Just Dial: Confident of joining the dial-high club

JustDial stock ended Monday's session with over 3% gains at Rs 1,058 as against a flattish Sensex

Having shown a good performance for the September quarter, the Just Dial stock ended Monday’s session with over three per cent gains at Rs 1,058 against a flattish Sensex, adding to its recent gains. Sales at Rs 113 crore and adjusted (excluding one-offs) net profit at Rs 29 crore were up 28.7 per cent and 85.2 per cent, respectively, year-on-year (y-o-y). Higher contribution from internet-based searches boosted its margins while rising listings, higher other income (up five-fold to Rs 9 crore) and lower tax rate added up.

Before the results, all five analysts polled by Bloomberg (since September) have a buy rating on the stock, with an average target price of Rs 1,012. After the results, some analysts, including Jignesh Kamani of Nirmal Bang, have raised their earnings estimates and target price.

“We have increased our earnings before interest, taxes, depreciation and amortisation (Ebitda) and net profit estimates 5.1 per cent and 11.2 per cent, respectively, for FY14. We continue to value Just Dial at a discount to Yelp and arrived at a 42.7 times FY15 estimated EV (enterprise value)/Ebitda. Yelp trades at 149.2 times CY13 estimated EV/Ebitda,” says Kamani. He has raised his target price to Rs 1,300 versus Rs 800 before the results.

Just Dial gives localised search via the phone and internet. In the quarter, the internet (including mobile internet) searches were 67.4 per cent of total searches; rest voice-based. The company earns its revenues from the paid listings (local advertisers, mainly small and medium enterprises) and shares their data with its users. Paid advertisers were two per cent of its total database. The subscribers buy different packages to get priority ranking in the search results.

While the company enjoys a strong brand recall in its voice business, it needs to achieve a similar position in the net. Its management remains confident. The company’s ability to scale its business segments, foray into newer areas and keep costs under control is crucial.

Notably, the proportion of internet-based search has been increasing for Just Dial over the years. It recently launched its mobile application, which has seen good response. It is in the process of launching various online transaction platforms such as restaurant food order/table reservation, movie/event ticketing, cab booking, grocery order and flower delivery order.

“Our focus is on the user and we want to provide the convenience and ease of search as well as transaction on a single platform. That is our unique value proposition. We have done soft launch of these services in select cities and are currently signing up with vendors,” says Ramkumar Krishnamachari, chief financial officer of Just Dial.

These initiatives seem in the right direction and increased net revenues will lead to margin expansion, given staff expenses are a large part of revenues. While the management expects growth to be healthy, it is confident of improving margins.

“We expanded Ebitda margin last year 210 basis points to 27.8 per cent in FY13, driven by operating leverage. We expect similar margin expansion this financial year, as well as the number of internet searches to go up and the productivity to keep improving,” adds Krishnamachari.

Employee costs surged 34.2 per cent to Rs 58 crore as the company added 500 employees and increased wages. Strong traction in mobile internet visits pushed net visits to 67.5 per cent, compared to 60.6 per cent in the September 2012 quarter. This restricted other expenses to Rs 20 crore, a fall of a per cent y-o-y. Overall, Ebitda margin expanded 310 basis points to 31.3 per cent.

Bulk of the new recruits were sales executives, resulting in a 27.1 per cent rise in paid campaigns (at 238,650) and 23.2 per cent growth in listings to 10 million. This, with higher data usage (up 35.8 per cent), fuelled top-line growth in the quarter.