Just Dial - Beyond search!!! - Centrum

We initiate coverage on Just Dial with a BUY rating and believe the premium valuation will sustain given the company's strong revenue and profitability growth. Also, there could be re-rating at the margin as it was recently listed and the thinly covered stock comes more into the limelight. A highly efficient and scalable business model coupled with an entry into transaction driven businesses will further offer upside from FY15E. The first mover advantage and a presence across platforms have made Just Dial the first choice for SMEs for lead generation.

Foundation in place for sustained competitive edge: We believe Just Dial has a first mover advantage with strong brand recall in India as evidenced by the 364mn searches of the database across platforms. The efficient and scalable business model offers a win-win proposition for both users and SMEs. We believe Just Dial has created a huge entry barrier in the business with more than 80% of the employees client facing coupled with a strong marketing and sales network.

Future growth strategy intact: We believe the company's strategy to penetrate deep into existing markets and explore new markets through a hub & spoke model will bear fruit in the next 3 years. Nonlinear revenue streams through transaction driven business model of online ordering of food, doctor's appointments, grocery orders and cab bookings will become big from FY15. New products and services are aligned to increasing user activity which could further increase leads for SMEs.

Leveraging key themes: We believe growing internet users will boost online classifieds market from Rs30.6bn in 2011 to Rs84.3bn in 2016. Telecom is further expected to propel internet penetration as India becomes the third largest smart phone market in the world by 2017 with 10.3% market share from 3% currently. The number of SMEs has grown from 26.1mn to 31.2mn over FY07-11. The CAGR of 4.5% offers a huge opportunity given that paid listings are merely 0.5% of the overall market for Just Dial

Valuations & Risks: We see attractive risk reward for Just Dial, given its i) Revenue CAGR of 31.9%, operating margin expansion of 442bps and PAT CAGR of 44.17% over FY13-16E ii) Asset light business model and strong FCF iii) Healthy return ratios and expectations of high dividend payout. Hence we value Just Dial at 35x Sept 2015 EPS of Rs25.8, with a target price of Rs902. As we show in our report, there are credible examples of high sustained ratings of several other companies with either high or consistent growth or strong cash flows. Key risks are regulatory changes, growth at the cost of working capital and employee attrition.

Source : Equity Bulls

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