were doing in the past? I’m asking this question in the context of similar web traffic data which doesn’t really indicate that much of a change in the Jeevansathi domain. I understand that the mobile app data isn’t captured here, but if you could just help us understand how patient you will be with respect to this figure?

Hitesh Oberoi — Co-Promoter and Managing Director

You’re from [Indecipherable] right.

Vivekanand Subbaraman — Ambit Capital — Analyst

No, no, I’m from Ambit.

Hitesh Oberoi — Co-Promoter and Managing Director

Ambit. Sorry. Okay, okay. So, listen, so 90% of the traffic in Jeevansathi is on the app. So the similar EBITDA is not relevance. So now we went free about three months, three and a half, four months back and we have seen an increase in traffic on the app. We are seeing more registrations that is reasonably good word of mouth around the fact that we have three, we are seeing more matches happen on the platform. Now is it enough to change the game? It’s hard for me to say, it’s only three, four months. Have you cut down on ad spend? Little bit, right, from where we have — where we were a few months ago.

But we want to give it a good shot, we want to sort of keep ad spend high for a while, we want to sort of be free for a while and we’re going to see what happens. Now, this may never work out, this could just — this could tail. So there is a caveat, it’s not as we are sort of 100% sure that this model is going to succeed, it could be. But we want to give it a good shot. If it starts to succeed, at least on the traffic front, we will have a clearer answer two quarters from now, right. On the revenue front, it could take longer, because we will have to figure out new ways of monetizing this traffic because if we start to succeed, we would not want to go paid once again. We would like to keep the chat free.

Vivekanand Subbaraman — Ambit Capital — Analyst

That’s pretty useful. Just one additional question in this context. So till now we have only explored a model of subscription for this service. Is it possible to think about say alternative, perhaps advertising or transaction business models there or is it too early to talk about this business?

Hitesh Oberoi — Co-Promoter and Managing Director

See, our teams are thinking about it and there are sort of other models around — if you sort of look at what’s happening in China and sort of other markets. There are some other models. So we are starting those models and we are trying to figure out what we can do here. But like I say, see the short-term focus, focus for the next two, three quarters is traffic growth, more engagement, more matches, more registrations, more monthly active users on the platform. The idea is that so — and like I said, we’ll start worrying about revenue later and we hope is that once we get to that point, we won’t have to spend as — in marketing as we are spending right now.

Vivekanand Subbaraman — Ambit Capital — Analyst

Okay. That part is clear. So just to understand it better, you think that you will reach a stage where you will not have to spend as much in advertising on a sustainable basis. Is that what you mean when you say —

Hitesh Oberoi — Co-Promoter and Managing Director

That’s the hope. If we are free, that’s the strong value proposition and that should drive a lot of sort of traffic on the platform, once it is word of mouth, right. So we look at the word of mouth going, we have to have get more traffic, get more matches happening through our platform and then that creates word of mouth and that automatically gets more users. So now whether that will play out like they expect it to play out and whether it will play out in one quarter or three or six, it’s hard for me to say right now.

What I can tell you is that, we are seeing more traction and we’re seeing three months back. And we don’t have — and we’re not spending as much money as we were spending earlier already.

Vivekanand Subbaraman — Ambit Capital — Analyst

Okay, understood. Thank you very much for the detailed answer.

Unidentified Speaker —

Thank you, Vivek. The next question is from Vijit Jain from Citi. Vijit, go ahead and ask your question.

Vijit Jain — Citi — Analyst

Hi, thank you for the opportunity. My question is on the education business. Just trying to understand with this new business model that you’re trying in there, is there going to be a lot of seasonality here around college recruitment seasons. And overall your $0.02 on how that is evolving?

Hitesh Oberoi — Co-Promoter and Managing Director

So there is no new business model in Shiksha we are following the same model we had, we were following earlier. It’s just that because of COVID the education sort of — seasons have changed. So because of delayed sort of board exams and delayed JE exams and so many other things have been happening. The seasonality shifts a little bit, right. So — and hopefully things will be back to normal by next year on that front. What has changed a little bit in the Shiksha business is that, we are slowly and steadily scaling up our study abroad business, which is a tiny part of our business till sometime back. And we are investing a lot more behind that sort of vertical.

And in that vertical, the model is end-to-end transaction, right. So we actually counts the students and sort of send them overseas, we hand over them and the overseas. Unlike the Shiksha domestic business, which is primarily a lead-gen business, where we sort of generate leads and sell them to customers. And then the customer sort of close on their own, like the 99acres business. So I hope that answers your question.

Vijit Jain — Citi — Analyst

Yeah, sure, thanks, Hitesh. Hitesh my second question is in the recruitment business out, you did mention the non-IT sectors are starting to come back, I mean, the contact based services post opening up. I’m just wondering among the bigger non-IT sectors non-tech hiring which are the ones where you think the momentum is fairly strong. Even when you adjust for the low base of last few years. So is it financial services, is it infrastructure services, which are the categories where you’re seeing growth even versus say in FY ’19 or FY ’20?

Hitesh Oberoi — Co-Promoter and Managing Director

So some non-IT sectors we have done very well over the last few years for us, but tiny sectors on our platform to start with, but I don’t know whether it’s because the sector is doing well, because there’s more digitization and more and more people are moving online. Our sectors like education, sectors like health services, so these two sectors, for example, our JobSpeak Index has gone through the roof over the last two, three years.

Vijit Jain — Citi — Analyst

Right.

Hitesh Oberoi — Co-Promoter and Managing Director

Right. There are some other sectors also, which are doing okay like banking, financial services, insurance but they’re not like on fire. I mean, and like — and if you adjust for COVID etc, maybe they’re okay, they’re like — they were earlier, but some of these sectors have done really well over the last two, three years.

Vijit Jain — Citi — Analyst

Got it. Thanks, Hitesh. Those are all my questions.

Unidentified Speaker —

So we have done with the questions so far. We may wait couple of more 30, 40 seconds if there are more questions, please raise your hand. Vivek, that was the last question we had.

Operator

[Operator Closing Remarks]