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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