Just Dial: The right numbers - Initiating Coverage - Motilal Oswal

Monopoly 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.

Source : Equity Bulls

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