Friday, October 31, 2014


Stable quarter; Expansion plans to weigh on margins, Hold

Just Dial's 2QFY15 revenues grew 31% YoY to INR1.5bn, ~8% below our estimate. Increase in revenues was on the back of healthy growth in paid campaigns, which grew 6.5% sequentially to 296,100, and increased realisations per paid campaign. EBITDA came in at INR426m, in line with
our estimate. Margins declined 237bps YoY to 29% for the quarter, due to a one-off expense of INR32m towards employee stock options. Adjusting for this one-off, margins remained flat YoY. EBITDA margins were ~200bps higher than our estimate, led by lower-than-anticipated one-offs and higher estimated revenue base for the quarter. PAT came in at INR315m versus our estimate of INR366m, led by lower other income (INR85m). Listings increased 44% YoY to 14.5m. Search Plus currently offers 20 live services. However, most are on a trial basis and are yet to be monetised. We expect Search Plus to start contributing from FY16e and meaningfully from FY17e. Cash and investments stood at INR7.4bn as on 2QFY15 vs INR5.7bn as on 2QFY14. The board of directors recently approved a resolution to raise INR10bn to plough in inorganic expansion opportunities. The company has pushed its mass communication campaign for Search Plus Services to 4Q. The stock
trades at 55x FY16e earnings, which is rich in our view. We maintain our estimates for FY15e and FY16e and retain our Hold rating on the stock with a target price of INR1,650 per share.

Revenues grow 31%, margins better-than-estimated
2QFY15 revenues grew 31% YoY to INR1.5bn. However, the same was below our estimate as we factored in higher monetisation of the 2.3m business listings acquired last quarter. Growth in revenues was underpinned by: 1) Healthy uptick in paid campaigns, which grew 6.5% sequentially; and 2) Increased realisations per paid campaign. Margins were weighed down 237bps YoY to 29%, led by an INR32m one-off spend towards employee stock options. Adjusting for one-offs, EBITDA margins were flat YoY and better-than-expected as there was no one-off spend towards advertising on Search Plus Services as anticipated earlier. Margins are expected to remain subdued this fiscal on account of increased advertising spends and expansion-related investments.

Lower-than-expected paid campaigns
Paid campaigns for 2Q, though healthy, were lower than our estimate. It continues to comprise only ~2% of business listings vs 2.4% in 2QFY14. Listings remained soft and grew 3% sequentially to 14.5m during 2Q. Growth in business listings continues to outpace growth in paid campaigns, signalling conversions are increasingly hard to come by.

Fund raising on the anvil
The board of directors recently approved an enabling resolution to raise up to INR10bn. The management is presently looking at organic and inorganic expansions in international markets like the UK, US, Canada, and other emerging markets. These markets are highly competitive and regulated, thereby increasing uncertainty. Any meaningful inroads would entail significant investments and drag margins lower.

Valuations and outlook
The stock trades at 55x FY16e for 31% earnings CAGR over FY14-16e. We find valuations rich and maintain our earnings estimate for FY15e and FY16e. We retain our Hold rating on the stock, as the upside from current levels is limited, growth in paid campaigns tapering off, and increased capital/operating expenditure that would be required to enter new geographies.