Just Dial: Ringing in revenue

The stock of Just Dial seems a value buy. It has underperformed the market in the last one year, dropping about 40 per cent. The company had planned an equity issue, which would have resulted in earnings dilution. The delay in the launch of its new e-commerce app — ‘Search plus’ — was a dampener too. But these concerns seem to have abated. In June, the company shelved its fund-raising plans, seeing little opportunity for good acquisitions.

Also, recently, Just Dial launched its Search Plus app.

The Just Dial stock seems a good long-term buy for several reasons. Even as many big daddy e-commerce companies are spending big money to acquire clients, Just Dial already has a solid customer base.

More than 20 crore unique visitors search for information on its platforms — web-based, voice and app — each year. It has a large database of 1.5 crore businesses from about 200 cities. These numbers are set to grow. The new app that lets users transact, in addition to searching for information, also holds promise. Though e-commerce is an increasingly crowded place, Just Dial’s market leadership in search solutions and its brand recall should give its app a good start. The stock’s valuation has also come down sharply. At ₹1,035 now, it trades at 38 times its estimated earnings for 2016-17, down from about 70 times a year back. It is also cheaper than the other e-commerce player in the listed space - Info Edge that trades at about 60 times.

The only risk to investment is Google’s ramp up of search business in India — if this happens in the next few years, Just Dial may see its pie being eaten up by Google. However, given the large database of Just Dial and its two-decade relationship with SMEs in the country, it may stand up against rivalry and grow.

Just Dial, which started in mid-1990s as a voice-based search engine, added internet and mobile app-based search over the years.

Being the first mover in the search market in the country, the company has built a formidable database of SMEs — across various businesses from plumbers to courier agencies. Its database has expanded from 45 lakh businesses in 2010 to 1.5 crore businesses today. This is far ahead of the competition such as Sulekha (about four million listings).

Survival and growth in the local search business is not only about the size of the database, but also about the feet-on-the street which the company has deployed to expand and update its database.

The SME database directory needs updating every few months, a manpower-intensive exercise. Just Dial holds strong on this aspect — it has about 10,700 employees — with 3,700 tele-sales executives, 1,200 feet-on-street executives, and nearly 1,300 ‘ambassadors’ who engage with SME clients directly. The scope to grow the search business is large. There are over 40-50 million SMEs in the country; less than half are currently listed with Just Dial. Also, only 2 per cent of the listings on Just Dial currently are paid and get value-added features and more visibility; the others list for free.

As more SMEs seek to differentiate themselves, Just Dial’s listed ad base and earnings should grow. Paid campaigns on Just Dial have been growing at an annual rate of 40 per cent since 2010.

Just Dial's business model has been profitable. In 2014-15, the company saw revenue and profit grow by 28 per cent and 15 per cent, respectively.

In the recent June quarter, sales grew 25 per cent over the same period last year and profits increased 18 per cent. It saw about 7.52 crore unique visitors in total (across voice, PC and mobile platforms) in the quarter, up from 6.67 crore visitors seen in the March quarter. The operating profit margin for the quarter was 28.7 per cent versus 25 per cent last year, thanks to more paid listings and higher pricing.

Just Dial’s ‘Search plus’ app should help it evolve from a search company to a full-fledged e-commerce player.

The app lets visitors not just connect with businesses across various product and service categories but also transact with them.

It also helps the large number of mom-and-pop shops listed with Just Dial, but without an online presence, expand their target market and sell to the company’s visitors.

Just Dial’s revenue should increase going ahead. Users engaging actively in the ‘Search plus’ app will bring revenues from transaction fee, vendor app usage fee and ad revenue.

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