What makes the companies go from the Accumulation phase to Growth Phase? Info Edge Example!

Recently I was brainstorming on my Concepts canvas about companies that leap going from phase A to phase B (i.e. accumulation to growth). For this, I chose Info Edge my company of choice.

Note: Going from A to B is in terms of Market Capitalisation and increasing shareholders’ returns (multibagger).

The questions that arose!

1. What was going on at “A”?
2. What made the company go from A to B?

Chances of staying in Phase A for a long time?

1. Low Revenue
2. Low OPM
3. Low EPS
4. All of the above
5. Growing Revenue but profits deteriorating
6. Too much CAPEX every year (and profits still don’t improve much)

Things to note:

1. OPM and its growth
2. Sales Growth
3. Profit Growth
4. Leverage — Operating and Financial

Info Edge Analysis

As we can see in the above image, this matches our criteria of going from A to B. The stock moved +200% within the past 5 years. But between Jan 2015 and Apr 2017, its stock price ranged below 1000 and then it lept for another band (i.e. towards 1500).

The real growth jump can be seen between Aug 2018 and Dec2019 where it jumped from ~1250 to 2500+.

Enough of stock price data, what caused the jump in stock prices? After doing the fundamental analysis of the company on Screener.in; I found some key points which caused the jump in market cap.

Reserves: In Mar 2015, the company had reserves of Rs. 1295 cr whereas it now (Sept 2019) has Rs. 2106 cr. Almost a 2x.

CFO: In Mar 2015, cash from operating activities was Rs. 51 cr while on Mar 2019 it jumped to Rs. 276 cr. A 5x jump.

Proceeds from shares: In 2015, the company raised 909 cr through shares. So while the company was growing fundamentally but due to dilution, the share price remained flat.

Capex: In 2015, the company did a massive Rs. 441cr CAPEX (10 times more than the second-largest in a decade), and after that, the CFO numbers have been growing.

Data on X-axis (scribbled) are not accurate.

Then I plotted quarterly and yearly numbers on the graph. Whenever the company announced annual results (ROCE =35% & 45%), the stock price jumped.

But recent quarterly data shows losses. I asked about it on Reddit and one Redditor reminded me of how companies can report losses while investing. I opened their quarterly result PDF (from BSE) and there was a big investment of 665Cr. Below is the snippet from the PDF.

This is the quality of their PDFs (didn’t expect it from an IT company)

They have “invested” their funds into a company called Startup Investment (Holding) Ltd, directors of the company are MD of Info Edge and Wholetime Director of Info Edge. And the third director is also a nominee director of Zomato. And the registered addresses of Startup Investment (Holding) Ltd and Zomato are exactly the same. So we can conclude that this 665cr investment went to Zomato.

If in future, Zomato earns money, Info Edge shall benefit.