Just Dial - The Mindtree way or the Hath-way? - ICICI Securities

Capital infused by Reliance Retail (RRVL, ~Rs22bn), further to the strong cash balance (~Rs15bn), will likely help Just Dial to become more aggressive in scaling up its B2B business. Like RJio, JD can now afford to delay its monetisation plans, disrupt the competition (e.g. IndiaMART, Rs24bn cash balance in Mar-21) in pricing and play a significant catch up in B2B. Zomato like transition (B2B and even B2C) into more 'comprehensive' and end-to-end 'transactions' cannot be ruled out - further increasing the competitive / capital intensity of the business. It is surprising that the acquiring entity is RRVL and not Jio Platforms. We reckon JD's B2C business has limited exposure to Retail / Kiranas' directory, which may be the key area of interest for JioMart (part of RRVL).

The modus operandi of integration, scope for synergies (with RRVL, Jio Platforms and marquee investors like Facebook / Google, if any) is to be understood on the analyst call. In many Technology acquisitions, cannibalisation of 'competing' revenue by the acquirer is a key concern. The fact that Just Dial 'complements' (v/s competes) broader RIL's portfolio is comforting. We see loose similarities with RJio's / L&T's acquisition of Saavn / Mindtree. It remains to be seen how the dynamics of a 'potential' amalgamation with RIL over long term plays out. Nevertheless, continuity of Mr. VSS Mani (current promoter) as CEO and the sizeable stake he will hold in the post transaction entity (~11%) is re-assuring for minority shareholders. We will rework our estimates / TP post the analyst call.

- The Transaction 101. RRVL announced acquisition of controlling stake (~41%) in JustDial for a total consideration of ~Rs35bn. Of this - capital infusion by way of preferential allotment is ~Rs22bn with the rest being purchase of shares from Mr. VSS Mani via RRVL. Further, RRVL would make an open offer to acquire up to 26% stake in the company at a price of ~Rs1,022/share (5% below the closing price on 16th July). Subject to the subscription of the open offer, RRVL will end up owning ~41-67% of Just Dial post the transaction. Notably, Mr. VSS Mani will continue holding ~11% stake. He was re-appointed as MD & CEO for 5 years w.e.f 1st Aug-21.

- Q1FY22 in-line with expectations. 2nd wave / IPL campaign impacted financials. Quarterly unique visitors on JD platform declined ~4% QoQ in Jun-21 impacted by the covid 2nd wave led lockdowns and merchant closures. User engagement on the platform (ratings & reviews) continued to be resilient like during the 1st wave. Active listings (30.6mn) remained largely stable vs Mar-21. Sequentially, revenue declined 6%. The company reported EBITDA loss of ~Rs172mn. This was due to a sharp rise in other expenses (from ~13% in Mar-21 to 43% in Jun-21), which in turn was driven by the advertising & promotion spends for JD Mart (B2B platform). It should be noted that JD spent ~Rs0.5bn on advertising for JD Mart during IPL 2021.

- Fresh capital infusion will likely help in aggressive scaling up of B2B. With fresh capital and strong cash balances, JD can now afford to delay its monetisation plans, disrupt the competition (e.g. IndiaMART) in pricing and play a significant catch up in B2B. Zomato like transition (B2B and even B2C) into more 'comprehensive' and end-to-end 'transactions' cannot be ruled out - further increasing the competitive / capital intensity of the business.

- Modus operandi of integration / scope for synergies need to be understood. Investor focus should be on the modus operandi of integration on both the counts - businesses and apps. It remains to be seen whether Just Dial brand will continue status quo or rebranded / extended (e.g. Jio Saavn). Further, whether JD & JD Mart will remain as standalone apps or integrated into My Jio (part of Jio Platforms) should be a key area of investor focus.

For Just Dial, prima facie, we notice a stronger scope for synergies with Jio Platforms given its current offerings and marquee investors like Facebook and Google etc. In that context, it is surprising that the acquiring entity is RRVL and not Jio Platforms. Notably, JD's B2C business has limited exposure to kiranas category (I-Sec est), which may be the key focus area for Jio Mart (part of RRVL).

- Cannibalisation unlikely as JD complements (vs competes) RIL's offerings. In many Technology acquisitions (e.g. Microsoft's acquisition of Wunderlust / SunRise, RIL's acquisition of Hathway etc.), cannibalisation of 'competing' revenue stream by the acquirer is a common outcome. However, at the other end of the spectrum are case studies of large companies acquiring, strongly backing and scaling up companies which are bringing in complementarity (e.g. Google's acquisition of YouTube / Android, Facebook's acquisition of WhatsApp / Instagram, Jio's acquisition of Saavn and L&T's acquisition of Mindtree).

The fact that Just Dial 'complements' (than competes) broader RIL's portfolio is comforting. It remains to be seen how the dynamics of a 'potential' amalgamation with RIL over the long term plays out. Nevertheless, continuity of Mr. VSS Mani (current promoter) as CEO and the sizeable stake he will hold in the post transaction entity (~11%) is re-assuring for minority shareholders. We will rework our estimates / TP post the analyst call.

Shares of JUST DIAL LTD. was last trading in BSE at Rs. 989.7 as compared to the previous close of Rs. 1017.8. The total number of shares traded during the day was 13298425 in over 9437 trades.

The stock hit an intraday high of Rs. 1054.35 and intraday low of 983.25. The net turnover during the day was Rs. 13562071427.

Source : Equity Bulls

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