Subscribe to Just Dial IPO at Rs. 470 - Asit C. Mehta Investment Intermediates Ltd

Company Background:

Just Dial Ltd (JDL) was incorporated as A&M Communications (P) Ltd. on December 20, 1993. JDL believed to be one of the leading local search engines in India, which provide users with information and user reviews from company's database of local businesses, products and services across India. JDL provides search services across two main genera: company search - related to any specific or any business need; category search - products or services based on a given classification, location or key words. This search service is available to users through multiple platforms such as Internet, mobile Internet, telephone (voice) and text (SMS). Over the years, JDL has expanded its operations across India with a strong presence in top 11 cities to become India's leading local search services player.

Issue Objectives:

To achieve the benefits of listing the equity shares on the stock exchange & to carry out the sale of 17,497,458 equity shares by the selling shareholders. To enhance brand name & to provide liquidity to existing shareholders. No money will go to company from IPO proceeds as No fresh Issues involved.

Business Highlights:

First mover advantage in local search market: JDL is one of the first companies to offer comprehensive local search services in India, it started offering local search services in 1996 through telephone in only two cities (Delhi & Mumbai), and launched Internet and mobile Internet services in 2007. JDL provide services under its brand name "Just Dial". Currently, JDL concentrates on 11 large cities, in order to expand its network and database further in existing and new cities appointed resellers to collect data. JDL has build up strong database, which had been developed over several years, and is very difficult to prepare within short span of time. Hence this acts as a constraint for new player to enter. JDL provides fast and free access to their large database, which will attract more search queries with ultimate results of attracting more paid business listings. This creates a self-perpetuating growth cycle that enables us to maintain a leading position in the local search market.

Consistent growth in database: JDL has developed strong relationship with SME businesses over the past 2 decades through its first mover advantage and unique advertising proposition. Its brand recall developed through service promptness helps in attracting consumers and potential advertisers. JDL has database of 9.0 million businesses as of Feb. 2013 (4.5 million as of end-FY10), mostly SMEs. As of December 31, 2012, they were conducting approximately 195,100 campaigns for paid advertisers. New data is added and updated regularly by 314 employees. To expand its network in existing and new cities, it has appointed resellers to collect data from their respective territories. More than just the scale of its database, Just Dial's ability to consistently keep it updated has been the reason for strong growth in usage of its search services.

Multiple platform service on a large-scale: JDL the only search services company in India that provides users with the option of performing searches and obtaining search results through multiple media on a large scale. JDL also have a large collection of reviews and ratings by users of the businesses listed with company. Users can submit their reviews of businesses, products and services on company's website or through phone service. These reviews and ratings are regularly monitored and uploaded on our website for the benefit of potential users to enhance their search experience and enable them to make informed choices.

Profitable business model: Having being a free service provider to users, JDL generates revenues from paid advertisers (mostly SMEs) who subscribe to fee based campaign packages or memberships in order to list their businesses on priority ranking on users' search results. The company offers annual and long-term renewable memberships to paid advertisers. JDL takes payments in advance from paid advertisers, thereby reducing credit risk and enabling a comfortable working capital management. In addition, JDL would likely benefit from non-linearity, as the business model is skewing more towards net and mobile as against the traditional voice based linear model.

Concern

Google Key threat: Google remains a key threat, as it is world's largest search engine present in India for very long time now.

Technical innovation: JDL continues to keep pace with new technologies (such as android-based applications), competition from newer applications and its ability to compete with them remains a under observation.

Low entry barriers: Local search industry has a low entry barrier as any player can establish a database and offer services.

Financials:

JDL revenues have grown quite well in past few years. Its' consolidated total revenue from operations increased from Rs. 71 crores in FY08 to Rs. 277 crores in FY12, representing a CAGR of 40.2%. The consolidated PAT from operations increased from Rs. 1.71 crores in FY08 to Rs. 52.28 crores in FY12, representing a CAGR of 135.1%. These have led to an improvement in RoE from 28.88% to 51.09% over the past three years. As company collects all its membership fees in advance, it enjoys negative working capital cycle. The debt-free balance sheet and asset light business model are strong positives for the company. JDL has a cash kitty of Rs 500 crore and investors will keenly watch for effective utilization of the same. The consolidated diluted EPS for FY12 was Rs. 8.13. At that EPS, the PE at the lower price band of Rs. 470 is 57.81 while the PE at the upper price band of Rs. 543 is an eye-popping 66.79. The weighted average ROE is quite high at 40.59%.

Recommendation - SUBSCRIBE

Hence we recommend investor to SUBSCRIBE to the offer at the lower end of the price band of Rs. 470/-.

Source : Equity Bulls

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