Rating: Hold; Target Price: Rs1,130; CMP: Rs1,290; Downside: 13%
Operating matrices disappoint
We maintain Hold rating on Just Dial and believe the company could
face pressure on the back of slower growth in paid campaigns coupled
with low usage & search request impacting pricing as in Q3FY14
results. High A&P spends of Rs0.6-1bn for transaction led businesses
will impact near term profitability, affecting valuations. While
strong revenues for transaction led businesses in FY15 could act as a
positive trigger, we believe it is too early to gauge its success and
hence see low visibility for earnings upgrade.
$ Q3FY14 results below expectations: The company posted 25.9% YoY
growth in sales to Rs1199mn (est .Rs1211mn). Operating profit was up
40.6% YoY to Rs333mn (9% below expectation) with strong operating
leverage expanding margins by 291bps to Rs27.8% despite 27.4% YoY
increase in employee cost led by higher headcount in sales force.
Sequentially, admin & other expenses increased 36.7% on higher A&P
spend (Rs50mn) in the quarter. Adj PAT was up by 86% YoY to Rs298mn,
2.4% above expectations driven by high other income (up 214% YoY) on
the back of Rs6bn in cash and investments and lower tax rate of 25.9%
against 31% in Q3FY13.
$ Operating matrices disappoint: During the quarter, the company
stopped zero down payment scheme for campaigns to take quality signups
which impacted paid campaigns for the quarter to 249K (up 27.9% YoY
and 4.6% QoQ). Both usage (115.6mn) and search (274.9mn) data were
down on a sequential basis by 5.7% on the back of seasonality and
design change in the website. Revenue/usage was up 0.3%YoY while
revenue/paid campaign was down 1.6% YoY. The company has hiked prices
across paid clients during the quarter which will help increase
realizations.
$ Focus on vendors for Search-Plus: Management believes the early
adaptation of 10 services under Search Plus has been encouraging with
focus on consumer experience and expanding the depth and breadth of
the service. The company is currently looking at vendor communication
and empanelment and will later look at their monetization. Management
believes this could have an advertising budget of Rs0.6-1bn in FY15.
We do not anticipate significant revenues from these businesses by
FY15E and have not factored in higher A&P spends currently.
$ Maintain Hold: We have lowered our revenue estimates for FY14/FY15
on the back of slowdown in usage and paid campaigns while increasing
our operating margins on high fixed cost business model. We maintain
Hold with a revised target price of Rs1130 (40x Dec 2015). We believe
higher A&P spends for transaction led business could impact near term
profitability while lower growth in paid campaigns and pressure on
pricing could act as a key risk. Upside could be strong revenues from
transaction-led business in FY15 leading to margin expansion.
Thanks & Regards
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Operating matrices disappoint
We maintain Hold rating on Just Dial and believe the company could
face pressure on the back of slower growth in paid campaigns coupled
with low usage & search request impacting pricing as in Q3FY14
results. High A&P spends of Rs0.6-1bn for transaction led businesses
will impact near term profitability, affecting valuations. While
strong revenues for transaction led businesses in FY15 could act as a
positive trigger, we believe it is too early to gauge its success and
hence see low visibility for earnings upgrade.
$ Q3FY14 results below expectations: The company posted 25.9% YoY
growth in sales to Rs1199mn (est .Rs1211mn). Operating profit was up
40.6% YoY to Rs333mn (9% below expectation) with strong operating
leverage expanding margins by 291bps to Rs27.8% despite 27.4% YoY
increase in employee cost led by higher headcount in sales force.
Sequentially, admin & other expenses increased 36.7% on higher A&P
spend (Rs50mn) in the quarter. Adj PAT was up by 86% YoY to Rs298mn,
2.4% above expectations driven by high other income (up 214% YoY) on
the back of Rs6bn in cash and investments and lower tax rate of 25.9%
against 31% in Q3FY13.
$ Operating matrices disappoint: During the quarter, the company
stopped zero down payment scheme for campaigns to take quality signups
which impacted paid campaigns for the quarter to 249K (up 27.9% YoY
and 4.6% QoQ). Both usage (115.6mn) and search (274.9mn) data were
down on a sequential basis by 5.7% on the back of seasonality and
design change in the website. Revenue/usage was up 0.3%YoY while
revenue/paid campaign was down 1.6% YoY. The company has hiked prices
across paid clients during the quarter which will help increase
realizations.
$ Focus on vendors for Search-Plus: Management believes the early
adaptation of 10 services under Search Plus has been encouraging with
focus on consumer experience and expanding the depth and breadth of
the service. The company is currently looking at vendor communication
and empanelment and will later look at their monetization. Management
believes this could have an advertising budget of Rs0.6-1bn in FY15.
We do not anticipate significant revenues from these businesses by
FY15E and have not factored in higher A&P spends currently.
$ Maintain Hold: We have lowered our revenue estimates for FY14/FY15
on the back of slowdown in usage and paid campaigns while increasing
our operating margins on high fixed cost business model. We maintain
Hold with a revised target price of Rs1130 (40x Dec 2015). We believe
higher A&P spends for transaction led business could impact near term
profitability while lower growth in paid campaigns and pressure on
pricing could act as a key risk. Upside could be strong revenues from
transaction-led business in FY15 leading to margin expansion.
Thanks & Regards
--
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