Justdial: Sell

Justdial, a search service provider with a large database of listings across categories, is having a spectacular run on the bourses.

We asked investors to refrain from investing in its initial public offering (IPO) last June in the light of its stretched valuations.

But the stock price has nearly trebled since the IPO. But our view hasn’t changed as the stock has become even more expensive.

Investors who had bought at the time of the IPO can book profits in the stock and can even consider selling their entire holding.

At ₹1,575, the stock trades at around 100 times its annualised per share earnings in 2013-14, making it one of the costliest stocks in the market.

Though not comparable, the internet-based job search provider, Info Edge, trades at 50 times trailing 12-months per share earnings.

In the first half of the current fiscal, Justdial’s revenues grew 28.3 per cent over the same period in 2012-13 to around ₹271 crore, while its net profit rose 82.2 per cent to nearly ₹57 crore.

The increase in net profits was helped by other income (mainly interest from deposits) to the tune of nearly ₹16 crore. Excluding this, the profit growth would have been around 55 per cent.

Multiple players Justdial provides users information through classified listings on a host of categories such as restaurants, malls, hospitals, ATMs, and movie halls. Customers reach the company either by calling or through its portal.

It was the first mover in this space in India and has been able to build a stable model.

If a business or an enterprise wants priority in listing or prominence, ahead of others, Justdial charges a fee which is the source of revenue for the company.

As of September 2013, Justdial has a database of 10.1 million business listings, which has risen rapidly over the past three-four years. Of this, 2.39 lakh listings were paid campaigns. The conversion has been to the extent of only a little over 2 per cent.

The total search requests in the first half of 2013-14 were about 238 million.

Nearly 68 per cent of the search requests coming to Justdial is from the internet (including mobile internet), the rest from voice.

The proportion of traffic is likely to continue tending towards the internet, in the light of the increasing penetration of smartphones and rising broadband coverage.

Competitive market There is formidable competition to Justdial from players such as Sulekha, Asklaila and Askme. Its peers operate with similar models and are backed by venture capitalists and private equity players with deep pockets.

Also, global behemoth Google is spreading its reach rapidly in India.

Despite its competition having far lower number of listings, they would still compete with Justdial for advertisements.

A recent report by FICCI-KPMG indicates that digital advertising in India would grow at 32 per cent annually from ₹2,830 crore in 2013 to ₹8,720 crore in 2017.

Clearly, the rate of growth is not scorching enough and even if Justdial, being the market leader, grows at a faster pace, valuations would be compelling only if the stock corrects significantly.

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