JUST DIAL :RIGHT TIME TO DIAL

Indian e-commerce segment has been quite abuzz in the last few years. The increased penetration of telecom and most importantly the internet in reality has created lot of opportunities for the online retailers and related business segments. The important factor to be noticed is the interest shown by private equity players in these stocks. The recent multi-million dollar deals bagged by some of the companies indicate the same. Rather these are the companies that are said to revive the Indian IPO markets.

However, while the entire markets are abuzz about these e-commerce companies, one similar company is witnessing something opposite. While most of the e-commerce companies had a good traction, Just Dial actually corrected by more than 40 per cent from its 52 week high levels in less than two months. Moot question here is, if the industry fundamentals are strong, then what affecting the counter on the bourses is. Especially in a scenario when most of the global stocks in the similar sector are doing well on the bourses.

Investors might be curious to know if anything fundamentally has gone wrong with the company resulting in such a decline. The fall is more questionable as Just Dial was one of the few recent IPOs that not only managed to get good subscription, but also generated excellent returns for the investors over its offer price of `530.

Reasons Behind The Fall

If we take a deeper look at the reason that actually triggered the decline of the counter on the bourses, it has hardly anything to do with the financials of the company. It was the possible exit of private equity players as one year lock in period for them ends on May 31, 2014, that has triggered the sell-off in the scrip. To put the figures in perspective, the private equity players hold around 41 per cent of the total equity and with handsome gains garnered over the period there is high possibility that these investors would like to book profit and look for an exit route. With such a strong supply expected in open market, it is no wonder that the stock took a nosedive on the bourses.

However, it is a just a short-term phenomenon and in long term it is the fundamental factors that guide the movement of the scrip. With the stock declining more than 40 per cent while the broader market only moving northwards, many would be confused about whether to buy the scrip now as it has declined significantly or there is still some down side left going ahead?

Now one cannot answer to this question in a simple yes or no, especially when the business is a bit complex. However, there are few positives that may guide the investors to buy the stock. First factor is that the company is getting a good traction on the newly launched Search Plus Services platform. The management has stated that 17 services are already online and there are plans to monetise the same going forward. Apart from that, CLSA which is one of the largest foreign brokerage and research house has turned positive on the stock and added it to its long term portfolio.

Understanding The Business

 Just Dial is a B2C (Business to Consumer) digital medium enabler of local commerce. Enablers’ revenue is generated through vendor charging them a listing fee. Just Dial competes with newspapers, online B2C general classified websites and Google. What keeps Just Dial ahead is its pricing methodology is the fact that it is much more dynamic than print media, as it considers the type of business and location.

 Hence, for example a dentist in a city centre

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would be charged more than the one on the outskirts of the city or a restaurant service in the city centre would be charged more than a garage in the similar location. On the other hand, print media differs on the size of the listing and location, which are more city-specific, rather than on micro-locations in a city. Just Dial’s service platform and content base are diverse, up-to-date and way ahead of the competition. User experience on Just Dial’s local search service is unmatched and in FY14, its business listings were at 11.80 million which is a significantly ahead from its peers.

With accessibility across three platforms viz -voice, web and mobile the company has an advantage. The company has a presence in most cities and towns of India, with hotline facilities in nearly 250 cities and towns. On the business listing, VSS Mani (Managing Director, Just Dial) stated that, “There has been good traction on the business listing side and next year we are expecting around 14 million business listing”. To achieve the same Just Dial is adding a considerable sales force. While it added 1000 in FY14, the management stated that it is planning to add similar number this year also.

For Just Dial (JD) Users and Usage are revenue growth drivers, not paid listings. Just Dial earns its revenue by charging premium listing fees from its clients. Th e clients would pay only when there is strong user traffi c on Just Dial’s platform for inquiries, which can help them to convert the same into business. Just Dial’s revenue model factors in one single variable: the number of searches done across the platform. Hence, higher searches would lead to higher potential business for clients, which in turn, should further lead to an increase in premium listings or rise in average listing fees.

Search Plus Services–Next Story

While there is a possible risk of being general in vertical specifi c arena, the company in the past has managed to pre-empt on the technology as well. And now the company has introduced the platform called Search Plus Services. According to management around 17 services have gone online which includes ordering food online, online wine orders, booking a restaurant table, doctor’s appointment, lab test and online flowers and bouquet orders being the leading ones. Though the services have gone online, company is yet to start monetising the same. The management stated that very soon but at optimum time we would go ahead to monetise the same.

We feel the service provided by Just Dial has an added advantage over other players, as it provides live and competitive quotes from the local vendors. This provides a confidence to the buyer rather than buying online. Hence, we feel going ahead the company would depend a lot on the Search Plus Services for growth. Here the management categorically stated that, though it is a value added segment, it is unlikely to impact the current business model of the company.

Other Growth Strategies

The company has been focusing on broadening the geographic reach across India. The results could also been seen from the fact that the revenues from the Tier II and Tier III cities have actually increased to 9 per cent in FY14 from the levels of just 7 percent in FY13. Earlier the company was more dependent on the NCR and MMR Regions. The geographical spread augurs well for the company. The company is also looking to tap the growing SME base. The SME segment has lot of potential and being a local search engine Just Dial has an advantage over other players. It is also looking to enhance the user experience by providing new technology.

The newly added Just Dial Map Services is one such attempt. The company has stopped using the Google Map Services and has developed its own services. Though the company is unlikely to monetise it, the user experience surely enhances with it. Further focus on branding would be provided. However, the management stated that clarity on advertising expenses would come in the next quarter only. But it would not be more than `25 crore as management suggested. On the capex front, it spent `10 crore in FY14. For FY15 the capex is estimated at around 4 per cent of operating profits.

Financial Performance

As for financial performance of the company the FY14 performance has been good where the topline has increased to `461.29 crore as against `362.77 crore in FY13. Th e best part is PBIT margins (excluding other income) for FY14 have increased to 27.07 per cent from the levels of 23.82 per cent in FY13. Th e net margins have also increased to 26.14 per cent from the levels of 18.87 per cent in FY13. Th e impact of value added services is clearly visible at the operational levels as well as bottomline levels. With improved margins the PAT for FY14 increased to `120.61 crore as compared to `68.48 crore in FY13.

As for FY15 also the company is expecting a growth rate of around 25-28 per cent in revenues with sustained margins (or even higher margins). On the valuation front the scrip with EPS of `17.11 for FY14 discounts the CMP by 65x. This seems to be a bit higher, but with good amount of earnings traction expected in the counter, we feel the valuations are likely to moderate over the period. We recommend the readers to accumulate the stocks at current levels