Just Dial Ltd.€¦ · 23/12/2019  · Just Dial Ltd. (JDL) is a leading local search services company in India that provides information on various businesses, products and services

21 December 2019INSIGHT

Just Dial Ltd.CMP: Rs 566 Rating: BUY Target: Rs 750

Company OverviewJust Dial Ltd. ( JDL) is a leading local

search services company in India

that provides information on various

businesses, products and services to

users who can provide ratings and

reviews as well. It provides services

through multiple platforms such as

internet, mobile internet, over the

telephone (voice) and text (SMS). Its

internet and mobile internet services

were launched in 2007. Justdial

recently launched the newest version

of its JD App, which is an All-in-

One App, replete with features like

Map-aided Search, Live TV, Videos,

News & Real-Time Chat Messenger,

to make the life of the consumer

infinitely smoother & more engaging. As of Q2FY20, the company is

running ~0.53mn campaigns for paid advertisers and has 27.6mn listings.

Investment RationaleB2B platform could be even

bigger story

Based on a report by consultancy

RedSeer, business-to-business

(B2B) e-commerce market currently

at $1.7 billion, is expected to grow

at 80% CAGR to reach $60 billion

by 2025. In comparison, business-

to-consumer (B2C) e-commerce

market, at $18 billion currently, is

growing at 40% CAGR. The growth

in eB2B will be driven by increasing

digitalization of the economy led by

cheapest cost of mobile data and the

highest amount of data consumed

per smartphone globally. The offline B2B market itself was estimated at

Company Information

BSE Code 535648

NSE Code JUSTDIAL

Bloomberg Code JUST IN

ISIN INE599M01018

Market Cap (Rs. Cr) 3671

Outstanding shares (Cr) 6.5

52-wk Hi/Lo (Rs.) 824.8 / 453.85

Avg. daily volume (1yr. on NSE) 29,77,012

Face Value (Rs.) 10

Book Value 175.8

Promoter 33.0%

DII 8.7%

FII 52.4%

Shareholding pattern as of September 2019

Others 6.0%

STOCK PICKS

22December 2019 INSIGHT

$700 billion in 2018-19 and more than

70% of procurement and distribution

between brands and retailers takes

place through unorganized channels.

Thus, eB2B can play a bigger role to

improve the traditional B2B supply

chain by addressing the pain points

of intermediaries. While the business

model is fundamentally different for eB2B players and B2B classified portals, nonetheless, the target

traffic and enquirers are the same. Although, these eB2B players backed

by private equity are playing a part

in organizing the fragmented SME

market, they are also competing with

these small businesses. Thus, SMEs

in order to compete with these eB2B

players are becoming dependent on

B2B classified platforms, thus in a way these eB2B players are driving

SMEs to go digital. The B2B segment

accounts for 18-20% of the Justdial’s

total revenue and the company

is now focusing on this segment

(around 140,000 businesses) by

leveraging the Search Plus platform

which has several features such

as social platform, news segment

and (RFQ’s) request for quotation

(which is being developed currently).

Management is increasingly looking

at monetization of leads and RFQs

generated on the platform, tapping

into the B2B segment. Justdial already

has feet-on-street force (marketing

& ambassadors) however, what

is missing is product listing and

RFQ. Management expects to bring

product listings and RFQ facility on

the platform by FY20 end. Although a

late comer, Justdial has strong traffic share and brand recall, platform

and feet-on-the-street sales force to

cease the opportunity in B2B space.

New features to enhance

offeringsJDL, with the launch of its advertising

campaign, has also started adding

features—internal messenger and

traffic analytics—to enhance its offerings to paid clients. JDL has also initiated transaction-oriented

services for its users. These services

aim at making several day-to-day

tasks conveniently actionable

and accessible to users from one

App. With this step, Justdial is

transitioning from being purely a

provider of local search and related

information to being a direct/ indirect

enabler of such transactions. Justdial

has also recently launched an end-to-

end business management solution

for SMEs, through which it intends

to transition thousands of SMEs to

efficiently run business online and have their adequate online presence

via their own website, mobile site.

Apart from this, Justdial has also

launched JD Pay, a unique solution for

quick digital payments for its users

and vendors. The company expects

that its renewed focus on tier 2 & 3

cities along with the new services

offerings will enable it to sustain growth and earnings momentum

going forward.

Paid campaigns increasing

Growth in overall listings stood

at 27.6 million as on Q2FY20, an

increase of 16% YoY and 4.2% QoQ.

1,116,042 listings were added (net)

to the database during the quarter.

However, paid campaigns grew at a

healthy pace of 12.4% YoY and 2.6%

QoQ to 528,915 (addition of ~13.6K campaigns QoQ) aided by higher

conversion volume from tier-2/3

cities. Further, JDL faces competition

from Google and other vertical

search engines in tier-2/3 cities but

JDL provides services at lower-cost

than Google AdWords and can still be

discovered online in Google searches

when a searcher clicks on JDL’s link.

Management’s focus on marketing,

mindshare gain, and curated content

has helped revive growth. However,

it is expected that the pricing the

pressure to normalize going forward

albeit, gradually as it hopes for price

increases after selling at lower price

points in T2/T3 cities. Moreover,

management plan to take corrective

measures for underpricing in tier-1

cities which will help in improving

blended realizations going forward.

Strong growth in traffic continues

Overall traffic increased by 22.9% YoY and 3.3% QoQ to 161.3mn.

Mobile traffic increase by a faster pace at 29.2% YoY with mobile now

constituting 80.5% of overall traffic.

Just Dial Ltd. 3 year Price Chart

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Volume (000's) (RHS) Just Dial

Overall traffic increased by 22.9% YoY and 3.3% QoQ to 161.3mn. Mobile traffic increase by a faster pace at 29.2% YoY with mobile now constituting 80.5% of overall traffic.

23 December 2019INSIGHT

Within mobile traffic, mobile website constitutes 90% of total with the

remaining traffic coming through the app. Reliance on Google to attract

traffic remains unchanged with only 25% of traffic having organic recall (~8% through app, 5% through voice and remaining through mobile and

desktop websites) with the remaining

75% coming through search engines

including Google. However, >20%

YoY growth in unique visitors for

eight consecutive quarters despite

Google showing its own results for

local search and significant spends on sponsored search by vertical focused

players speaks to the superior SEO

rankings of Just Dial in particular and

resilience of the business model in

general. Also, Just Dial’s willingness

to spend more on digital advertising

(Google, YouTube, Facebook) in

addition to TV and in Theatres is

encouraging, which should help

sustain growth in traffic.

Q2FY19 Result Review

Just Dial reported 9.7% YoY revenue

growth in Q2FY20 to Rs. 242.6 crores

as paid campaigns growth (12.4%

YoY) was partially offset by 2.9% YoY decline in realisations. Operating

EBITDA at Rs. 67.2 crores witnessed

growth of 17% YoY. The reported

EBITDA margin expanded by 170bps

YoY due to lower ESOP expenses

and cutting down of the field force. However, the margin was partly

impacted by higher A&P spends.

Adjusting for IND-AS 116 change,

margins were 80bps lower YoY at

25.2%. PAT stood at Rs. 76.9 crores up

59% YoY, due to significantly higher other income (140% YoY) aided by

MTM gains on investments (due to

decline in bond yields). Reported tax

rate was 20% versus 28% in Q1 due to

the recent reduction in corporate tax

rates. The unearned revenue growth

continued to taper down, falling

down to a mere 1.5% YoY (below the

25% YoY average growth reported in

last 5 quarters). While management

mentioned that this was primarily

due to selling of more monthly plans

to SMEs. Cash and Investments stood

at Rs. 1,468.4 Crores as on September

30, 2019 compared to Rs. 1,397.1

Crores as on June 30, 2019.

Key Risks: Increasing competition in internet

space

Slower than expected growth in

paid campaigns and traffic

Significant decline in realizations

due to penetration in the tier 2/3

cities

ValuationJust Dial is a leading local search

services company in India. The

company will focus on B2B segment

(around 140,000 businesses) by

leveraging the Search Plus platform

which has several features such as

social platform, news segment and

RFQ’s. The company is registering

healthy growth in paid campaigns

and overall traffic which are the main revenue drivers. Further, the

company has introduced various new

features to enhance offerings which is expected to help in enhancing

performance. Since growth in unique

leads served to paid customers is

significantly higher than the increase in price per paid campaign, RoI on

ad spends for paid customers is

increasing significantly, which should help sustain growth. We remain

optimistic on JDL’s potential to

sustain high revenue growth on the

back of its strong user engagement

matrix and focus on B2B e-commerce

market. EBITDA margin is expected

to improve further given high

operating leverage. Considering the

company’s robust cash generation

and high returns ratios, we believe

the stock is trading at an attractive

valuation with P/E of 13.9x FY21E EPS

which is 25% discount to its three-

year average PE multiple. Hence, we

recommend BUY with a target price

of Rs 750 from 12 months investment

perspective.

Particulars (in Rs Cr) FY18 FY19 FY20E FY21E

Net Sales 781.8 891.5 981.5 1070.9

Growth (%) 8.8 14.0 10.1 9.1

EBITDA 163.2 221.9 267.0 294.5

EBITDA Margin (%) 20.9 24.9 27.2 27.5

Net profit 143.2 206.9 253.2 266.6

Net Profit Margin (%) 18.3 23.2 25.8 24.9

EPS (Rs) 21.2 31.9 39.0 41.1

Source: Consensus Estimate: Ashika Research

The company is registering healthy growth in paid campaigns and overall traffic which are the main revenue drivers. Further, the company has introduced various new features to enhance offerings which is expected to help in enhancing performance.

84December 2019 INSIGHT

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