Issue Highlights
Issue Period
|
20/5/2013-22/5/2013
|
Issue Type
|
100% book
building
|
Price Range
|
Rs. 470-543
|
Face value
|
Rs. 10
|
Market Lot
|
25 equity
shares
|
Issue Size
|
1,74,97,458
equity shares
|
Listing
|
BSE,NSE,MCX-SX
|
Registrar
|
Karvy
Coputershare
|
Maximum Retail Limit
|
Rs. 1,98,400/
16 lots
|
Retail Discount
|
Rs.47
|
Industry
|
Advertising/local search
|
Safety Net Feature
|
Yes
|
The offer
The issue is ‘Offer for Sale’ and no fresh equity will be
generated.
Industry Profile
Indian advertising market has generated revenue of Rs. 256
billion in 2011 and by 2015 it is supposed to grow to Rs. 370 billion at a CAGR of 9.6 %.
The players in the local search services include Just Dial
Ltd., Asklaila, Burrp,Getit, infomedia18,Metromela,Onyyomo,Sulekaha and
Timescity. Many of these companies provide both online and offline search
services.
Classifieds is a distinct type of advertising medium and in
years to come online classifieds shall surpass their offline counterparts but
low presence of vernacular language in online classifieds hinders its growth to
some extent.
Company Profile
Just dial, incorporated by Mr. V.S.S Mani in 1993 as A&M
Communications Pvt. Ltd., is a leading search services provider in India which
provides its services through multiple platforms like internet, mobile
internet, telephone (voice), text (SMS).
The company started offering its search services in 1996
under the Justdial brand and launched its internet and mobile services in 2007.
Just Dial Ltd. has a database of approximately 7.7 million listings (June 2012
figure).
If someone has to find the umbrella retailers or stationery
shops in a new city, he can either call Justdial’s easy-to-memorize no.
08888888888 or make a search at Justdial’s portal; even if one does the
Google-search Google usually displays the listings by Justdial on the first
page.
Strengths
· A myriad of Google-searches ‘Just Dial Ltd.’
results on the first page. For Many key
words Justdial tops the result list
·
Just dial is among a few companies that
pioneered the business of local search services
·
Just dial provides both online and offline
search services efficiently
Just Dial Ltd. brand boasts strong brand equity. The company had roped
Amitabh bachchan to promote its brand. Concerns
1. Criminal
proceeding against the company and some of its employees including MD and a few
directors is not a good omen and raise question on its corporate governance.
Some grave allegations of unlawfully deducting money and signature forging are
worrisome as it could lead to customer dissatisfaction and could end up in a business loss
2.
The company is highly technology-driven and any major technological failure or company’s inability to keep itself abreast
of the latest developments in technology could adversely affect its
profitability
3.
This sector is highly competitive – there are
many competitors like OLX.in, quicker.com, sulekha.com etc. Some of these names may belong to little different domain but they
compete Just Dial Ltd. for the space in the result list of search engines.
4.
Company’s promoters and principal shareholders
have a vested interest in a group company called, JD Global, which is involved in
the same business in USA and Canada through its subsidiary JD USA. Just
Dial Ltd. has sold its equity interests in JD USA and there is no
no-compete-clause between the two entities. This may prove as a hindrance to growth in case Justdial enters this market.
5.
Promoters and principal shareholders own almost 100 %
equity in JD Global and this poses following threats-
a.
There may be a conflict of interests in future due to the
absence of no-compete-clause between JD Global and Just Dial Ltd.
b.
There may be a spooking threat of promoters siphoning money
from Just Dial Ltd. into JD Global (also refer point 8) – a deadly vulnerability as
promoters hold only 37 % (post issue 33
%) equity in Just Dial Ltd. while they own quite a chunk in JD Global
7
Just Dial Ltd. depends significantly on search
engines that are also its competitors. Just Dial Ltd. has made arrangement with
search engines through ad campaigns and pay-per-click programme. Any breach of
rapport between Just Dial Ltd. and search engines could wreak havoc on its
profitability.
8
Jusdial’s cancelling of its preference shares
worth Rs. 72.48 crore in JD Global
followed by adjustments resulting in a decrement in its net worth by Rs.
72.5 crore in the name of streamlining
the business operations (of both entities) raises concerns
9
Recessionary period has seen a decline in the ad-spending by Justdial's customers resulting in a loss of income
10
Auditors have found slew of discrepancies in
past few years
11
Top 11 largest cities contributed for 85 % of
total campaigns with the company and a major chunk of revenue comes from these
cities. Mumbai and NCR contribute for around 37 % of campaigns. Any sort of
upheaval or turmoil in these cities could adversely affect the revenue of Just
Dial Ltd..
12
ESOP to some employees was done at less than one-fifth
of the present price band. Amitabh Bachchan, a well-known Indian celebrity who
had promoted the brand Just Dial was issued 62,794 shares at just Rs.
10 per share, this shows how steep valuations of this IPO are!
Financial Analysis
# All calculations at the cap-price for retail investors
i.e. Rs. 496 (considering the retail discount) and hence are different from the
same for other investor categories
## for information purpose only as in FY 12 Just Dial Ltd.
sold its shareholding in JD USA and thus
comparison with the past may not be meaningful
Parameter
|
FY
13 Annualized
|
FY
12 ##
|
Basic EPS
|
Rs. 8.8
|
Rs.7.2
|
Book Value
|
Rs. 57.9
|
Rs.14.8
|
P/E
|
56.6
|
68.5
|
P/B
|
8.6
|
33.5
|
NPM
|
17%
|
18%
|
Profit CAGR(3 years) ##
|
47%
|
89%
|
PEG
|
1.2
|
.8
|
Debt/Equity(exhaustive)
|
.4
|
1.4
|
ROE
|
15.1%
|
48.9%
|
EV/EBITDA
|
37.63
|
48.3
|
Current Ratio
|
3
|
1.4
|
M-Cap/Sales
|
9.6
|
12.6
|
The Analysis
·
Believing the authenticity of the financials shown in the prospectus, fundamentals of the company seems satisfactory. But
the net worth of the company becoming almost 4 times in FY 13 (in just 9
months) of the same a year ago (FY 12) is difficult to believe.
·
Price to earnings ratio is on higher side but
3-year profit CAGR justifies the PEG
ratio. But if in future Justdial fails
to maintain this growth, its valuation shall erode greatly
·
The biggest threat to such companies is from
search engines like Google,Yahoo and Bing. An internet user’s first choice for
doing a local search will be Google(with around 70 % search share) and
presently Google shows the listings from Justdial. But, in future if Google
enters in this niche-market or stops showing listings from Justdial or even restricts
its listings to later pages, it shall affect Justdial adversely.A Smartphone
user is more likely to search his needs on a search engine rather than either
opening the portal of Justdial or giving a call to Justdial. There is very high
probability that in future Google will try to grab this lucrative market.
·
As more and more SMEs and small traders going
for their own web presence,they may not go for paid-advertising with Justdial. Besides,
this may also result in the reduction of the site users.
·
Company being an almost debt-free company enjoys
an edge over its competitor
·
Related party transactions as discussed in
‘Concerns’ are worrisome
·
The issue being an offer for sale, proceeds of
the issue shall not come into the company to benefit it.
Inference
This IPO being highly priced and
due to the underlying concerns, is a risky proposition. Though high price-to-earnings
ratio can be justified by the present profit CAGR but it is doubtful that this
growth shall be maintained in future especially under the looming threat of the growing
prowess of search engines. This issue may not be suitable for risk-averse value
investors but success of an IPO is determined not only by its underlying value
but also by the market sentiment, overall liquidity condition and the euphoria about
the issue. Those who have understood the underlying risks and are ready to take the risk may go for the issue as
due to retail discount and the prevailing market sentiments there may be chances of listing gains in this issue.
Disclaimer
Analysis is for the information purpose only. Though due care and caution have been taken while preparing this report, analyst shall not be responsible for any error and shall not bear any financial liability to the users of this report.
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