India Internet :4QFY15F preview: Nomura Research

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Justdial :Reiterate Buy, correction an opportunity :Nomura

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Just Dial - Q3FY14 Result Update - Operating matrices:: Centrum

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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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.

Just Dial (JUST.NS): Strong 1Q results: Revenue momentum to continue; Expect lower margins in 2Q :Morgan Stanley Research

Just Dial (JUST.NS): Strong 1Q results: Revenue momentum to continue; Expect lower margins in 2Q :Morgan Stanley Research

Quick Comment: Just Dial reported stronger than expected Jun-13 results. At the current rate, Just Dial is on track to meet consensus FY14 growth forecast. We believe Just Dial could continue to report 6-7%qoq revenue growth over the coming quarters.

Revenue growth of 28% yoy in Jun-13: JD reported revenues of Rs1,046m (+28% yoy) in 1Q14. Apr-June quarter had the impact of traders' strike in Mumbai and other parts of Maharashtra, which could have dragged down revenues by 1-2% for the quarter, we estimate.

Strong operating margin improvement: JD reported EBITDA margins of 34.7% (~400bps yoy). As per management, margins can be volatile across quarters. For example, in FY13, Q1 EBITDA margins were ~31%, but FY margins were 28%.

Strong margin improvement was driven by solid 6%qoq revenue growth and 4%qoq lower employee and operating expenses. We believe operating margins could ease as advertising and sales incentive costs normalize over the next two quarters. However, we believe JD could still report at least ~150-200bps margin improvement in FY14.

Valuation: At ~10xFY14e P/S and ~41x FY14e P/E, Just Dial stock could continue to trade in a tight range, we believe. Management has delivered ahead of expectations on all counts, and we believe strong Jun13 quarter performance should support the current stock price. However, margins could be volatile across quarters, and we do not see a material upward revision of our F14e EPS despite the strong June qtr results. 

Just Dial -Powering Local Search Engine :Nirmal Bang

Powering Local Search Engine
With a first-mover advantage and strong brand recall, Just Dial (JDL) has taken the
top position in voice-based search and is also likely to strengthen its muscle in
Internet-based search in India. By offering its existing membership packages from
only 11 states to major cities across various states in India, adding more business
categories and creating specialised membership packages, JDL is likely to maintain a
healthy and profitable growth in the long run. With control over employee costs,
operating margin can improve significantly in the long run, while increased product
offerings can provide non-linear revenue growth. JDL stock trades at 30.6x/21.8x
EV/EBITDA and 48.6x/35.6x PE for FY14E/FY15E, respectively, lower than global peer
Yelp Inc, which trades at 37.4x/75.8x CY14E EV/EBTIDA and P/E, respectively. The
likely strong revenue/PAT CAGRs of 36.1%/43.1%, respectively, healthy free cash flow
of Rs1.5bn over FY13E-FY15E and cash/share of Rs93 should command a premium
valuation. We have assigned a Buy rating to JDL with a target price of Rs800, valuing
it at FY15E 42.2x/26.5x/7.5x P/E and EV/EBITDA, EV/S, respectively.
Ability to offer non-linear growth: Currently, JDL’s advertisement revenue is from paid
campaigns. The company is in the process of improving its offerings like launching enabling
transactions such as taxi booking/hotel reservation etc, car listing, quick quotes, and user
ratings. JDL has also developed a master application for Android operating system-based
mobile phones and is in process of developing such an application for Blackberry phones.
We believe these new offerings would open up new sources of revenue, thereby providing
non-linear revenue growth in the long run.
Assured growth with annuity income: JDL has changed its payment policy from three-four
months’ advance payment to weekly/monthly payment for the advertisers under its normal
packages, which start from as low as Rs299/week. We expect it to reduce the churn rate and
book in clients for the long term, thereby reducing the impact of competition apart from
providing better comfort to advertisers’ cash flow by improving the return on investment. We
expect JDL to post a 29% campaign CAGR over FY13E-FY15E, leading to healthy 36.1%
net sales CAGR over the same period.
Lower employee costs to improve margins: A significant portion of sales executive costs
is linked to advertisement revenue, very much similar to the compensation of an insurance
agent. An employee gets annuity income from JDL as long as the advertisers secured by
him continue their association with JDL. If an employee leaves JDL, he loses future annuity
income from JDL in respect of existing advertisers, and therefore it becomes challenging for
competitors to attract the talent from JDL. As a result, costs per employee increased by a
mere 8.2% CAGR over FY09-FY13E. Employee costs formed 48.8% of revenue in FY13.
With the rising share of Internet-based search, lower costs per employee and better
utilisation of its call centre employees, employee costs can reduce significantly in the long
run, thereby improving the margins. We have factored in a moderate 60bps improvement in
margins over FY13-FY15E as against the management’s guidance of 200bps-250bps
improvement annually. JDL aims to achieve operating margin of 30.0%-40.0% compared to
27.8% currently.