There have been talks about how the Indian stock market is largely disconnected from the Economy. Reserve Bank of India Governor Shaktikanta Das in an Interview hinted about an imminent correction in the buoyant stock markets. The reason behind this according to him is the surplus liquidity in the system and the global economy because of which there is a disconnect between the two.
Recently, Info Edge (India) which has a 22.7% stake in Zomato reached a new high this year and is currently trading 6% lower to its all-time high share price. The expectations of better valuations for Zomato was the key reason behind the optimism in the company’s share. Investments in companies like Policy Bazar & Zomato may further increase the valuation of Info Edge given that there is still room for growth. With growing investment in Zomato, an increase in Info Edge’s shares indicates that the investors are capturing a better picture already. However, analysts believe these valuations are on the aggressive side and may lead to the stocks being overvalued in the short run.
The company’s standalone revenue declined 10% year-on-year to 280cr Rs. even as their expenses fell by 44% due to the Nation-wide Lockdown. Although it is been observed that the company’s revenue in the June quarter was helped by deferred revenue growth from previous quarters. This means that the sharp decline in expenses would reflect in the current quarter’s performance. Nonetheless, Info Edge did well on the profitability front with its Earnings before Interest, Taxes & Depreciation (EBITDA) increasing by 3.5%. This was also led by the fact that the company spent less on its advertising and promotion expenses which are expected to increase once things get back to normal.
The company has done well on the capital allocation front. What is left to be seen is how the company picks up on its recovery path going in the future. The company has seen decent recovery trends in July and August. Axis Capital estimates a gradual recovery from the December quarter with an increase in expenses. Nonetheless, the shares have increased by almost 31% this year and are 8% more to their pre-COVID highs of February.
