Saturday, May 18, 2013

Just Dial Limited IPO Summary

Issue Price: Rs. 470- Rs.543
Issue Open: May 20- May 22, 2013
Issue Size: 17.4 million equity shares
Bid Lot: 25 Equity Shares, and in multiple of 25 equity share thereafter
Face Value: Rs.10 per share
Crisil Grade: 5/5

Just Dial Limited (JD) is a local search engines in India. It aims to provide fast, free, reliable and comprehensive information to its users and connect buyers to sellers through multiple platforms: Internet, mobile Internet, telephone (voice) and text (SMS).

As of March 31, 2013, its database includes approximately 9.1 million listings. For fiscal year 2012, the company covered over 254.3 million search requests across our platforms. It managed 195,100 advertisement campaigns as of Dec 2012.

It commenced its business operation under brand name 'Just Dial' in 1996. The registered and corporate office is located in Mumbai. It also has presence in Ahmedabad, Bengaluru, Chandigarh, Chennai, Coimbatore, Delhi, Hyderabad, Jaipur, Kolkata and Pune.

Company’s USP
  • First mover advantage in local search market in India
  • Strong business database and good brand recall
  • Beneficial for SME  as it offers cost effective mode of customer targeting
  • Personalized relations with SMEs
  • Good understanding of and has hands-on experience in Indian local market
  • Provides services across multiple platform
Business Model
The company follows a B2B model. It generates revenue in form of listing fees from local businesses. These listings are featured among the company’s search results (which it calls campaigns) on a priority basis. The services are provided to consumers or end-users for free.
  • The company has profitable business operation with PAT of 17.3% as of nine months ended Dec 31, 2012 and 18.3% as of financial year 2012.
  • Its customer base majorly comprises of SME client. The company has adopted model of advance payment from its client for listing, as a result it enjoys negligible outstanding receivables.
  • The company is not dependent on external loans for its growth 
Critical Success Factors
  • Ability to scale up and to provide existing services via new technological tools and increase the user base.
  • Efficient functioning of the website
  • Ability to protect its platform from being misused.
  • Create brand recognition and enhance brand awareness
  • Regular updatation of the database of business listing
  • Ability to customized product and services for the local market
Risk
  • Low barrier to entry: A new entrant with strong financial backing can easily start similar business. Further, it also faces threat from Google India and and Nokia’s city lens app.
  • No exclusivity: Business enterprises and corporate that share information with Just Dial are free to share information with other competitors and not bounded by any exclusivity agreement.
  • Any adverse economic cycle would reduce the availability of disposable income and accordingly the business house may reduce its expenditure on advertisement with Just Dial. Further, if there is a change in spending habits of the customer, then the user base may also fall.
  • Strong Brand position, may have prospective threat from any changes in Competition Act, 2002, prohibits the abuse of dominant position by any company.
  • Any dissatisfaction among its user may adversely affect user traffic on websites, which could make it difficult to win back the customer’s trust.
The company faces competition from other local search engine like Askme.com, Asklaila.com, Sulekha.com, Getit.in. 
Future Business Plan and Revenue Stream
  • Develop Mobile Apps to provide search services. However, Justdial apps are currently available for Android, Blackberry and iOS platform
  • Enable booking and processing of transaction through its website. The service would include restaurant bookings, home delivery of food, placing groceries order, arranging doctors’ appointments and taxi bookings. Some of the features of food delivery and doctors’ appointment are currently available.  
  • To ventures into online food delivery service through bookturbal.com
  • To offer space for buy, sell, rate goods and services. It plans to initiate these services through Car listing. The services will be available for both- new and old cars.
  • To provide prospective buyers price quotes from multiple vendors through mail and SMS
  • Expand geographic reach to USA and Canada through group company Just Dial, Inc. USA and  Just Dial Global Private Limited (a holding company for Just Dial, Inc. USA). It also plans to expand its presence in other cities of India.
Funds raised and its utilization
  • The company offers 17,497,458 equity shares or 25.02% of its equity shares. Promoter VSS Mani and existing investors, including SAIF Partners, Tiger Global, Sequoia Capital and SAP Ventures, would be selling part of their holdings. The management and the promoter group will sell around 2.8 million equity share and balance 14.7 million shares will be sold by investors. As a result, the company will not receive any proceeds from the offer.
  • The price bands are Rs 470-543 and the company would receive net proceeds in range of Rs.822-950 crores. Thus, the expected market capitalization would be in the range of Rs 3,287-3,797 crore.
  • Further, 75% of the issue size has been reserved for qualified institutional investors. 10% of the issue is reserved for retail investors (those who invest up to Rs.2 lakh per application), would enjoy benefit of 10% discount and balance 15% for HNIs.
  • Shares will be listed on BSE, NSE and MCX-SX

Protection to Investor
The Safety Net Scheme will operate for a period of 180 days beginning from the date of listing and commencement of trading of the equity shares on the Stock Exchanges (‘Safety Net Period’). The promoters of the Company - V.S.S. Mani, Ramani Iyer and V. Krishnan, will jointly act as a safety net providers.  All retail individual bidders to the issue who have received allotment form the offer and are resident in India are eligible to benefit from safety net scheme.

The safety net mechanisms will be triggered on completion of the safety net period, if the safety net trigger price (to be computed as per weighted average of share price and volume during 60 days before the trigger of safety net scheme) is lower than the price at which the equity shares were allotted to the retail individual in the Offer.On the occurrence of the safety net trigger, the safety net providers will make an invitation to the eligible allottees to offer for sell the equity shares allotted to them in the IPO offer.

Further, the safety net provision applies for investment below Rs. 50,000. So an individual may apply for 4 lots (i.e. 100 shares) at lower price band and 3 lots (i.e 75 shares) at higher price band to get protection under this scheme.

Valuation
The consolidated revenue from operating activities have increased from Rs. 71.6 crores as of Mar 2008 to 277.02 crores as of Mar 2012, registering a CAGR of 40.2%. During the same period, the profit after tax from continuing activities has increased from Rs. 1.71 crores to 52.27 crores, a CAGR of 135.1%.

The unconsolidated revenue and PAT for nine months ended December 31, 2012 was Rs. 271.6 crores and 47.0 crores, respectively. Though the company has grown at whooping pace during 2008-2012, the high growth may also be attributed to lower base in earlier years. However, it is likely that the company may not be able to replicate such high growth in future.

The basic and diluted weighted average EPS (2010-2012) computed based on restated consolidated income statement was Rs. 6.72 and Rs. 6.05. So, the PE computed based on diluted EPS would be 77.6x for lower price band and 89.7x for higher price band. However the basic and diluted restated consolidated EPS for 2012 was 9.37 and 8.13 respectively. Considering diluted EPS for 2012, the PE would be 57.8x-66.7x. Further, there are no listed companies directly comparable to or operating in similar space as JD in India. So, based on the valuation, the IPO seems expensive.  

References
  1. Just Dial Limited Draft Red Herring Prospectus (May 2013)
  2. ‘All you want to know about Just Dial IPO’ (May 15, 2013) Moneycontrol.com, < http://www.moneycontrol.com/news/ipo-issues-open/all-you-want-to-know-about-just-dial-ipo_871714.html> accessed on May 18, 2013
  3. Lisa Pallavi Barbora, (May 15, 2013), ‘Just Dial IPO set to open, Should you buy?’, <http://www.livemint.com/Money/F7Fm0tlY7T4LszrhaxcZQK/Just-Dial-IPO-set-to-open-Should-you-buy.html> accessed on May 18, 2013
  4. AB Money, (May 17, 2013) ‘Why Just Dial IPO is a complete 'Avoid' for ABMoney’, <http://www.moneycontrol.com/mccode/news/article/article_pdf.php?autono=873463&num=0>, accessed on May 18, 2013
  5. Madhav A Chanchani (May 13, 2013), ‘Just Dial to open largest consumer internet IPO; SAIF Partners, others in multi-bagger exits’, http://techcircle.vccircle.com/2013/05/13/just-dial-issue-to-open-on-may-20-saif-partners-sequoia-others-to-part-exit/, accessed on May 18, 2013
  6. Sheetal Agarwal (May 16, 2013) ‘Just Dial IPO: Expensive dial-in’,< http://www.business-standard.com/article/markets/just-dial-ipo-expensive-dial-in-113051601101_1.html>, accessed on May 18, 2013
Disclaimer:
The author of this blog is not responsible for any decision made based on the information shared here. The visitors assume the entire risk of any use made of the opinions expressed herein. The author may or may not subscribe to this issue.