BMA Wealth Creators Equity ResearchEQUITY RESEARCHIPO NOTEJUST DIAL LTD.firstname.lastname@example.org 4000016317thMay, 2013DETAILS OF THE ISSUETHE OFFERJust Dial intends to raise Rs 822-950 crore through the Initial Public Offerwhich comprises a fresh equity issue of 1.75 crore shares. At the lower bandof Rs 470/share the company intends to raise Rs 822 crore while at theupper band of Rs 543/share it is estimated to raise Rs 950 crore.Retail investors will be provided with a 10% discount on the floor price.The promoters of the company provide to buy back shares under thesafety net arrangement for retail shareholders in case the price of thestock goes below the safety net trigger price, within the period stipulatedby SEBI.IPO GRADINGThe Offer has been graded by CRISIL, a SEBI registered credit rating agency.The credit rating agency has assigned a grade of 5/5, indicating that thefundamentals of the issue are strong relative to other listed equitysecurities in India.RECOMMENDATIONAt the upper end the total issue size is Rs. 950 crore whereas the price bandfor the issue is Rs. 470 to Rs.543. retail investors will be given a discount on10% to the resulting issue price and will further be given a safety netmechanism. This means that if the market price (based on last 2 monthsvwap price). Six months post listing is less than the issue price, retailinvestors will be refunded money at the issue price. The valuation of theissue leaves little room for appreciation. However, with the abovementioned advantages for retail investors we recommend retail investors tosubscribe with a return expectation of 9% to 12%.OBJECTIVESThe Company proposes to utilize the Net Issue proceeds for the followingobjects:To achieve the benefits of listing the Equity Shares on the stockexchanges;To enhance the brand name; andTo provide liquidity to existing shareholders.Issue Size (Rs Cr) 882-950Face Value 10.00Issue Opens 20/05/13Issue Closes 22/05/13Price Band (Rs) 470-543Bid Lot (no. of shares) 25Morgan Stanley IndiaCitigroup Global Markets IndiaPre-Issue% Post-Issue%Promoters 37.15 33.13Public - 25.04Others* 62.85 41.83Note*: Others include SAIF Mauritius Company,Sequoia, Tiger Global and SAPVTotal Issue Size (No. of shares) 17497458Issue Break Up PercentageQIB 75Non-Institutional 15Retail 10Issue DetailsLead ManagersShareholding Pattern %Book Building Pattern
Just Dial LimitedBMA Wealth Creators Equity ResearchJust Dial provides search services across two main genera: company search – related to any specific or any business need;category search - products or services based on a given classification, location or key words. Having started with liveoperator-assisted phone (voice) search service, it later launched internet, mobile-internet and SMS-based services. Thesearch service is free for users. The company generates revenues from paid advertisers who subscribe to its fee-basedcampaign packages. The advertisers will be given priority ranking at the time when users are searching for their requiredresults.Just Dial was incorporated on December 20th1993 as A&M Communications Pvt. Ltd by Mr V.S.S. Mani, in New Delhi as aprivate limited company under the Companies Act. The name of the company was changed from A&M CommunicationsPrivate Limited to Just Dial Private Limited on December 26, 2006. The company was converted into a public limitedcompany on July 22, 2011 and consequently, the name was changed to Just Dial Limited. Over the years, Just Dial hasexpanded its operations across India with a strong presence in top 11 large cities to become India’s leading local searchservices player.In FY12, the Company has addressed over 25.43 crore search requests across its platforms. The Company has a database ofapproximately 9.1 million business listings (primarily SMEs) across various cities and towns in India. As of Dec 2012, Just DialLimited has conducted approximately 195100 campaigns for its paid advertisers.COMPANY OVERVIEWFUTURE STRATEGIESInvest in strengthening the brand: Investment in brand building campaign will help Just Dial further strengthen thebrand, lead to greater search volume from their users and greater number of paid advertisers as well. Increasingawareness through online and offline direct marketing efforts are their future brand building strategies.Enhance the users’ experience: The Company intends to continue to invest in technology to develop search algorithmsthat would be more efficient and adaptable to users. To enhance the user experience and handle user traffic, thecompany is continuously upgrading the hardware used, and developing new software from time to time.Expand and enhance the SME relationships: The Company plans to offer the existing membership packages for listingto more areas in India and to more categories of businesses. These plans also involve the provision of specialmembership packages to SME categories (witness high user interest). Moreover, the company intends to leverage ontheir direct relationships with SME’s to educate and explain to them the benefits of advertising with Just Dial.Development of new products and services: The Company intends to create mobile applications for searches for mobilephones using WAP in keeping with the technological advancements. It is exploring areas for users to offer to sell, as wellas buy, goods and services through their website, starting with cars. The company is in the process of developing ‘QuickQuotes’ to prospective buyers with a price quote from multiple vendors.Broaden and deepen the footprint in India and expansion into new geographic markets: The Company approximatelyhad 9.1 million listings as of 31stMarch, 2013. It intends to exploit further opportunities that come its way, beyond 11cities in which it operates, to broaden and deepen its presence in India. Just Dial also plans to implement its multi-platform local services model in other geographic markets like it is doing in the U.S and Canada.
Just Dial LimitedBMA Wealth Creators Equity ResearchINDUSTRY OVERVIEWOver the last few years, India has shown strong economic growth. According to the McKinsey Report, the country’s incomepyramid is expected to change, with India’s middle class expected to grow by over ten times by 2025. Small and mediumenterprises have contributed greatly to the economic development of India. Such SME’s need to advertise to grow for whichthey need local service search providers, which provide both offline services (print directory and phone based searches) andonline services (localized portals providing a database). Just Dial falls under the local service search industry in whichadvertising is the main source of revenue. The local search market has evolved from word of mouth.Internet advertising is expected to grow at 34% over 2010-14. CRISIL Research expects expenditure in advertising to grow by12% in 2013 subject to a revival in the economy. Growth is expected to pick up momentum in the following years and overallad revenues are expected to grow at 13% CAGR over the next four years to touch Rs 553 billion by 2016. Internet advertisingis expected to grow much faster at a CAGR of 34% to Rs 28 billion in 2014. Search engines, being the largest contributor tointernet advertising, are likely to benefit from this growth. The players in the local search services market include Justdial,Asklaila, Burrp, Getit, Infomedia18, Sulekha etc. Just Dial ranks 40 among Indian websites, i.e. best ranked in comparison toits competitors in the industry, with Sulekha holding the next best rank at 51. Just Dial’s ability to grow its online searchservices is visible from the strong growth (three-year CAGR of 64% to 124.3 million in FY12) and mobile internet searches(three-year CAGR of 127% to 23.8 million in FY12).KEY STRENGTHSFirst mover advantage in the Indian local search market: Just dial is one of the first companies to provide local searchservices in India, since as early as 1996. Moreover, such a large database of local business listings, took several years to bedeveloped, and required a significant amount of time and effort, which serves as a barrier to entry to other firms. It also hasan advantage as it is a debt free company and follows an asset light model, as it has always taken 100% advance for paidcampaigns, which has enabled the company to operate with negative working capital.Strong brand recognition: Just Dial’s long standing presence, quality of database, fast response to search queries andconsistent delivery of quality user experience has caused it to evidence 254.3 million searches. The brand developmenthowever, has occurred mostly through word of mouth by its users.Attractive value proposition offered to SME’s: Most of the business listings on just dials database are SME’s as they get acost effective platform, personalized service and access to relevant customers.Experience and expertise in local Indian markets: Having operated in the Indian market for 16 years, Just Dials experience,knowledge, management expertise and infrastructure has enabled them to establish relationships with SMEs, which is out ofthe scope of most generic search engines.Multiple platform service on a large scale: Search results may be obtained through a number of communication media i.e.internet, mobile internet, voice and SMS providing easy accessibility to its users. Moreover, Just Dial also has a largecollection of reviews and ratings by users of the businesses. These are beneficial to the potential users to enhance theirsearch experience and enable them to make informed choices.Advanced and scalable technology platform: Just Dials award winning technology is the key that efficiently consolidates itshuge database on various media to provide services to its users.Ability to monetize growth in searches: Searches by users are potential business leads for listings. The company hassuccessfully managed to convert free listings into paid campaigns/listings, along with growing the number of searches. Thus,a strong uptick in paid campaigns is brought about.
Just Dial LimitedBMA Wealth Creators Equity ResearchFailure to manage growth and scalability or adapt to technological developments or industry trends: This could affectthe performance and features of the company’s products and services and reduce its attractiveness to users and paidadvertisers. The business of the company depends significantly on the users and paid advertisers. If the company fails tomaintain or enhance its technology and infrastructure, then the companys business, financial condition, results ofoperations and future prospects may be adversely affected.Proper functioning of the website and avoiding interruption or breakdown of telecommunications, informationtechnology systems and networks: The Company extensively depends on the provision of local search services throughtechnology-driven media, hence relying upon information technology and telecommunication systems, networks andrelated infrastructure, to function efficiently with uninterrupted operations. Provision of a reliable, available and easilyaccessible website is also a key concern for the company.Intense and increasing competition for users and advertisers and brand recognition: There is local as well asinternational competition for provision of search and advertising services. Increased competition could be a graveconcern. Negative publicity or inability to attract users will adversely affect the brand recognition.Ability to expand business outside India may be limited: Due to its international expansion in the US and Canada theremay not be benefits from future growth in the USA and Canada as their subsidiaries there cease to exist. Currently, JustDial’s promoters, Mr. Mani and Mr. V. Krishnan, play an important role in the strategic planning and operations of JustDial. The company needs to ramp-up its senior and second line management because if JD Global provides servicesglobally, as Just Dial does in India, the global operations will take away significant management bandwidth, impactingthe company’s core operations in India.Registered office is not owned: The registered office of the company in Mumbai, Maharashtra and other premises fromwhich it operates are not owned, but rented. This may prove to be a major concern in future.Exposure to infringement claims by third parties: In the past there have been intellectual property claims against thecompany which may occur in the future as well.Distribution of third party data may lead to legal claims: The essence of Just Dials business model lays in thedistribution of third party data, which may lead to legal claims like breach of privacy, defamation etc.Google poses a key threat: Google, the world’s largest search engine has been operating in India and providing searchservices for many years. A comparison of Google India and Just Dial’s financials for FY12 showed that Just Dials revenueswere 22% of Google India’s revenues. Moreover, the fact that Google is a successful global player, poses a threat andcause for concern for just dial. Globally, Google’s search services are based on technology while the search market inIndia requires collection and maintenance of database through feet-on-street and voice-based search option. Thus, ifGoogle India enters into the same field as Just Dial, it will provide tough competition and pose a threat to the business ofJust Dial.KEY CONCERNS
Just Dial LimitedBMA Wealth Creators Equity ResearchRs in CroreFINANCIALS2009 2010 2011 20129 monthsended Dec-2012IncomeRevenue from OperationsSale of search and other related services 73.54 116.06 179.60 259.4 264.36Yellow pages publication services 12.38 14.84 - - -Other operating revenue(revenue from reseller)- - 4.33 2.66 0.13Other revenue 5.89 3.86 3.73 13.15 7.12Total Income 91.81 134.76 187.66 275.21 271.61ExpenditureEmployee benefits expense 52.28 66.88 94.72 130.84 129.03Depreciation and amortization expense 3.84 5.00 6.79 9.02 10.20Finance cost 0.005 0.004 0.029 0.017 0.005Other expenses 25.71 33.66 43.83 63.99 61.95Total Expenditure 81.83 105.54 145.36 203.87 201.18Restated profit before tax and exceptionalitems from continuing operations9.98 29.22 42.29 71.34 70.43Exceptional items - - - - (1.52)Restated profit before tax from continuingoperations9.98 29.22 42.29 71.34 68.91Tax expense/(income)Current tax 3.52 - 11.92 20.60 20.74Deferred tax charge / (credit) (1.36) 9.89 1.55 0.32 1.09Fringe benefit tax 0.28 - - - -Total tax expense 2.44 9.89 13.47 20.92 21.83Restated profit after tax from continuingoperations (A)7.54 19.32 28.82 50.42 47.08Discontinuing operationsProfit before tax from discontinuing operations - - - 0.23 -Tax expense of discounting operations - - - 0.07 -Restated profit after tax from discontinuingoperations(B)- - - 0.16 -Restated profit for the year (A+B) 7.54 19.32 28.82 50.58 47.08EPS 1.09 2.78 4.15 7.29 9.05*Note: *FY13E EPS computed on an annualized basis
Just Dial LimitedBMA Wealth Creators Equity ResearchEXTRACT FROM GRADING RATIONALE BY CRISILThe assigned grade takes into account Just Dial’s huge local search database (9.0 million products and service providers), thelargest in India, and a business model which has been difficult to replicate. Its search volume has grown multi-fold courtesyquick service, relevant search results, updated database and technology, leading to a strong brand image. It has successfullygrown its paid campaigns by more than four times over FY09-12 to 171,000 in end-FY12 (195,100 in 9MFY13) and enjoys100% advance payments from its clients, who are mostly micro, small and medium enterprises (MSMEs).The grade takes cognizance of Just Dial’s experienced and proactive management personnel, who have enabled thecompany to meet users’ expectations on two fronts: technology and search content. Having started with only phone basedsearch, the management has moved with the times to embrace the new-era media of mobile phones (SMS), internet andmobile internet. Further, the company has indigenously developed its technology platform and search algorithm, whichenable it to provide search results that are relevant to users’ requirements. The number of search requests across all searchplatforms was 254.3 million in FY12 (267.2 million in 9MFY13), up from 82.2 million in FY09.While Just Dial has consistently innovated itself and stayed ahead of competitors, any aggressive move by larger playerssuch as Google India is a key monitorable. As the company grows, maintaining management bandwidth to oversee thegrowth will be a challenge, particularly in the backdrop of expansion in the US and Canada through a different promoterentity. Also, Just Dial has to keep itself abreast of new technologies and new applications to stay ahead of the pack.”
Just Dial LimitedBMA Wealth Creators Equity ResearchBMA Wealth Creators Limitedwww.facebook.com/bmawealthwww.twitter.com/bmawealthVishwakarma II29-5A, Dr.Ambedkar Sarani, Topsia Road, Kolkata - 700 046033-40110099 | Toll Free Number: email@example.com | firstname.lastname@example.orgDisclaimer: This document is for private circulation only. Neither the information nor any opinion expressedconstitutes an offer, or any invitation to make an offer, to buy or sell any securities or any options, future orother derivatives related to such securities. BMA Wealth Creators Ltd. or any of its associates or employees donot accept any liability whatsoever direct or indirect that may arise from the use of the information herein.BMA Wealth Creators Ltd. and its affiliates may trade for their own accounts as market maker, blockpositional, specialist and/or arbitrageur in any securities of this issuer (s) or in related investments, may be onthe opposite side of public orders. BMA Wealth Creators Ltd. and its affiliates, directors, officers, employees,employee benefit programs may have a long or short position in any securities of this issuer (s) or in relatedinvestments no matter content herein may be reproduced without the prior permission of BMA WealthCreators Ltd. While there report has been prepared on the basis of published/other publicly availableinformation considered reliable, we are unable to accept any liability for the accuracy of its contents.