Justdial :Reiterate Buy, correction an opportunity :Nomura

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Local search continues to perform well; Search Plus value proposition not yet priced in Action: Recent fall an opportunity to accumulate, reiterate Buy JUST has corrected by ~25% since its above-expectation 3QFY15 results, which we believe is due to fears of: 1) private equity (PE) investors (which hold ~35% stake) trimming positions to fund private ventures; 2) higher-thananticipated spends on advertising on its Search Plus offerings; and 3) uncertainty on execution in Search Plus services. After interacting with management, we came back reassured on our positive stance and retain Buy as we see: 1) strong traction in its local search business (26% CAGR over FY15-19F, on our estimates), as it leverages its leadership position and derives synergies from Search Plus offerings; and 2) value in its Search Plus and marketplace business, a play on India’s e-tailing growth story (which on our estimates is likely to grow 11x over the next five years). Overall, we forecast revenue CAGR of 31% and adj. EPS CAGR of 39% over FY15-19F. Catalyst: Faster-than-anticipated ramp up in its Search Plus business Progress on Search Plus on track, building in higher advertising spends We are raising the advertising spends for JUST in FY16F to INR1bn (vs. INR0.45bn earlier) and for FY17-19F to ~5% of sales (vs. 4% earlier). We find Search Plus progress in terms of tie-ups and initial traction to be in line with our expectations. 24 Search Plus services are now live (17 on mobile apps, more to be launched by 31-Mar-2015) and the company expects its commercial launch by April 2015 (with this year’s IPL – a popular cricket league in India). Overall, we retain our FY19F GMV (gross merchandise value) expectations of ~USD770mn for its marketplace business and expect Search Plus to be ~14% of its revenue by FY19F. TP cut to INR1,930 on higher advertising; growth estimates unchanged At the current price, the market is not according any material value to its Search Plus offering, in our view, and we believe the current price level is attractive. Our TP of INR1,930 (vs. INR1,985 earlier) continues to be based on SOTP valuation of INR1,410 for core search (30x FY19F EPS discounted to 1 year fwd) and INR520 for the marketplace business (1x GMV discounted upto 1 year fwd).