The stock of Just Dial has had a good run this year with YTD returns of close to 60 per cent. This has been on the back of consistent progress in operating performance in the last 3-4 quarters. In our bl.portfolio edition dated February 13, 2022, we had recommended that investors with a long-term perspective accumulate the stock when it was trading around ₹840. Our rationale for a positive view then was its reasonable valuation and scope for improvement in business performance, strong balance sheet and track record of consistent cash flow generation.
Further, the presence of Reliance Industries (via Reliance Retail Ventures) as the largest shareholder in the company (63.84 per cent) was an incremental positive in terms of scope for synergies with Reliance’s long term e-commerce plans.
After the recent upside, much of the positives mentioned above continue to remain intact. In fact, valuation is cheaper today at around 17 times EV/EBITDA (one-year forward) versus 22 times in February 2022. Operating performance has improved nicely in the last two years on the back of good execution by management and the momentum is expected to sustain.
While synergies with Reliance’s e-commerce business have not picked up much, the potential remains. Further, the balance sheet remains substantially solid with net cash in its books at 44 per cent of current market cap. The incrementally positive news with regard to its strong cash position is that management in its recent earnings call announced that they are having internal discussions along with the board on plans for distributing (dividends/buybacks) to shareholders of at least 100 per cent of annual profits.
If implemented, this could be a key catalyst for the stock. For a perspective, based on trailing twelve-month EPS the yield would be 3 per cent, while based on FY25 EPS estimates it works out to close to 5 per cent. While it is unclear on when a decision will be made, given the uncertainty on how company plans to use surplus cash has weighed on valuations, this is a key aspect to look out for.
Overall, with most positives intact, investors can continue to accumulate on dips. We prefer small accumulations over a period of time rather than a lumpsum buy given the uncertainties related to global markets that may cause some volatility in Indian stocks as well, especially in the case of small-cap stocks.
Business
Just Dial is the largest local search engine in India, with services spanning over 11,000 Pin Codes in 250+ cities across the nation. Its pan-India presence helps connect businesses and users across India. It provides information related to localised services to users in India through multiple platforms (mobile/desktop/telephone) and is well-established in the digital ecosystem in the country.
With a long track record in the local search business, Just Dial has a large database with nearly 45 million listings, consisting mainly of MSMEs (micro, small and medium enterprises).
Through its core aps JD App (business discovery and reviews), JD Ratings (verified ratings of SMEs/MSMEs), JD Business (managing business listings with value added features), JD Mart (B2B market place), and JD Analytics (insights on customer engagements and valued added services), the company provides services encompassing multiple facets that are beneficial to MSMEs. Some of these are well-developed, while company is focussing on improving mining of clients with other services.
At present, bulk of the revenue of the company comes from SME subscription packages, which are pre-paid in nature and hence without collection risks. While it allows free listings, based on the subscription package, SME/MSMEs can benefit from features such as priority placement and higher visibility in searches.
Recent performance
Given that SME/MSME sector forms the fulcrum of the company’s business, the gradual recovery in the sector post a hit during Covid-impacted years, has reflected in improvement in its financial and operating performance. This, and improvement in execution and cost controls, have been incremental positives boosting profitability.
User engagement in terms of unique quarterly visitors, active listings, and ratings/reviews has consistently improved in recent quarters (see chart). Financial performance has also improved nicely in FY23 and FY24 after a hit in FY22.
In the recently reported June quarter results, revenue was ₹280.6 crore, up 13.6 per cent Y-o-Y and EBITDA of ₹80.6 crore, up 119.8 per cent Y-o-Y. EBITDA margin at 28.7 per cent was up by a solid 13.8 per cent Y-o-Y. Net profit at ₹141 crore was up 60 per cent Y-o-Y. The recent quarterly performance re-affirmed the trend of consistent improvement, quarter after quarter, in the company’s performance.
