Just Dial well poised for sustained growth

Q4FY20 and FY20 Performance managed well:

Just Dial has reported an increase in revenue by 1% to Rs 235 crores as compared to Rs 232 crores in the previous quarter ended in March 2019. They have reported an increase in EBITDA by 24% to Rs 113 crores as compared to Rs 91 crores. The company has reported an expansion in an EBITDA margin of 47.88% in the March quarter.

The PAT for the company stood at Rs 76 crores, up by 22% as compared to Rs 63 crores on a YoY basis. This was aided by Rs 38 crores of other income for the quarter, which was robust due to mark-to-market gains on the investment portfolio due to a decline in bond yields. Coming to full-year performance, revenue stood at Rs 953 crores, growing approximately 7% YoY; EBITDA stood at Rs 273 crores, growing 19.2% YoY. Adjusting for non cash ESOP expenses, the EBITDA margin stood at 30.4% for the full year. FY20 full-year net profit stood at Rs 272 crores, witnessing a growth of 31.7% YoY.

Operational Performance:

The company had overall about 139 million unique users for the quarter, which was about YoY. Mobile traffic was almost 80% of overall traffic. While traffic in absolute numbers continues to be a very high number, growth was majorly impacted due to 2 reasons. Firstly, March month was significantly impacted due to the COVID-19 shutdown. And secondly, they also spent later on advertising. For the quarter, Just Dial has spent about Rs 12.5 crores on advertising versus about Rs 18 crores to Rs 19 crores a quarter, which they were spending during the first half of the year.

Just Dial added another about 7,80,000 listings to its database, and now have about 2.94 crores active listings, which was a 14% YoY increase. Paid campaigns at the end of the quarter stood at about 5,36,000.

Impact of COVID-19 on business operation:

As far as the traffic impact is concerned, traffic was significantly impacted once the lockdown started. For April month, the average JD traffic dropped about 49% from pre-COVID levels, the average of December to February. For May, there has been some improvement. And lately, traffic is at around 65% of pre-COVID levels.


Small and Medium Enterprises (SMEs) were already facing pressures for the last few quarters. Before lockdown, the company had implemented a strategy of selling more on monthly payment plans to customers versus upfront payment plans. For February, that strategy worked very well and was able to grow the run rate of signing up customers by almost 15% to 20% versus the previous quarter. However, with COVID-19 hitting all of a sudden that brought monetization to somewhat a halt.

Measures to cut down expenses:

The company has reworked its pricing and decided to give better discounts to customers to retain them, and decided to let customers opt for a late activation of their contract post lockdown to ensure that they could monetize to the best extent possible. For April, new revenue was impacted by almost 80% versus pre-COVID levels. Ever since they also have payments coming from past monthly payment customers, and did see collections of about 35% compared to pre-COVID levels, even in April. At the same time, Just Dial initiated measures to cut down on its extra costs, such as advertising. They renegotiated certain other expenses, such as rentals, implemented measures to rationalize employee costs. While some of these decisions are challenging but necessary for business in such uncertain times, the company is satisfied to report that for April, as far as operating cash profitability is concerned, they were negative by just Rs 3-4 crores only. If treasury income were to be considered then it would have been positive.

Cash and equivalents, Buyback and Investments:

Cash and equivalents stood at Rs 1,591 crores as on 31st March, grew by 19.6% YoY. The Board has already approved the buyback of Rs 220 crores on 30th April. The buyback shall be via the tender offer route and at a price of about Rs 700 per share. And at this particular price and quantum, almost 4.84% of the company's outstanding shares shall be bought back as part of the buyback. Approximately 65% of the treasuries are parked in debt mutual funds, another 21% into long-maturity tax-free bonds and the rest about 14% into Fixed Maturity Plans. Overall, in terms of underlying exposure, 98% plus of treasury paper is AAA rated or equivalent. Within that also, approximately 75% are government securities or PSUs. The company continuously keeps evaluating [expected] exposure and as of now, the treasury seems to be in a healthy shape.

Employee Productivity:

While COVID-19 impacted the business significantly, one good thing that JustDial did was utilize its workforce to create enriched content for B2B listing. If you visit the platform, you'll see there is now a dedicated section where you can not only see B2B sellers, you get to see their products, detailed catalogs, prices, and other attributes. This content would help to draw more traffic and subsequently help us monetize the strength of the platform better. The company intends to have a dedicated B2B portal which should get launched shortly and it would be a separate website, separate tabs focused on B2B vendors and products.

Major drivers shaping business:

The company has identified 3 major market trends that continue to drive growth. First is Rising internet penetration in India; The rising number of mobile users, availability of bandwidth, cheap data plans and increased awareness driven by government programmes seem to have rapidly bridged the digital gap between urban and rural India, Second is Increasing use of apps and digital platforms for multiple purposes; This is expected to be one of the major drivers for this rapid digital adoption through the ‘Digital India’ initiative and Third is Growing trend of SMEs going online; The Indian SME sector is a primary contributor to the country’s economy and there is a strong trend of MSMEs creating an online presence to reach a wider set of audience.

Telecommunications and Internet market:

India ranks as the world’s second-largest market in terms of total internet users. The number of internet subscribers in the country increased at a CAGR of 45.74% during FY06-FY19 to reach 636.73 million inFY19. The internet subscribers reached 687.62 million till September 2019. Total wireless data usage in India grew 10.58% YoY to 19,838,886 terabytes between July-September 2019. Further, India is also the world’s second-largest telecommunications market, the total telephone subscriber base, and tele density reached 1,172.44 million and 88.56%, respectively, as in December 2019. Over the next five years, a rise in mobile-phone penetration and a decline in data costs will add 500 million new internet users in India, creating opportunities for new businesses.

Growth of E-shopping:

There has been a major shift in the shopping trends of Indian consumers due to a growth in the nation’s e-commerce sector. Majority consumers in India are opting to shop online, owing to which the retail sector is re-aligning to have an increased online presence. With the growth in e-commerce, allied sectors such as digital payments and mobile wallets are also gaining significant momentum. Activities such as online shopping and bill payments are being governed by the ease and speed of transactions.

Service Platforms:

Just Dial’s offerings and services are available on multiple platforms such as Web, Mobile and Voice and SMS, making it accessible to consumers anytime, anywhere. The Company is a pan-India player with the vision to become a one-stop solution for all search and transaction-related needs of Indian consumers.

Business Model:

Just Dial follows a prepaid model for its paid subscription plans, where customers can either pay upfront for the entire tenure of the contract or via easy monthly payment plans, primarily ECS. As a result, the company can have a negative working capital cycle and no receivables. Advances received from customers as part of upfront payments provide visibility (partially) on future revenue recognition as well. It has nationwide access and derives about 74.7% of its revenue from the top 11 cities in India. It has stepped up efforts to enhance its reach in smaller towns and cities which are witnessing rapid growth in internet usage.

Robust Financial Performance:

If you look at the last 5-year company performance, Just Dial has consistently reported growth in revenue and profit. From Rs 668 crores in 2016 to Rs 953 crores in 2020, the company's revenue has increased by around 43% while the profit from Rs 143 crores in 2016 has now increased to Rs 272 crores in 2020, a growth of around 91%. The company has also maintained its profitability ratios like return on equity (RoE), and Profit margins above 20% during the same period. With an increase in debt to equity ratio only in the year 2019 and 2020 from 0.42x to 5.93x, the company has a positive free cash flow of Rs 150.75 crores as on 31st March 2020.

Key Strengths:

Highly experienced management

Early mover advantage and strong brand recall

Robust associations with paid advertisers

The strong value proposition for local SMEs

Penetration in Tier II and Tier III cities

Superior technology and innovation

Resilient business model

Key Weakness:

Inability to keep pace with the dynamic technological innovations

Inability to introduce innovative products and services could lead to a loss in customers and a reduction in revenues

High dependence on the top 11 cities could lead to business concentration

Increasing competition from global search engines and vertical-focused domestic players

Final Thoughts:

Classified advertising has undergone a paradigm shift towards online from print media with a large chunk of businesses shifting to the former. Moreover, the much-anticipated jump in internet usage over the next few years is bound to further fuel this segment, presenting a good growth opportunity to relevant players. The competitive intensity has moved from vertical services providers to horizontal services providers, opening up opportunities for specialized players like Just Dial. However, given the slowdown in the economy, especially affecting the SMEs in Tier2, Tier 3 cities, expect to be cautious about the ongoing revenue growth trajectory of the company.

Q4FY20 results and management commentary thereof on cost control demonstrate Just Dial’s ability to strengthen the business in adversity. The company is using employee resources to enrich content on its platform, particularly in the B2B vertical. This would help garner a higher market share once the economy recovers.

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