Just Dial : Takeaways from Citi India Internet Corporate Day

Just Dial (JUST.BO)
Alert: Takeaways from Citi India Internet Corporate Day
 Takeaways from Mumbai – Just Dial (JUST) presented at the Citi India Internet
Corporate Day in Mumbai today. We present key takeaways below:
 Focus is on new services beyond the legacy search business –
– Quick Quote – Plans to launch quick quote service in the next 1 month, which
will be an enhanced service over existing best deal. In addition to competitive
pricing, JUST believes that its tie-up with local vendors should help the customer
potentially get same-day fulfillment (delivery) given their proximity.
– Transaction services – The company believes its long history and brand should
help increase user comfort, the biggest challenge for online transactions. JUST
has already launched service for ordering food, wine and booking a table in a
restaurant and has a host of other services in the pipeline. The goal over the next
3-4 quarters is to create awareness and win consumer mindshare rather than
revenue/profit generation. Eventually, it could start charging based on a
commission structure (on value of transaction). Longer term, the company’s
ambition is to try and charge 1% of the household spend across transactions as
commission. However, all services would remain free for the end consumer.
 Little impact from economic slowdown – Management believes that the
economic slowdown has little impact on the company’s growth prospects given the
high reliance of many SMEs on attracting business from Just Dial’s user queries.
However, churn does go up in a slowdown as incidence of SME failure rate
increases (anyways is an ongoing trend).
 Focus on margins vs. accelerating topline – The company could accelerate
topline from the current ~30%yoy by sacrificing margins (increase sales force;
reduce target productivity metric for the sales force). However the aim is to sustain
and grow margins. Currently, it tries to generate 3x returns on its sales force spend.

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Just Dial
Valuation
We value Just Dial at 50x Mar-15E PER (0.1x PEG; 2-year EPS CAGR). This
implies a FY15E EV/Sales of 13x, which is in line with Yelp; a US based local
search provider with better topline growth (55% 2yr CAGR v/s 18% for Just) but with
lower profitability (6% ROE v/s 25% ROE for Just). The target multiple is at a
premium to Info Edge (implied consol target PE of 32x) but justified given superior
earnings growth and less vulnerability to economic cyclicality.
Risks
Downside risk factors that could impact our investment thesis and prevent the
shares from reaching our target price include: 1) Challenges with building reviews,
which is still a relatively new phenomenon in India, 2) Competition, 3) Any
technology disruption which may erode JUST's mind share and advantage of onthe-
ground presence, 4) Any change in relationships with search engines, 5)
Prolonged macro slowdown may hurt consumer sentiment and cause SMEs to cut
back on advertising, 6) Regulatory risk in terms of protection and disclosure of
personal data, and 7) Related-party transactions.