Just Dial For Profit

"Digitisation in India is leading to lower cost of acquiring, servicing and retaining customers. In order to tap this opportunity and empower its MSME partners, the company has devised a five-pronged internet strategy. The company is looking to list more SMEs on its platforms and leverage its strong positioning as a local search engine and online marketplace."



Just Dial is India’s no.1 local search engine that provides several searchrelated services to its users via multiple platforms such as website, mobile applications, over telephone and text. Just Dial’s services help in bridging the gap between users and businesses by helping them find relevant products and service providers effortlessly. The company also helps businesses listed on its database to market their offerings. The company’s operator-assisted hotline number is accessible across India 24 hours a day, 7 days a week with multilingual support. The company has a database of approximately 25 million listings. The company has over 134 million quarterly unique users across web, mobile, app and voice platforms. Just Dial users have contributed over 90 million reviews and ratings for various listings till date. The company offers businesses the option to list their business on Just Dial’s database for free. The company had almost 4,85,000 campaigns.

Just Dial started operations in 1996 offering local search services under the ‘Just Dial’ brand. Just Dial has also initiated ‘Search Plus’ services with the aim of making several day-to-day services convenient and accessible to users through a single app. This has enabled Just Dial to transition from being purely a provider of local search and related information to being an enabler of such transactions. The company has also recently launched an end-to-end business management solution for SMEs called ‘JD Omni’ through which it wants to help thousands of SMEs have an online presence through their platforms, while also helping them run their businesses efficiently.

Industry
India, with a subscriber base of 1.2 billion, is the world’s second largest telecommunications market. Of these, 44 per cent subscribers hail from rural India and the remaining 56 per cent are from urban India. Mobiles enjoy a dominating 98 per cent share in the country’s total subscriptions. The Ministry of Communications estimates the mobile industry in India to create value of Rs. 14 trillion by 2020 and provide employment to 4 million people directly or indirectly.

The entry of Reliance Jio in the telecom industry in 2016 has led to the tariffs for voice and data services to fall sharply from Rs. 33 per GB in 2014 to Rs. 21 per GB in 2017. This has led to an exponential growth in the usage of data across India. The rise in smartphone penetration, combined with a fall in data costs, is expected to attract an additional 500 million new internet users over the next 5 years, which could open up a plethora of opportunities for businesses. E-commerce has made life extremely convenient for customers, which has led to the demand for this convenience to be carried across the value chain. A large part of all retail sales are expected from e-commerce companies in the coming years. This has led to several retail businesses expanding their presence to the online platform. The rise of mobile wallets and digital payments has allowed customers to execute their monetary transactions with convenience and speed.

Growth Drivers

Just Dial has a pan-India presence across more than 250 cities. Just Dial enjoys a strong omni-channel presence across both offline and online markets. The continued adoption of online search platforms by India’s users is a primary enabler of growth for the company. The Tier-II and Tier-III cities are witnessing rapid internet penetration and are even outpacing Tier-I cities. As internet penetration in India gains further traction, Just Dial’s various platforms for online search will serve as the preferred platform for users due to its strong brand recall.

Just Dial has continued to improve its product offerings and technological upgradation of its platforms. The company has been able to position Just Dial as a one-stop shop for all search, shop and social needs of users. The company intends to position itself as utility-based investment for SMEs by offering better value for money. The company intends to add new SMEs to its platforms, ramp up realisation per paid customer by offering packages that deliver high value proposition. The company boasts of a robust database and is associated with more than 22 million SME partners.



The company has an early mover advantage in local search business in India. In order to capitalize on the growth of mobile internet users, the company has continuously strived to improve on its mobile platforms which include mobile web and JD apps. This has enabled the company to reduce the page load time by 40 per cent. JD apps are available across all the major operating platforms like Android, iOS, Windows and Backberry. This contributed to the company getting 71 per cent of its traffic from mobile platforms.

Digitisation in India is leading to lower cost of acquiring, servicing and retaining customers. In order to tap this opportunity and empower its MSME partners, the company has devised a five-pronged internet strategy. The company is looking to list more SMEs on its platforms and leverage its strong positioning as a local search engine and online marketplace. The company uses its social media platform JD Social which enables users to view reviews, ratings and chat as well as receive curated content and information on business trends. The company’s online payments platform JD Pay enables customers to make digital payments transactions conveniently. Just Dial’s ratings and reviews have grown rapidly recently. It enables the MSMEs to improve business efficiencies. The ratings are also an important tool to enhance Just Dial's own reputation and attract more customers.



Challenges
The lion’s share of the company revenues comes from Tier-I cities, whereas rapid growth in mobile penetration is happening in the smaller Tier-II and Tier-III cities. The company is making efforts to expand in the growth areas. This, however, could lead to pricing erosion as the disposable incomes in Tier-II and Tier-III cities is far lower than in Tier-I cities.

The overall customer base for the company continues to grow but monetisation of the increased traffic remains uncertain because the share of non-paying customers is growing significantly. Excessive competition could lead to significant market share loss for the company as the growing preference for domain-specific apps has affected traffic to Just Dial. This has led to low inclination among the company’s existing clients to pay a premium for Just Dial’s services.



Just Dial’s long term prospects remain uncertain as competitors like Google are constantly growing generic search capabilities make it difficult for Just Dial to differentiate itself. The trend of having a direct web presence by SMEs due to the falling costs and growing ease of setting up websites could hurt the company. Large ad spends may be necessary to compete with the aggressive cash burns by domain-specific apps, which could hurt profitability.

The company has an early mover advantage in local search business in India. In order to capitalize on the growth of mobile internet users, the company has continuously strived to improve on its mobile platforms which include mobile web and JD apps. This has enabled the company to reduce the page load time by 40 per cent. JD apps are available across all the major operating platforms like Android, iOS, Windows and Backberry. This contributed to the company getting 71 per cent of its traffic from mobile platforms.

Financials

On a standalone basis, Just Dial reported a total income of Rs. 226.78 crore for the quarter ended December 2018, up 15.23 per cent from Rs. 196.79 crore in the corresponding quarter last year. The company’s net profit for the quarter ended December 2018 stood at Rs. 57.34 crore, up by 100.34 per cent from Rs. 28.6 crore in the same period last year. The EBITDA margin for the quarter came in at 39.33 per cent as against 24.96 per cent YoY.

On a QoQ basis, the company’s total income came in at Rs. 226.78 crore for the quarter ended December 2018, registering a growth of 2.6 per cent from Rs. 221.03 crore in the previous quarter.

The company’s net profit increased by 18.43 per cent to Rs. 57.3 crore in the quarter ended December 2018 from Rs. 48.38 crore in the previous quarter.

On the annual front, the company reported sales of Rs. 781.77 crore in FY18 as against Rs. 718.61 crore in FY17, registering a growth of 8.78 per cent. The company’s net income came in at Rs. 143.18 crore, up by 18 per cent from Rs. 121.34 crore in FY17. The EBITDA came in at Rs. 230.28 crore, up 17.11 per cent YoY from Rs. 196.62 crore.


Valuation
Just Dial has a market capitalisation of Rs. 4158 crore. The company’s PE ratio stands at 22.7x. The company’s return on equity (RoE) and return on capital employed (RoCE) stood at 15.87 per cent and 21.48 per cent respectively. The company is debt-free.

Conclusion
In conclusion, Just Dial runs the risk of severe competition from technology behemoths like Google and domainspecific apps. The falling costs and ease of setting up websites could be a key challenge for the company. However, Just Dial enjoys strong brand equity and has a first mover advantage. India’s smartphone and internet penetration remain underpenetrated despite their growth. If Just Dial is able to better monetize the traffic it receives, the company will enjoy a period of sustainable growth. By virtue of the above factors, we recommend a HOLD. 

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