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• Report Date: 18-Dec-2013 
• CMP: Rs 1215
• Mid Cap – Mkt Cap 8200 crores
• Advice:  Medium Risk, High Gain stock. BUY.

JainMatrix Investments presents investors the complete report on Just Dial Ltd. as part of the Investor Rewards Fortnight. 

Business Profile

• JDL is a firm with a 16 year legacy in Indian business listings. It started with phone based queries and Yellow pages, and now extends to internet, mobile apps, voice and text (sms) based search.
• This Bombay based firm had FY2013 financials of Revenue 363 cr., EBIDTA 101 cr. and Profits 68 cr. The number of employees is currently 8,200 up 32% from FY12.
• JDL generated 36.4 crore search requests in FY13. It currently has a database of 101 lakh business listings and has executed 2.4 lakh Paid Campaigns. Usage of JDL has increased by an average of 43% year over year till FY2013. See details in Fig 1.
• Explanation of Title – The word “googol,” is a mathematical term for 1 followed by 100 zeros, which inspired the word Google. Our opinion is that JDL can become very successful, like Google Inc.
• The founders cum management of JDL are MD – V.S.S. Mani, and Executive Director – V. Krishnan.

• JDL is India focused and has offices in Ahmedabad, Bengaluru, Chandigarh, Chennai, Coimbatore, Delhi, Hyderabad, Jaipur, Kolkata and Pune.
• Current shareholding is of Promoters 33%, FII 22%, VCs/MFs 6%, Non Institutional are Foreign Bodies 35%, Individuals 3% and Others 1%. Venture funding Investors in JDL include SAIF Partners, Sequoia Capital, Tiger Global, EGCS and SAP Ventures.

Additional Business Notes and Updates

• JDL has a hotline number of 088-8888 8888 across India, accessible 24X7 with multi-lingual support. This is a strong advantage for the Phone search services.
• The mobile search is by means of applications developed for Android, Blackberry and iOS platforms and location based service for mobile Internet users.
• JDL allows users to rate and review business listing. This helps in improving the Trust factor in purchasing decisions. JDL users have contributed over 33 million reviews so far.
• JDL has launched ‘Search Plus Services’ or transaction-enabled services. This extends the vanilla offering of providing information on the contact numbers and details of various establishments. Almost all listings will be extended to transactions. This business will generate fixed fee and commission on sales. See Fig 1.

• A personal Note: I downloaded the Android version and was quite impressed with the ease of use, simple flow for addition to business listings and elegant search interface. On adding a business listing, I was pleasantly surprised to get a call from Sales within a few hours.
• The index compiler FTSE says it will include JDL in its FTSE All Cap index, effective from the start of trading on December 23. This will give a boost to this firm’s share price and widen shareholding.
• Employee Break-up: JDL has 8,213 employees as of September 30, 2013, of which 2,150 employees are answering calls; 3,900 employees are in sales and marketing division, of which 3,000 are in tele sales and around 1,000 are feet on street. It also has around 600 people in its evangelist program. Rest are in technology, database and other departments. This is good. The focus currently is on service and business development.

Pricing Snapshot

• JDL had its IPO this year in June 2013 priced at Rs 530. It got subscribed 12 times, a very good success this year. It raised Rs 927 crores, and Promoters and early Equity investors were richly rewarded.
• Post listing it has appreciated an amazing 130% in the last 6 months. The all-time high so far is 1440 achieved on 20^th Nov 2013. Today it is at 16% below this.

Financial Snapshot

• The Revenues, EBITDA and Profits have appreciated by 43%, 70% and 73% CAGR over the last 5 years.
• The chart Fig 3 – JDL Financials, shows the margin improvement over the last few years.

(Note that the projected FY14 data in Fig 3 is a simple doubling of the financials of the first half of the year. This is conservative and is by no means a projection based on business prospects. For that see Fig 5).

• The firm has been Operational cash positive over the last 5 years. However to grow, it has to invest in its business. This investment has accelerated in the last 2 years. This is excellent, and such investments will bear fruit in future. Some of the funds raised from the IPO too are being usefully deployed. See Fig 4.
• The firm has been debt free over the last few years, drawing funds instead from Private Equity investors to bankroll growth until this IPO.
• P/E calculated based on simple projections for FY14 is at 75 times, an increase from about 50 times at the time of IPO. And Price/ Book is 20 times.
• The PEG is 1.0, this indicates fair value at current levels.
• A ratio used to measure Internet companies is Price/ Sales. The P/S of JDL is 22.
• The current valuations appear high until we see the Positives below.

Financial Projections

Here are the financial projections for JDL.

Positives for JDL

• Smartphone usage in India is growing rapidly, and with it mobile internet access.
• JDL Profits have grown at 73% CAGR in the last 5 years.
• The Usage growth has been very high, particularly on PC internet and Mobile internet. The mobile launch was done recently, and it appears a good success.
• Search Plus services will help monetize the listings, adding to revenue flows from both the Paid Campaigns, and Sales. Thus JDL is extending from an Advertising business into the eCommerce space.
• Also the eCommerce model is excellent – the focus is on transactions and the inventory/ fulfillment is done by the businesses. Thus JDL has an asset light eCommerce model, which is less challenging financially and commands good margins.
• Good growth potential: The paid listings or campaigns currently are around 2.4 lakh, which is just 2.4 % of their total business listings and a very small fraction of the total SME population of India, estimated by them at 3.12 crore. Thus there is a good visible growth potential.

Risks and Concerns

• Profit imperative: At current sky high P/E of 75 times, JDL profits need to continue to grow at 74% or higher, to justify these. Any slip up may result in a sharp fall in the share price.
• Intense competition: Competitors in the online local business search segment include Sulekha, asklaila, Getit, ZatSe, AskMe and even Google India. It also faces competition from portals such as Zomato and burrp in food segment, and OLX, Quikr and others in the Classifieds. In eCommerce there are players like Amazon, Flipkart, and many national and global players. Thus it is an intensely competitive sector, even though the business is quite new and an emerging sector.
• Brand issues: The name Just Dial is a good brand, but there is some dissonance as they have extended beyond phone calls. At some stage JDL may need to modify this and extend their brand.
• Promoter holding is low at 33%. This can be a weakness in case there is a takeover bid or clash with institutional shareholders on any issue.
• Employee costs: With over 8,200 employees, the largest element of costs is Employee Costs, at 49.5% of revenues. Going forward, JDL will need to carefully match its workforce with business, as employee costs can rapidly bloat up over time as rising fixed costs. Once the business plans stabilize, the focus will need to shift to productivity and automation rather than large scale hiring.
• With an IPO just this year, there is not enough financial and share price data history available on JDL to build investor confidence in its numbers and business.
• In addition JDL share has seen very high volatility with sharp intra-day price swings.

Overall Opinion

• Just Dial is a very unique business in India with a combination of excellent listing database, strong local reach and good monetization activities rolling out. In sync with current trends, it is following the consumer well and growing in mobile and PC internet.
• It has achieved a certain critical mass and reach in its sector. External conditions are also right with the TV and Print industries mature and stabilized. JDL may be able to attract significant advertising and marketing rupees to its services.
• Sky high current valuations are actually an affirmation of its uniqueness, high growth prospects and attractiveness to professional investors such as FIIs and Venture capital funds.
• Experienced, visionary and ambitious Promoters have built the firm are also driving the next phase of growth.
• JDL is a good growth stock. Advice:  Medium Risk, High Gain stock. BUY.

JainMatrix Knowledge Base:

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Disclosure: It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it.

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Disclaimer and Disclosure:

It is safe to assume that if the JainMatrix website recommends a stock, the researcher has already invested in it. Punit Jain has owned (long only) Just Dial Ltd. since Nov 2013. Further, this document has been prepared by JainMatrix Investments Bangalore (JM), and is meant for use by the recipient only as information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of JM. It should not be considered or taken as an offer to sell or a solicitation to buy or sell any security. The information contained in this report has been obtained from sources that are considered to be reliable. However, JM has not independently verified the accuracy or completeness of the same. Neither JM nor any of its affiliates, its directors or its employees accepts any responsibility of whatsoever nature for the information, statements and opinion given, made available or expressed herein or for any omission therein. Recipients of this report should be aware that past performance is not necessarily a guide to future performance and value of investments can go down as well. The suitability or otherwise of any investments will depend upon the recipient’s particular circumstances and, in case of doubt, advice should be sought from an independent Financial Expert/ Advisor. Either JM or its affiliates or its directors or its employees or its representatives or its clients or their relatives may have position(s), make market, act as principal or engage in transactions of securities of companies referred to in this report and they may have used the research material prior to publication. Any questions should be directed to the director of JainMatrix Investments at punit.jain@jainmatrix.com