Just-Dial Motilal 050613

8/13/2019 Just-Dial Motilal 050613

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The right numbers

Just Dial

Initiating Coverage | 4 June 2013

Sector: Technology

Investors are advised to refer through disclosures made at the end of the Research Report.

Niket Shah([email protected]); +91 22 3982 5426


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Just Dial: The right numbers

Page No.

Summary .......................................................................................................... 3-5

Investment rationale ...................................................................................... 6-8

Unique listing packages to suit SME needs ................................................. 9-10

Monthly and weekly payment system ...................................................... 11-12

Strong sales and market network ............................................................. 13-14

Innovation key to drive paid advertiser base .......................................... 15-16

MSMEs growing in double digits; turning to online advertising ............ 17-18

Internet penetration in India to triple in five years ................................ 19-20

Telecom revolution a key growth enabler ......................................................21

Margins to expand with higher contribution from Internet, mobile app ...22

Financials impressive; to get even better ................................................. 23-24

Possible upside of over 20% ....................................................................... 25-26

Management details ......................................................................................... 27

Key risks ............................................................................................................. 28

Company description ........................................................................................ 29

Financials and valuation ............................................................................. 30-31


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Just DialIssue price: INR530 TP: INR660 BuyBSE SENSEX S&P CNX

19,546 5,919

Initiating Coverage | 4 June 2013

Sector: Technology

3

The right numbersMonopoly in voice search; healthy return ratios justify premium valuation

First mover advantage, strong brand, updated and accurate data base are key entry

barriers.

Substantial part of Just Dial Ltd (JDL) revenue (70%) is from repeat advertisers, a

testimony of brand recall.

Introduction of Evergreen contracts (50% of paid advertisers) to help increase the paid

subscribers base and pertinently act as a big entry barrier for new entrants.

Newer product launches like enabling transactions, car listings, quick quotes etc to not

only drive campaign growth, but might develop into a non-linear revenue growth

model, going forward.

On account of the shift in search mode from voice-based to Internet (49% in FY12 to

51% in FY15E) and mobile-based search (5% in FY12 to 19% in FY15E), we expect

employee cost to fall from 50% of sales in FY12 to 45% in FY15E, thereby improving the

operating margin.

At issue price of INR530 the stock is trading at 33.8x and 24.7x FY14E and FY15E EPS of

INR16 and INR22 respectively. We value JDL at 30x FY15E EPS of INR22 and arrive at a

target price of INR660, an upside of 25%. We initiate coverage with a Buy.

Strong brand with first-mover advantage complimented by strong database

JDL has a first-mover advantage among consumers seeking information on localbusinesses backed by 16 years of experience in this segment. Company has a

strong database of 9.1m listings and SME database of more than 2,000 cities,

significantly ahead of competitors. JDL has easy to remember phone numbers,

which have a very strong recall and a well-known established brand on the Internet

now. Substantial part (70%) of JDL revenue comes from repeat advertisers of the

year-ago period, which indicates higher returns generated by advertisers.

According to alexa.com, the globally renowned web analytics company,

justdial.com is ranked No. 40 among the top websites in India and as a top site in

its category. We believe a strong brand, first-mover advantage, updated and

accurate database and strong relationship with SMEs are key entry barriers in the

business.

Weekly and monthly payment packages - a masterstroke in our view

Paid advertisers can opt for premium or non-premium advertisement packages.

Premium advertisement packages (platinum and diamond membership packages)

allow preferential listing of these advertisers ahead of non-premium (Supreme

packages) and free listing. JDL has ~9.1m listed advertisers as in FY13, of which

195,000 are paid advertisers as on December 31, 2012. To reduce the stress on

SMEs and increase the percentage of paid subscribers as a proportion of total

listings, it came out with weekly/monthly advance payment packages (Evergreen

contracts) for all its packages, instead of the earlier 12 months advance payment

packages. Evergreen contracts constitute ~50% of JDL's 195,000 paid advertisers.

4 June 2013

Shareholding pattern

Particulars Pre IPO Post IPO

Promoter 37.1 33.1

PE Inventors/

Venture capital 60.5 39.5

SAIF 19.7 11.2

Tiger global 19.9 13.4

Sequoia 18.4 13.8

SAP Ventures 1.6 1.1

EGCS 0.9 0

Employees 2.3 2.3

Public 0 25

Total 100 100

Source: Company

Issue details

Issue size 17.5

Issue opens on May 20th 2013

Issue closes on May 22th 2013

Price band 470/543

Pre issue paid

up capital (m) 69.4

Post issue paid

up capital (m) 69.4

Post issue

MCap (INR m) 37,708

Face value 10


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We believe this helps to increase the paid subscriber base and most importantly act

as a big entry barrier for any new entrant/existing competitor. We also expect this

move to substantially improve the percentage of paid advertisers from 2.4% in FY12

to 3.1% in FY15E, thereby driving growth.

New products launches to enhance customer experience and drive

campaign growth

JDL launched the first phone-based search engine in India in 1996, Internet and

mobile services in 2007 under the Justdial brand. Since then it unveiled newer

innovative products like Best deal, reviews and ratings, tag your friend, Justdial

events etc. As in FY13, JDL had 23m reviews and ratings on its website, compared to

7.4m reviews and ratings published in FY12. With the aim to be a one-stop solution,

JDL plans to launch newer products like enabling transactions, car listings, quick

quotes etc. While these launches will not only drive campaign growth due to higher

offerings to paid advertisers, but we believe going forward the company might charge

a nominal fee, thereby developing a non-linear revenue stream.

Strong sales and marketing team complimented by resellers program to

help expand data in newer markets

JDL has a strong sales and market network comprising of 7,342 employees in end-

FY13, of which ~80% of the total workforce is client facing. Once the contract is

signed, company incentivize by paying 2% of the contract value to IRO who transfers

the call to the tele sales executives, 2% to the tele sales executive and 4% to the

marketing person for convincing the client to take up paid listing on JDL. To develop

data base in newer markets, while minimizing costs and expenses, JDL initiated a

reseller program whereby third parties collect and provide new entries to JDL's

database for a payment. Company charges a one-time registration fee of INR5,000

and an annual fee of INR1,000 from the reseller. This relationship with resellers

enables JDL receive new listings and potential paid advertisers in newer markets

without additional manpower.

Increased contribution from Internet and mobile platforms to drive

margins higher

Netscribes, a research firm, expects the classifieds market to grow from INR37.4b in

FY12 to INR84.3b in FY16E, with online classifieds set to improve from 42.3% in FY12

to 46.9% in FY16E, thus cumulatively increasing the potential market for JDL from

INR15.8b to INR39.4b over the next five years, marking a CAGR of 26%. JDL's cost for

a voice call is ~INR2.7 per call, which in case of Internet and mobile application is

very negligible. JDL developed its application, Master App, for Android mobile

phones and iPhones in April 2013 and is in the process of developing it as an

application for Blackberry and Windows Phone 7. Due to the shift in search mode,

from voice-based to Internet (49% in FY12 to 51% in FY15E) and mobile-based search

(5% in FY12 to 19% in FY15E), we expect employee cost to fall from 50% of sales in

FY12 to 45% in FY15E, thus improving the operating margin.


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Valuation and view

We expect the company to post revenue CAGR of 33% over FY12-15E, complimented

by 560bp margin expansion on account of a shift in search mode from voice-based to

Internet and mobile-based search, thereby improving the operating margin.

Consequently, we expect 43% PAT CAGR over FY12-15E. Given that JDL is in a highgrowth phase, complimented by asset light business model, virtual monopoly in

voice search segment, negative working capital cycle, high free cash flow, strong

dividend payout and healthy return ratios, we believe the premium valuation is

justified. At issue price of INR530 the stock is trading at 33.8x and 24.7x FY14E and

FY15E EPS of INR16 and INR22 respectively. We value JDL at 30x FY15E EPS of INR22

and arrive at a target price of INR660, an upside of 25%. We initiate coverage with a

Buy.

Comparative valuation: International (USD b)

MCap Sales EBITDA EBITDA margins (%) PAT

(USD b) CY11 CY12 CY13E CY14E 5 Yr CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E 5 yr

CAGR % CAGR %

Google 288.4 37.9 50.2 47.4 55.0 17.0 13.6 15.7 21.5 25.5 35.9 31.3 45.4 46.4 9.7 10.7 15.7 18.1 20.8

Baidu 33.8 2.2 3.5 4.9 6.3 52.3 1.3 2.0 2.2 2.8 58.4 56.3 45.7 44.4 1.0 1.7 1.8 2.2 43.4

Yahoo 28.5 5.0 5.0 4.5 4.7 -7.4 1.5 1.5 1.7 1.7 29.6 29.2 36.7 37.1 1.0 3.9 1.5 1.6 6.9

Linkedin 18.5 0.5 1.0 1.5 2.1 71.7 0.1 0.1 0.4 0.5 13.2 14.1 24.4 25.6 0.0 0.0 0.2 0.3 101.3

Yelp 1.9 0.1 0.1 0.2 0.3 59.7 -0.01 -0.01 0.02 0.05 -14.3 -7.5 10.4 15.9 0.0 0.0 0.0 0.0 n a

Comparative valuation: Domestic (INR b)


(INR b) FY12 FY13 FY14E FY15E 5 Yr FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E 5 yrCAGR % CAGR %

Info Edge 37.1 3.9 4.7 5.5 6.7 20.3 1.2 1.2 1.5 1.9 30.2 25.7 27.1 28.7 1.0 0.9 1.3 1.6 26.0

Just dial 37.7 2.6 3.7 4.8 6.2 35.3 0.7 1.0 1.4 1.9 25.7 27.8 29.6 31.3 0.5 0.7 1.1 1.5 52.0

Source: Company, MOSL

International (USD b)

CF from Operation CFO/EBITDA ROE (%) PE (X)

CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E CY14E

Google 14.6 16.6 18.0 21.4 107.2 105.7 83.8 83.7 18.7 16.5 17.8 17.7 16.3

Baidu 1.3 1.9 1.8 2.1 96.7 95.5 80.5 76.0 56.0 50.6 34.8 31.2 15.8

Yahoo 1.3 -0.3 1.3 1.2 89.9 -19.3 77.5 69.8 8.4 29.1 10.6 10.1 17.6Linkedin 0.1 0.3 0.3 0.5 193.5 195.4 93.7 83.8 3.7 2.8 10.8 15.1 80.6

Yelp 0.00 0.00 0.01 0.03 -2.1 1.0 51.9 66.5 n a n a 1.6 12.6 75.1

Domestic (INR b)


FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY15E

Info Edge 1.0 0.8 1.3 1.6 85.1 64.5 88.7 83.8 21.5 16.1 19.6 20.3 23.2

Just dial 0.9 1.3 1.8 2.4 134.1 129.5 127.1 122.7 52.3 25.0 21.7 25.8 24.7



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Investment rationaleHuge entry barriers lead to low competitive intensity

JDL has a first-mover advantage among consumers seeking information on local businesses

backed by 16 years of experience in this segment with most competitors being

unsuccessful to scale up.

It has a strong database of 9.1m listings and SME database of more than 2,000 cities,

significantly ahead of competitors. In terms of number of listings, the second largest

player, Askme, is 1/3 the size of JDL.

JDL has easy to remember phone numbers, with a very strong recall, and a well-known

established brand on the Internet.

Company has a strong, direct and personal relationship with SMEs, which is unique

compared to international search engines that operate in India largely on a virtual basis.

First-mover advantage in the Indian local search market complimented bystrong database

As one of the first companies to offer comprehensive local search services in India,

JDL has a first-mover advantage among consumers seeking information on local

businesses backed by 16 years of experience in this segment. Competitors like Getit

(established in 1986), Sulekha.com (1998), Asklaila (2007), Askme (2011), Yellow Page

services and Google though made an entry into the local search engine space, were

unsuccessful and unable to achieve any meaningful scale in the business, with most

of them making losses.

Competition at bay in listings and reach...JDL has a strong database of 9.1m listings and SME database of more than 2,000 cities,

significantly ahead of competitors. In terms of number of listings, the second largest

player, Askme, is 1/3 the size of JDL. We believe the biggest strength of JDL is

maintenance of its database by keeping it updated and accurate through feet-on-

street, and also direct and personal relationship with SMEs coupled with its strong

voice-based search option, which is difficult to replicate by competitors. We also

believe that a large database of local business listings, such as the one JDL has

developed over several years, requires considerable time and effort to develop,

which creates a significant barrier to entry.

Profile of competitors

Name of the Year of Platform Database Listing Ranks Time spent Page

website inception coverage (M) among on the views

(cities/ Indian website(min) per user

towns) websites (last 3 (last 3

months) months)

Getit.com 1986 Voice, online and print ~35 n a 883 2.4 2.7

Just dial 1996 Voice, online, SMS, mobile, internet ~2000 9.1 40 5.5 5.0

Sulekha.com 1998 Online ~60 2 51 3.2 3.2

Ask la i la 2007 Online, SMS ~1700 n a 161 2.3 2.8

Askme 2011 Voice, online and print ~525 3 784 2.4 2.7

Source: Alexa.com, MOSL


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Website analysis

Just dial.com Asklaila Zomato.com Adkme.com Sulekha.com Burp.com Yelp.com

Traffic rank (Global) 565 2,118 2,717 9,765 672 4,585 192

Traffic rank (India) 40 162 209 865 53 353 n a

Unique visitors per day (M) 0.86 0.53 0.04 n a 1.1 n a 3.18

Daily page reviews (M) 3.96 1.53 0.75 n a 3.39 n a 11.94

Time on site 5.46 2.33 15.37 2.4 3.2 3.33 4.2

Inflow from search engines 22.4 25.1 11.1 23.3 21.9 20.3 38.7

Source: Alexa.com, MOSL

Strong brand recognition with easy to remember phone numbers...

JDL launched the first phone-based search engine in India in 1996 under the Justdial

brand and then launched its Internet and mobile services in 2007. Though it started

with two cities, Mumbai and Delhi, today services are available across India. JDL not

only has easy to remember phone numbers (88888 88888 and 6999 9999), which have

a strong recall, it has a well-known established brand on the Internet now. JDL hasmeasurable matrics to track search leads generated through internet. Its strong brand

recognition is on account of: 1) long standing presence in local search market, 2)

strength and quality of database, 3) fast response to search queries and 4) consistent

delivery of quality user experience.

According to alexa.com, justdial.com, is ranked No. 40 among the top websites in

India and the top site in its category. Even a very niche data search service provider

such as burp.com and zomato.com and competitors like Askme, Asklaila lag JDL. The

dominance of JDL is visible from that fact that total searches showed a 45.7% CAGR

over FY09-12 at 254.3m. It has also signed cine star Amitabh Bachchan as its brandambassador for a period of three years, starting December 2010, to improve brand

recall and popularity.

Number of searches on JDL (m) Share of Internet and mobile rises



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Strong direct relationship with SME

JDL has developed strong relationship with SME businesses over the past 16 years

through its first-mover advantage and unique advertising proposition. It is a cost

effective platform for SMEs that face a challenge to attract the attention of right

target consumers and expand into newer markets due to limited marketing budgetsand resources. With the data collection team canvassing local markets, JDL establishes

direct relationships with many SMEs. On identifying potential advertisers, marketing

executives meet the SME to explain the ease and benefits of advertising and to convert

business listings into paid listings. JDL's direct and personal relationship with SMEs is

a unique way it differentiates from international search engines which operate in

India largely on a virtual basis. JDL has 9.1m listings, as in FY13, with 195,000 campaigns

i.e 2.4% paid advertisers of the total listing as in December 2012.


Total number of listings on JDL (m) Number of campaigns on JDL

Highest reach in

terms of users, towns

and SME penetration

enables the company

to create strong entry

barriers and enter the

virtuous cycle

JDL on the cusp of a virtuous cycle

Higher Business

Listing & Campaigns

Free Access to

Information

Larger User Base &

Higher Eyeballs



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Every business has a right to list for free on JDL, known as free listings, and businesses

which choose to pay for a listing to be featured on a priority basis in search results are

called paid advertisers. Paid advertisers can opt for premium or non-premium

packages. Premium advertisement packages (platinum and diamond membership

packages) allow preferential listing of these advertisers ahead of non-premium

(Supreme packages) and free listing. JDL has ~9.1m listed advertisers as in FY13, of

which 195,000 are paid advertisers as on December 31, 2012.

Effective showcase of products and services for SMEs - added value

proposition for SMEs

All businesses listed with the company are able to upload logos, pictures, videos and

product catalogues to enhance their campaigns and effectively showcase their

products and services. JDL also verifies the name of each business listed with it, thecontact details, website (if any) as it exists and also at the time the advertiser signs

for a campaign with the company. It also confirms that the advertiser offers the

products or services mentioned on the date of signing the campaign. JDL uses its

proprietary pricing algorithms (pricing engine) to set the price range for various

membership packages depending on the keyword and locality.

Company offers annual and long term automatically renewable memberships to paid

advertisers. Annual memberships are paid in advance on a monthly or annual basis,

while long term automatically renewable memberships are paid in advance on a

monthly basis and can be terminated after nine months by providing three month'sadvance notice. Features of its membership packages are as follows:

Premium advertisement package

Premium advertisement comprises of (in order of priority) platinum and diamond

membership packages. For example, when users search for listings in a given category

or a specific geographic location, JDL's platinum members are listed first in the search

results followed by diamond members in the second place, ahead of non-premium

members and free listings on all available media. Premium members also enjoy the

flexibility to purchase part of the inventory for a given category -- they may choose to

purchase a fixed percentage of leads for a given category. The remaining leads arethen sold to other members who wish to purchase part of the position allocated to

the type of premium membership held.

Unique listing packages to suit SME needsPaid advertisers can opt for premium or non-premium packages

Paid advertisers can opt for premium or non-premium advertisement packages. Premium

advertisement packages (platinum and diamond membership packages) allow preferential

listing of these advertisers ahead of non-premium (Supreme packages) and free listing.

All businesses listed with JDL are able to upload logos, pictures, videos and product

catalogues to enhance their campaigns and effectively showcase products and services.

JDL uses its proprietary pricing algorithms (pricing engine) to set the price range for

various membership packages depending on the keyword and locality.


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Non-premium advertisement package

In non-premium advertisement, when users search for listings in a given category for

a specific geographic location, the listings of non-premium advertisement package

enjoy priority in the search results over free listings on all available media. The number

of leads, the number of times the business listing is displayed or featured to users, isproportional to the price of the package and the number of members in such category;

the more expensive the package, the higher the number of leads generated. JDL's

non-premium advertisement package members currently pay annual/monthly/weekly

subscription fees, which vary depending on the category, geographic region, number

of leads and the tenure of campaign.


Classification of business listings


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Monthly and weekly payment systemA masterstroke in our view

Substantial portion (70%) of JDL's revenue comes from repeat advertisers of the year ago

period, which indicates higher returns generated by advertisers and strong brand recall.

Weekly/monthly packages are called Evergreen contracts and constitute ~50% of JDL's

1,95,000 paid advertisers. Likely to improve to 80% over next 3 years thereby leading to

improvement in average realizations.

Evergreen contracts not only helps in increasing the paid subscriber base but most

importantly act as a significant entry barrier for any newer/existing entrants.

Substantial portion (70%) of JDL's revenue comes from repeat advertisers of the year

ago period, which indicates higher returns generated by advertisers and strong brand

recall. Earlier, JDL was taking advance payment of around one year from paid

advertisers for premium (Platinum/Diamond) packages and non-premium packages

(Supreme). Higher upfront payment exerts pressure on advertisers' RoCE as most of

them are SMEs. To reduce the stress on SMEs and to increase the percentage of paid

subscribers as a proportion of total listings, it came out with weekly/monthly advance

payment packages for it's all its packages. These weekly/monthly payment packages

are called Evergreen contracts.

Evergreen contracts, introduced in FY09, now contribute ~50% of 195,000 paid

subscribers. Monthly/Weekly payments to JDL provide better comfort to advertisers'

cash flow and also improve their return on investment. It also provides better visibility

on advertisement expenditure and revenue generation, thereby leading to a shift

from free listings to paid listings. With contribution from Evergreen contracts expected

to reach 80% over the next three years, we believe it will cushion the fall in average

realization caused due to an entry in newer markets.

We believe this is the management's masterstroke as it not only helps to increase the

paid subscriber base but pertinently acts as a huge entry barrier for new entrant/

existing competitor who will find it unviable to offer a similar package due to lack of

search requests in comparison to JDL (267.2m at end-9MFY13). We expect this to reduce

the churn in existing advertisers and lead to higher number of new advertisers. We

also expect substantial improvement in the percentage of paid advertisers from 2.4%

in FY12 to 3.1% in FY15E.

Share of platinum advertisers' percentage of total paid campaigns to increase

going forward

When a consumer enquires for a particular category of service through a phone call,

generally a list of seven service providers in that category is sent by SMS. Of this, two

names remain fixed i.e. of Platinum being first and Diamond member being the

second. The other four change on a rotation basis and depending on the number of

paid advertisers in that category and the type of package. A similar method applies to

the search on JDL's website.


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Premium listings increase... to help maintain average realization per campaign


To accommodate higher paid members, JDL removed the Gold membership so that

only two members remain fixed on every search, while five change on a rotation

basis. Going forward, we believe Diamond membership could be removed, resulting

in only Platinum and other non premium packages. This should not only lead to

substantial addition of paid advertisers but also an increase in pricing of Platinumadvertisers, which increased from 16% of total paid campaigns in FY11 to 22% in FY13.

Higher contribution from Tier II, III cities and entry into newer markets to

drive growth

JDL derives 37% of its paid listings from Mumbai and Delhi and 92% from top 11 cities.

Management expects contribution of top 11 cities to fall to 80-85% over the next few

years primarily due to higher traction from other markets (Tier II, III cities) and faster

growth due to a lower base. We believe the average realization in these newer markets

(Tier II, III) is likely to be lower as JDL's pricing differs geography-wise. While entry

into newer markets is likely to exert pressure on average realizations, the increasedpricing in Platinum segment complimented by increase in share of evergreen contracts

is likely to hold the decline in realizations. We have modeled 150bp reduction in

average realization in FY14E and FY15E respectively, but expect 50bp and 30bp

improvement in paid subscribers percentage of total listings in FY14E and FY15E

respectively, thus driving higher growth.


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JDL had a strong sales and marketing team comprising of 7,342 employees (1,837 IRO,

2,707 tele sales executives, 944 feet-on-street executives) in end-FY13, of which ~80%

of the total workforce is client facing. Company has a team of marketing executives

called "Just Dial Ambassadors" (372 as in FY13), whose principal objective is to educate

SMEs about its services. These executives are located in Ahmedabad, Bengaluru,

Chandigarh, Chennai, Coimbatore, Delhi, Hyderabad, Jaipur, Kolkata, Mumbai and

Pune.

Motivating incentive structure to increase paid advertisers base

Firstly, the IRO/tele sales executive makes initial contact with existing or potentialpaid advertisers via telephone.

When the existing or potential paid advertiser expresses an interest to upgrade

the membership package or advertising to the tele sales executive, JDL sends its

feet-on-street executive to meet the advertiser.

When the owner of a business registers with JDL online, company's tele sales

executive contacts the entrepreneur within 24 hours to register the listing, inform

the benefits of paid advertising and, if accepted, to assist in the selection of an

ideal membership package.

Post signing the contract, JDL pays 2% of the contract value to IRO who transfers

the call to the tele sales executive, 2% to the tele sales executive and 4% to themarketing executive for convincing the client to take up paid listing on JDL.

Strong sales and market network~80% of the total workforce is client facing

JDL had a strong sales and market network comprising of 7,342 employees (1,837 IRO,

2,707 tele sales executives, 944 feet-on-street executives) in end-FY13, of which ~80% of

the total workforce is client facing.

Once the contract is signed, company pays 2% of the contract value to IRO who transfers

the call to the tele sales executive, 2% to the tele sales executive and 4% to the marketing

executive for convincing the client to take up paid listing on JDL.

To develop and update data base in newer markets , while minimizing costs and expenses,

JDL initiated a reseller program whereby third parties collect and provide new entries to

JDL's database for a payment.

Company charges a one-time registration fee of INR5,000 and an annual fee of INR1,000 from

the reseller. The one-time registration fee is recognized when the contract with the reseller

is made and the annual fee is recognized on a pro rata basis over the period of contract.

Total employee strength to grow at a slower pace Average cost per employee trend


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Strong sales and marketing network v/s competition

80% of employees in client facing roles



Penetration to newer areas through reseller programme reduces cost...To develop and update data base in newer markets, with bare costs and expenses,

JDL initiated a reseller program whereby third parties collect and provide new entries

to JDL's database for a payment. Company charges a one-time registration fee of

INR5,000 and an annual fee of INR1,000 from the reseller. The registration fee is

recognized when the contract with the reseller is finalized and the annual fee is

recognized on a pro rata basis over the period of contract. This relationship with

resellers derives JDL new entries and business listings and potential paid advertisers,

in newer and existing without additional manpower. Currently 55% of JDL workforce

is on fixed basis with balance 45% being variable.

We believe JDL has strong operating leverage in the business model as most of its

costs are fixed in nature and hence any meaningful increase in revenue will improve

margins, going forward.


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Just Dial a pioneer in its business

JDL launched the first phone-based search engine in India in 1996 under the Just Dial

brand. It launched its Internet and mobile services in 2007. Since then, it has been

focused on innovation to enhance consumer experience and to find new avenues of

generating higher RoI for its paid advertisers.

Innovative services available on Just Dial website

Best Deal: In an initiative intended to allow users to obtain the best price on

products or services, multiple vendors compete for a users business in a process

similar to a reverse auction. When a user elects to participate in a Best Deal

service, JDL instantly provides the user and the relevant vendors listed in its

database each others details. The vendors then contact the interested user directly

to compete amongst themselves on price and other factors to sell the product or

service being sought.

Reviews and Ratings:Users can submit their reviews of businesses, products and

services on the Just Dial website or through its phone service. This also enables

companies listed in the database to receive feedback on their products and

services. JDL has recently added movie reviews and ratings by users on its website

and mobile Internet WAP site. As at March 2013, JDL had 23m reviews and ratings

on its website v/s 7.4m as at March 2012.

Tag-Your-Friend: Users are encouraged to share their reviews and ratings by inviting

them to be part of a social search feature called Tag-Your-Friend. This feature

allows users to leverage their own network of participating friends and

acquaintances to recommend listings for them across the Just Dial website and

mobile Internet WAP site, including with JDLs Master App. With this feature,

users are able to see the businesses most recently rated or reviewed by their

friends, and details of the experiences they had with such businesses. As at March

2013, 7.6m friends were tagged through this feature.

Logos, Pictures, Videos and Catalogues:All businesses listed with Just Dial can

enhance their listings by uploading Logos, Pictures, Videos and Catalogues of

their products and services on their search result pages.

Innovation key to drive paid advertiser baseNew product launches to drive growth


brand. It launched its Internet and mobile services in 2007.

It tracks actual leads through the Internet by using a hosted number rather than clicks.

As at March 2013, JDL had 23m reviews and ratings on its website v/s 7.4m as at March

2012.

Like Google and Baidu, JDL uses proprietary pricing algorithms (pricing engine) to set the

price range for various membership packages. No human intervention is required.

With the aim of becoming a one-stop solution provider, JDL plans to launch new products

like enabling transcations, car listings, quick quotes, etc.


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Facebook and Twitter Links:Users can connect to JDLs Facebook and Twitter pages

directly through links provided on the Just Dial webpage. Users can also tweet the

business listings directly from JDLs website. As at March 2013, Just Dial had 1.5m

fans on Facebook and 10,506 followers on Twitter.

Just Dial Events:Users can search for upcoming events without any charge onevents.justdial.com. Search categories include Arts & Crafts, Community, Dance,

Food & Drinks, Lifestyle, Literary, Music, Nightlife & Parties, Sales & Exhibitions

and Theatre. This service is currently available for events in eight cities

Ahmedabad, Bengaluru, Chennai, Delhi/NCR, Hyderabad, Kolkata, Mumbai and

Pune.

New product launches to drive growth

JDL plans to leverage its Just Dial brand, strong SME relationships and database to

expand its business by offering new products and services. These will not only enhance

customer experience but could also lead to a non-linear revenue model for thecompany. JDL plans to launch the following:

Mobile Apps: To keep up with the latest in mobile Internet technology, JDL has

developed its own Master App for major mobile phone operating systems. Its

Master App is already in use with Android mobile phones and iPhones (launched

in April 2013) and JDL is in the process of developing it as an application (or app)

for use with Blackberry and Windows Phone 7.

Enabling Transactions:JDL internet and mobile app in collaborations with service

provides and vendors will allow directly allow a number of bookings and purchases

rather than calling multiple providers for restaurant bookings, home delivery offood, groceries, doctors appointments, taxi bookings, enable ecommerce

Car Listings:JDL is exploring various options for users to offer to sell or buy goods

and services through its website, starting with cars. It also plans to develop a Car

Listings website, where users can research and rate car models, list their cars for

sale, and receive price quotes from vendors of both new and used cars.

Quick Quotes: JDL also plans to launch Quick Quotes, intended to provide

prospective buyers with price quotes from multiple vendors, and which will be

available 24x7. Prospective buyers could also receive real time updates of revised

quotes by vendors through SMS and email. This service is likely to be available on

all four of JDLs platforms: Internet (www.quickquotes.in), mobile Internet

(wap.quickquotes.in), voice (69999999 and +91 88-8888-8888) and SMS (+91 88-

8888-8888).

We believe that the company might look at charging a nominal fees for these services,

going forward, thereby developing a non-linear revenue stream.


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MSMEs growing in double digits; turning to online advertisingHuge scalable opportunity for players like JDL

According to the Ministry of Micro, Small and Medium Enterprises, in terms of gross

output, MSMEs production has grown steadily from INR7,094b in FY07 to INR10,958b in

FY11 a CAGR of 11.5%, higher than the growth rate for the overall Industry segment.

Currently, Just Dial has 9.1m free listers, 27-28% of the overall market. As at December

2012, it had just 195k paid advertisers, 0.6% of the overall market size of ~32mn SME. The

opportunity for scaling up is huge.

According to Netscribes, the Indian advertising market is expected to grow from INR255.9b

in 2011 to INR369.5b by 2015 a growth rate of 9.6%. The Internet is the fastest growing

medium, with estimated growth of 51% over 2011-12.

MSMEs a sizable force; offer scalable opportunity

The Ministry of Micro, Small and Medium Enterprises estimates that in terms of value,SMEs account for ~45% of Indias manufacturing output and ~40% of total exports, and

employ 73.2m people. In terms of gross output, MSMEs production has grown steadily

from INR7,094b in FY07 to INR10,958b in FY11 a CAGR of 11.5%, higher than the

growth rate for the overall Industry segment. Moreover, the number of SMEs has

increased from 26.1m in FY07 to 31.5m in FY11 a growth of 4.8%.

Currently, Just Dial has 9.1m free listers, 27-28% of the overall market. As at December

2012, it had just 195k paid advertisers, 0.6% of the overall market size of ~32m SMEs.

The opportunity for scaling up is huge.

MSME production in terms of gross output (INR b) Total number of SMEs and growth trend

Source: Ministry of Micro, Small and Medium Enterprises Annual Report 2012, MOSL

Indian advertising market growing at ~10%; Internet the fastest growing

medium

According to Netscribes, the Indian advertising market is expected to grow from

INR255.9b in 2011 to INR369.5b by 2015 a growth rate of 9.6%. Currently, television

represents the largest segment of the Indian advertising market, with 46% share,

followed by print advertising, with 40.4% share. The Internet is the fastest growing

medium, with estimated growth of 51% over 2011-12. This is due to the growing

Internet penetration among individuals, emergence of online solutions/services that

are driving end-user interest, and growing Internet usage on mobile phones.


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Medium-wise growth Internet growing the fastest

Trend in advertising revenue

2011 2012E

Source: Netscribes, Just Dial DRHP, MOSL



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Indian Internet market still at nascent stageThe Indian Internet market is still at a nascent stage and has the potential to expand

rapidly. According to Internet World Stats, as at June 2012, Internet penetration in

India was 11.4% as against 78.1% in the United States. There were ~137m Internet

users in India, making it the third largest population of Internet users after China and

the United States. Internet penetration in India is expected to reach 30% by FY16,

providing a huge opportunity for the online classifieds business. According to an

Ernst & Young (E&Y) survey, 43% of the companies use social media for leads, spending

1-5% of their marketing budgets on online leads.

Internet penetration (%)

Internet penetration in India to triple in five yearsOnline classifieds at the cusp of high growth

According to Internet World Stats, as at June 2012, Internet penetration in India was

11.4% as against 78.1% in the United States and world average of 34.3%.

Internet penetration in India is expected to reach 30% by FY16E, providing a huge

opportunity for the online classifieds business.

According to an Ernst & Young (E&Y) survey, 43% of the companies use social media for

leads, spending 1-5% of their marketing budgets on online leads.

Netscribes expects the classifieds market to grow from INR37.4b in FY12 to INR84.3b in

FY16E, with the share of online classifieds improving from 42.3% in FY12 to 46.9% in

FY16. The potential market for JDL is, therefore, likely to increase from INR15.8b to

INR39.5b in five years.

Source: Internet World Stats, MOSL

Potential market for JDL to increase at a CAGR of 26%

According to Netscribes, classifieds are becoming an increasingly popular mode of

advertising. It expects the classifieds market to grow from INR37.4b in FY12 to INR84.3b

in FY16E, and the share of online classifieds to increase from 42.3% in FY12 to 46.9% in

FY16E, driven by strong growth in online advertising and significant increase in Internet

penetration. As a result, the potential market for JDL is likely to increase from INR15.8b

in FY12 to INR39.4b in FY16E a CAGR of 26%.


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Classifieds market segmentation share of online

Classifieds market size and growth classifieds increasing



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Telecom revolution a key growth enablerIncreasing smart phone penetration leading shift from voice to Internet

Tele-density in India has increased from 37% in FY09 to 73.3% in FY12, led by greater

affordability of handsets and call rates.

As at December 2012, the subscriber base stood at 895.5m and is likely to grow at a CAGR

of 6% over FY12-16E.

According to IDC, India had 2.5% share of the smart phone world in CY12. This is likely to

reach 8.5% in CY16E, and by that year, India would be the third-largest smart phone

market.

Also, with growth in smart phones, the number of 3G subscribers is likely to increase

from ~3m in FY11 to ~236m in FY16E a CAGR of 139%.

Tele-density in India up from 37% in FY09 to over 73%

Growth of advertising and search services in India is also due in part to the growing

use of mobile Internet in India. The telecom revolution has been a key enabler for

voice-based searches. Tele-density has increased from 37% in FY09 to 73.3% in FY12,

led by greater affordability of handsets and call rates. As at December 2012, the

subscriber base stood at 895.5m and is likely to grow at a CAGR of 6% over FY12-16.

India to be third-largest smart phone market by FY16E

According to IDC Asia Pacific Quarterly Mobile Phone Tracker data for CY12, the overall

mobile phone market in India grew 16% during the year to ~218m units. Growth was

largely driven by smart phones, which grew from ~11m units in CY11 to 16.3m units in

CY12, up 48%.

India had 2.5% share of the smart phone world in CY12. This is likely to reach 8.5% in

CY16E, and by that year, India would be the worlds third-largest smart phone market.

Given the favorable demographics and rapidly expanding economy, Indias smart

phone numbers are poised to expand at a much faster pace than the rest of the world.

With growth in smart phones, the number of 3G subscribers is likely to increase from

~3m in FY11 to ~236m in FY16E a CAGR of 139%.

Overall (wireless and wireline) tele-density in India

Source: TRAI, MOSL


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Has grown manifold in five years, with significant margin expansion


brand. It launched its Internet and mobile services in 2007. Over the last five years,

JDL has grown manifold in terms of its reach, listings and paid membership. Its topline

has grown at a CAGR of ~40% over FY09-12, with PAT growing at a CAGR of 106%,

primarily driven by margin expansion from sub-5% in FY08 to 28% in 9MFY13. We

expect further margin expansion, with shift in search mode towards the Internet.

Margins likely to expand further

While service delivery through voice costs JDL INR2.7/call, in case of Internet and

mobile internet, the cost is negligible. With shift in search mode from voice to Internet

and mobile, we expect employee cost to decline from 50% of sales in FY12 to 45% inFY15, improving operating margin further.

with growing usage of its mobile app

JDLs growth would also be a derivative of growing usage of its mobile app. The

company believes that this growth would be a function of two things:

1. Decline cost of acquisition of smart phones, resulting in higher penetration of

smart phones, which equip users with Internet while on the move.

2. Decline in cost of Internet service, increasing Internet usage on phone.

JDL intends to develop a dedicated category of portals to attract SMEs. It has already

developed its Master App for Android mobile phones and iPhones, and is developing

it as an application for Blackberry and Windows Phone 7.

Margins to expand with higher contribution from

Internet, mobile appCost of service delivery through Internet and mobile app negligible

JDLs topline has grown at a CAGR of ~40% over FY09-12, with PAT growing at a CAGR of106%, primarily driven by margin expansion from sub-5% in FY08 to 28% in 9MFY13.

While service delivery through voice costs JDL INR2.7/call, in case of Internet and mobile

app, the cost is negligible.

With shift in search mode from voice to Internet and mobile, we expect employee cost

to decline from 50% of sales in FY12 to 45% in FY15, improving operating margin further.

JDL intends to develop a dedicated category of portals to attract SMEs. It has already

developed its Master App for Android mobile phones and iPhones, and is developing it as

an application for Blackberry and Windows Phone 7.

Increase in number of searches through Internet and mobile Improving share of internet and mobile


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Financials impressive; to get even betterExpect 43% earnings CAGR over FY12-15E

We expect JDLs topline to grow at a CAGR of 33% over FY12-15E, primarily driven by

increase in paid advertisers from 171k in FY12 to 356k in FY15E.

EBITDA margin would expand from 25.7% in FY12 to 31.3% in FY15E, primarily driven by

increased share of Internet and mobile app.

Owing to 33% topline growth and 560bp margin expansion over FY12-15E, we expect PAT

to grow at 43%.

Over FY12-15E, operating cash flow would be INR5.5b and free cash flow would be INR4.3b.

We expect JDL to pay out 38-40% of its profit as dividend, keeping return ratios at

healthy levels.


EBITDA margin to expand 560bp over FY12-15

We expect JDLs EBITDA margin to expand from 25.7% in FY12 to 31.3% in FY15E, primarily

driven by increased share of Internet and mobile internet. The share of voice has

reduced from 63.5% in FY09 to 45.6% in FY12. Consequently, the share of Internet has

increased from 34% in FY09 to 49% in FY12. We expect employee cost to decline from

50% of sales in FY12 to 45% in FY15E, as the share of Internet and mobile internet

improves. We believe that while the share of Internet would increase to 51% in FY15E,

the share of mobile app would increase from 5.3% in FY12 to 18% in FY15E. The cost of

delivery through Internet and mobile internet is negligible as compared to voice.

Topline to grow at 33%, driven by increase in paid advertisers

We expect JDLs topline to grow at a CAGR of 33% over FY12-15E, primarily driven by

increase in paid advertisers from 171k in FY12 to 356k in FY15E. We expect paid

advertisers as a percentage of total listings to improve from 2.4% in FY12 to 3.1% in

FY15E. However, overall realizations would decline by 150bps in FY14E and FY15E

respectively, primarily due to JDLs entry into new markets and higher contribution

from existing tier-2 and tier-3 markets.

Sales growth trend


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EBITDA margins to inch higher


Negative working capital cycle to lead to higher free cash flows

JDL collects advances from its paid advertisers and has no debtors. It has a negative

working capital cycle of 154 days. JDL operates an asset-light business model, with no

major capex. Over FY13-15E, we expect JDL to incur capex of INR1.1b. During the

period, its operating cash flow would be INR5.5b and free cash flow would be INR4.4b.

We expect the company to pay out 38-40% of its profit as dividend, keeping returnratios at healthy levels.


PAT to grow at 43% over FY12-15E

Owing to 33% topline growth and 560bp margin expansion over FY12-15E, we expect

PAT to grow at 43%. Given the negative working capital cycle, we expect JDL to generate

free cash flow of INR4.3b over FY12-15, leading to ~44% CAGR in other income.

PAT growth trend over FY09-15

Healthy operating cash flows and free cash flows Free cash flow as percentage of PAT


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Has grown manifold over FY08-12

Over the last four years, JDL has grown manifold in terms of its reach, listings (from

4.5m in FY10 to 9.1m in FY13; CAGR of 26.5%), and paid membership (from 40.5k in

FY09 to 171k in FY12; CAGR of 61.6%). Its topline has grown at a CAGR of ~40% over

FY09-12, with PAT growing at a CAGR of 106%, primarily driven by margin expansion

from sub-5% in FY08 to 28% in 9MFY13.

Expect high growth to continue over FY12-15E

We expect JDLs topline to grow at 33% CAGR over FY12-15E, with 560bp margin

expansion, driven primarily by shift in search mode from voice to Internet and mobile

app. Consequently, we expect 43% PAT CAGR over FY12-15E.

Deserves premium valuations

The stock trades at 33.8x FY14E EPS of INR16 and 24.7x FY15E EPS of INR22. Given that

(1) JDL is in a high growth phase, (2) has an asset-light business model, (3) is a virtual

monopoly in the voice search segment, (4) negative working capital cycle and high

free cash flows, (5) boasts strong dividend payout, and (6) maintains healthy return

ratios, we believe that premium valuations are justified. We value the stock at 30x

FY15E EPS and arrive at a target price of INR660 an upside of 25%. We initiate coverage

with a Buyrating.

Possible upside of over 20%Initiating coverage with Buy

JDL trades at 33.8x FY14E and 24.7x FY15E EPS.

Given that the company is (1) in a high growth phase, (2) generating strong free cash

flows, and (3) maintaining healthy return ratios, we believe the premium valuations are

justified.

We initiate coverage with a Buy rating. Our target price of INR660 implies 24.5% upside.

Comparative valuation: International (USD b)


(USD b) CY11 CY12 CY13E CY14E 5 Yr CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E 5 yr

CAGR % CAGR %

Google 288.4 37.9 50.2 47.4 55.0 17.0 13.6 15.7 21.5 25.5 35.9 31.3 45.4 46.4 9.7 10.7 15.7 18.1 20.8Baidu 33.8 2.2 3.5 4.9 6.3 52.3 1.3 2.0 2.2 2.8 58.4 56.3 45.7 44.4 1.0 1.7 1.8 2.2 43.4

Yahoo 28.5 5.0 5.0 4.5 4.7 -7.4 1.5 1.5 1.7 1.7 29.6 29.2 36.7 37.1 1.0 3.9 1.5 1.6 6.9

Linkedin 18.5 0.5 1.0 1.5 2.1 71.7 0.1 0.1 0.4 0.5 13.2 14.1 24.4 25.6 0.0 0.0 0.2 0.3 101.3

Yelp 1.9 0.1 0.1 0.2 0.3 59.7 -0.01 -0.01 0.02 0.05 -14.3 -7.5 10.4 15.9 0.0 0.0 0.0 0.0 n a

Comparative valuation: Domestic (INR b)


(INR b) FY12 FY13 FY14E FY15E 5 Yr FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E 5 yr

CAGR % CAGR %

Info Edge 37.1 3.9 4.7 5.5 6.7 20.3 1.2 1.2 1.5 1.9 30.2 25.7 27.1 28.7 1.0 0.9 1.3 1.6 26.0

Just dial 37.7 2.6 3.7 4.8 6.2 35.3 0.7 1.0 1.4 1.9 25.7 27.8 29.6 31.3 0.5 0.7 1.1 1.5 52.0Source: Company, MOSL


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International (USD b)


CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E CY14E

Google 14.6 16.6 18.0 21.4 107.2 105.7 83.8 83.7 18.7 16.5 17.8 17.7 16.3

Baidu 1.3 1.9 1.8 2.1 96.7 95.5 80.5 76.0 56.0 50.6 34.8 31.2 15.8

Yahoo 1.3 -0.3 1.3 1.2 89.9 -19.3 77.5 69.8 8.4 29.1 10.6 10.1 17.6

Linkedin 0.1 0.3 0.3 0.5 193.5 195.4 93.7 83.8 3.7 2.8 10.8 15.1 80.6

Yelp 0.00 0.00 0.01 0.03 -2.1 1.0 51.9 66.5 n a n a 1.6 12.6 75.1

Domestic (INR b)


FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY15E

Info Edge 1.0 0.8 1.3 1.6 85.1 64.5 88.7 83.8 21.5 16.1 19.6 20.3 23.2

Just dial 0.9 1.3 1.8 2.4 134.1 129.5 127.1 122.7 52.3 25.0 21.7 25.8 24.7



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Key milestones

Year Event

1993 Incorporation of Company as A&M Communications Private Limited

1996 Commencement of Companys search business operations in Mumbai with 8888?888

telephone number

1997 The brand Just Dial was registered2000 Secondary sale of 50% stake by Promoters to Indiainfo.com Private Limited

2006 Investment of Rs546.9m by SAIF

2006 Change in name of Company from A&M Communications Private Limited to Just Dial

Private Limited

2007 Launch of Companys website http://www.justdial.com

2007 Investment of Rs165.3m by Tiger Global and second round of investment of

Rs40m by SAIF

2007 Launch of search service through SMS and mobile internet

2009 The companys website receives 25m visits in a year for the first time

2009 Investment of Rs383.5m by Sequoia , Rs308.8m by Tiger group and Rs95.9m by SAIF

2011 Investment of Rs166.9m by SAP Ventures and Rs166.9m by EGCS

2011 Demerger of activities and operations pertaining to IT?related testing and other related

services of Company to JD Global

2012 Investment of Rs3,269.5m by Sequoia and second round of investment by SAP Ventures.


Shareholding pattern

Particulars Pre Post

IPO IPO

Promoter 37.1 33.1

PE Inventors/ Venture

capital 60.5 39.5

SAIF 19.7 11.2

Tiger global 19.9 13.4

Sequoia 18.4 13.8

SAP Ventures 1.6 1.1

EGCS 0.9 0

Employees 2.3 2.3

Public 0 25

Total 100 100

Source: Company

Management details

Mr V S S Mani, MD & CEO

Mr V S S Mani is the Founder, Managing Director and CEO of JDL and has been associated

with the company since its incorporation. Previously, he co-founded Ask Me Services and

also worked with United Database India Private Ltd. He is presently engaged in exploring

avenues for technological innovation of JDLs business and has been responsible for

adapting the companys business model to suit the changing market conditions. He is also

involved in the formulation of corporate strategy and planning, overall execution and

management, and concentrates on growth and diversification plans.

Mr V Krishnan, Director & COO

He is the co-founder of JDL and has ~20 years of experience, working in the field of

strategic planning and execution. He played a key role with responsibilities including

business development, business expansion, operations, strategic planning andexecution.

Mr Ramkumar Krishnamachari, CFO

He is a member of the ICAI and ICWA. He is also a Certified Public Accountant by the

State Board of Accountancy, Delaware, US. He is a CFA charter holder from the CFA

Institute, US and has ~22 years of experience in the field of finance and accounting.

Prior to joining JDL, he worked with Royal Sundaram General Insurance Allied

Company Ltd.

Mr Sandipan Chattopadhyay, CTO

He has been associated with JDL since January 1, 2009. He holds a bachelors degree in

statistics from the Indian Statistical Institute, Kolkata and post graduate diploma in

computer aided management from the Indian Institute of Management, Kolkata. He

has ~16 years of experience in the field of technology. Prior to joining JDL, he was

associated with E Dot Solutions India Private Ltd.


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Key risks

Execution: JDL has an edge over competition due to its strong reach of more than

2,000 cities and database of 9.1m listings, which however has to be updated regularly

to maintain accuracy. Any failure in updating might lead to customer dissatisfaction

and lead to lesser number of search requests going forward, and hence might impact

its paid campaigns' growth. Also, security breaches may result in downtime.

Evolving with technology, the biggest challenge: JDL, over the past 20 years,

preempted the change in content medium impressively by moving from directory-

to-voice-to-Internet-to-mobile application. Over the long term, as this medium

keeps evolving, JDL will have to preempt it and understand the consumer needs

and develop an ideal product without delay. With INR5b of cash balance and annual

free cash flow potential of INR1.3b, company is well-equipped to develop a new

technology or platform when required.

Competition from Google would be a threat: Presently, JDL is significantly ahead

of competition due to its strong brand recall coming from its long touch point with

customers. None of its competitors over the last five years has been a threat.

Going forward, as India grows in terms of Internet usage, there would be rising

competition from large global players. Google, for its next leg of growth, may

plan to develop local search platforms and earn from local companies. Globally,

Google's search services are based on technology, while the search market in

India requires collating and maintaining database through feet-on-street and

voice-based search options. Hence, probability of Google re-entering the local

search market is low. But any such move by Google is a key monitorable considering

its technology competence and capital availability.

LTE technology and affordable smart devices could provide users more online

options: LTE technology is likely to provide a boost to data usage. This may attract

domestic and international companies to provide mobile applications for local

search services which could potentially be another big competition for JDL. While

the company continues to keep pace with new technologies (such as Android-

based applications), competition from newer applications and its ability to

compete remain a monitorable.

Regulatory policies can affect business, as seen in the past:The Department of

Telecom and Ministry of Broadcasting are the two regulatory agencies that guide

web content in India. Any policies or reforms passed by the agencies can have an

adverse impact on JDL's operations and growth. Telemarketing norms and

enforcement of do-not-disturb (DND) list in 2010 discouraged the practice of

directly connecting the customer with the service provider. If the Telecom

Regulatory Authority of India (TRAI) prohibits JDL from sharing the caller's details

with advertisers, it will reduce the company's ability to monetize their listings to

the fullest and may impact realizations in the future. Going forward, any policies

to regulate the classifieds content and malpractices of players can be a dampener

for JDL.

Growth at cost of working capital: Company has 50% of its campaign based on

weekly and monthly payment format. A special package to increase the share of

paid subscribers at the cost of working capital might impact the balance sheet and

cash flow from operations.


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Company description

Just Dial Ltd (JDL) is one of the leading local search engines in India. It provides users

with information and user reviews from its database of local businesses, products

and services across India. Its search service is available to users through multiple

platforms: Internet, mobile Internet, telephone (voice) and text (SMS). In FY12, it

addressed over 254.3m search requests across its platforms. Campaigns increased

from ~40,500 as on March 31, 2009 to ~195,100 as on December 31, 2012.

As one of the first companies to offer local search services in India, it has a first-mover

advantage among consumers seeking information on local businesses. JDL is a well-

known and established brand on the Internet and through its easy to remember phone

numbers (88888 88888 and 6999 9999) and user friendly mobile phone interface, it

attained significant mind share with users for their local search needs.

In 2009, JDL launched its service in the US to experience the market first-hand. With

not much development in the US, the company demerged the same into a different

entity with JDL's promoters and investors as its owners. It is no more a part of Justdial

Ltd. The brand, Justdial, is owned by JDL and JDL Global would pay a royalty to use the

same when operations commence.

Presently, JDL has 7,342 employees, of which 2,707 are in sales, 944 on-the-street,

~1,837 in the voice data center and the rest in product development, security, database

management and administration. Since commencement of operations, JDL expanded

its physical presence to 11 cities, with call centers at eight locations.

Company launched the first phone-based search engine in India. Beginning with just

two cities, Mumbai and Delhi, its services are available across the country. Having

initiated search operations only through phone, six years ago it adopted the new era

mediums of Internet, mobile Internet and SMS. JDL is the most preferred brand in the

local search engine space due to a highly-satisfactory user experience.

Share of category searches at 36%


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Financials and Valuation

Income Statement (INR Million)

Y/E March 2010 2011 2012 2013E 2014E 2015E

Net Sales 1,309 1,839 2,621 3,651 4,805 6,167

Change (%) 52.4 40.5 42.5 39.3 31.6 28.3Total Expenditure 1,012 1,385 1,948 2,635 3,383 4,239

EBITDA 297 454 673 1,016 1,422 1,927

Margin (%) 22.7 24.7 25.7 27.8 29.6 31.3

Depreciation 53 68 90 138 190 238

EBIT 245 386 583 878 1,232 1,689

Other Income - Rec. 39 37 150 157 337 462

PBT bef. EO Exp. 283 423 732 1,035 1,570 2,151

EO Expense/(Income) 0 2 -5 0 0 0

PBT after EO Exp. 283 421 737 1,035 1,570 2,151

Current Tax 0 119 206 300 455 624

Deferred Tax 99 15 3 0 0 0

Tax Rate (%) 34.9 32.0 28.4 29.0 29.0 29.0

Reported PAT 184 286 528 735 1,114 1,527

PAT Adj for EO items 184 288 524 735 1,114 1,527

Change (%) 165.5 56.1 82.3 40.1 51.7 37.0

Margin (%) 14.1 15.6 20.0 20.1 23.2 24.8

Consolidated - Balance Sheet (INR Million)

Y/E March 2010 2011 2012 2013E 2014E 2015E

Equity Share Capital 11 521 531 694 694 694

Total Reserves 626 411 542 4,101 4,772 5,695

Net Worth 637 932 1,072 4,795 5,467 6,389

Minority Interest 1 0 0 0 0 0Total Loans 3 1 0 0 0 0

Capital Employed 641 933 1,072 4,795 5,467 6,389

Gross Block 342 464 638 1,038 1,338 1,738

Less: Accum. Deprn. 150 191 281 419 610 848

Net Fixed Assets 192 273 357 619 729 890

Capital WIP 0 0 3 22 29 37

Total Investments 780 1,160 1,568 1,568 1,568 1,568

Curr. Assets, Loans&Adv. 235 449 540 4,486 5,616 7,055

Account Receivables 0 11 0 0 0 0

Cash and Bank Balance 121 201 237 4,123 5,180 6,532

Loans and Advances 113 236 303 364 436 524

Curr. Liability & Prov. 593 961 1,405 1,909 2,484 3,170

Account Payables 580 940 1,392 1,892 2,462 3,142

Provisions 13 21 13 17 22 28

Net Current Assets -359 -512 -865 2,577 3,132 3,885

Appl. of Funds 641 933 1,072 4,795 5,467 6,389

E: MOSL Estimates; * Adjusted for treasury stocks


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314 June 2013

Financials and Valuation

Ratios

Y/E March 2010 2011 2012 2013E 2014E 2015E

Basic (INR)*

EPS 3.8 4.6 8.1 10.6 16.0 22.0Cash EPS 166.3 6.0 10.8 12.6 18.8 25.4

BV/Share 13.3 14.8 16.5 69.1 78.7 92.0

DPS 0.0 0.0 0.0 4.6 7.2 9.8

Payout (%) 0.0 0.0 0.0 38.4 39.8 39.6

Valuation (x) *

P/E 65.7 50.1 33.0 24.1

Cash P/E 49.1 42.2 28.2 20.8

P/BV 32.1 7.7 6.7 5.8

EV/Sales 9.3 5.6 4.0 2.9

EV/EBITDA 36.0 20.0 13.6 9.3

Dividend Yield (%) 0.0 0.9 1.4 1.9

Return Ratios (%)

RoE 34.3 36.7 52.3 25.0 21.7 25.8

RoCE 52.5 53.8 73.0 35.3 30.6 36.3

Working Capital Ratios

Fixed Asset Turnover (x) 4 4 4 4 4 4

Asset Turnover (x) 2.0 2.0 2.4 0.8 0.9 1.0

Debtor (Days) 0 2 0 0 0 0

Creditor (Days) 162 187 194 189 187 186

Working Capital Turnover (Days) -134 -142 -154 -154 -156 -157

Leverage Ratio (x)

Current Ratio 0.4 0.5 0.4 2.4 2.3 2.2Debt/Equity 0.0 0.0 0.0 0.0 0.0 0.0

* Adjusted for treasury stocks

Consolidated - Cash Flow Statement (INR Million)

Y/E March 2010 2011 2012 2013E 2014E 2015E

Net Profit / (Loss) Before Tax 283 421 736 1,035 1,570 2,151

Depreciation 53 70 91 138 190 238

Interest & Finance Charges 0 0 0 0 0 0

Direct Taxes Paid -45 -133 -209 -300 -455 -624

(Inc)/Dec in WC 82 259 384 443 503 599

CF from Operations 373 618 1,003 1,316 1,807 2,364

EO Expense -24 -13 -101 0 0 0CF from Operating incl EO 350 605 902 1,316 1,807 2,364

(inc)/dec in FA -99 -176 -231 -419 -307 -408

(Pur)/Sale of Investments -233 -388 -1,092 0 0 0

Others 34 36 179 0 0 0

CF from Investments -298 -528 -1,144 -419 -307 -408

Issue of Shares 2 1 293 3,270 0 0

(Inc)/Dec in Debt 4 -2 -2 0 0 0

Dividend Paid 0 0 0 -282 -443 -604

Others - -7 -15 0 0 0

CF from Fin. Activity - -8 277 2,988 -443 -604

Inc/Dec of Cash - 69 34 3,885 1,057 1,352

Add: Beginning Balance 204 121 201 237 4,123 5,180

Closing Balance - 190 235 4,123 5,180 6,532


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