Initiating Coverage | 4 June 2013 Sector: Technology

Just Dial

The right numbers

Niket Shah (Niket.Shah@MotilalOswal.com); +91 22 3982 5426
Investors are advised to refer through disclosures made at the end of the Research Report.

Just Dial

Just Dial: The right numbers

Page No. Summary .......................................................................................................... 3-5 Investment rationale ...................................................................................... 6-8 Unique listing packages to suit SME needs ................................................. 9-10 Monthly and weekly payment system ...................................................... 11-12 Strong sales and market network ............................................................. 13-14 Innovation key to drive paid advertiser base .......................................... 15-16 MSMEs growing in double digits; turning to online advertising ............ 17-18 Internet penetration in India to triple in five years ................................ 19-20 Telecom revolution a key growth enabler ...................................................... 21 Margins to expand with higher contribution from Internet, mobile app ... 22 Financials impressive; to get even better ................................................. 23-24 Possible upside of over 20% ....................................................................... 25-26 Management details ......................................................................................... 27 Key risks ............................................................................................................. 28 Company description ........................................................................................ 29 Financials and valuation ............................................................................. 30-31

4 June 2013

Initiating Coverage | 4 June 2013 Sector: Technology

Just Dial
BSE SENSEX S&P CNX

19,546

5,919

Issue price: INR530 The right numbers

TP: INR660

Buy

Monopoly in voice search; healthy return ratios justify premium valuation

Issue details
Issue size Issue opens on Issue closes on Price band Pre issue paid up capital (m) Post issue paid up capital (m) Post issue MCap (INR m) Face value 17.5 May 20th 2013 May 22th 2013 470/543 69.4 69.4 37,708 10

Shareholding pattern
Particulars Promoter PE Inventors/ Venture capital SAIF Tiger global Sequoia SAP Ventures EGCS Employees Public Total Pre IPO Post IPO 37.1 33.1

First mover advantage, strong brand, updated and accurate data base are key entry barriers. Substantial part of Just Dial Ltd (JDL) revenue (70%) is from repeat advertisers, a testimony of brand recall. Introduction of Evergreen contracts (50% of paid advertisers) to help increase the paid subscribers base and pertinently act as a big entry barrier for new entrants. Newer product launches like enabling transactions, car listings, quick quotes etc to not only drive campaign growth, but might develop into a non-linear revenue growth model, going forward. On account of the shift in search mode from voice-based to Internet (49% in FY12 to 51% in FY15E) and mobile-based search (5% in FY12 to 19% in FY15E), we expect employee cost to fall from 50% of sales in FY12 to 45% in FY15E, thereby improving the operating margin. At issue price of INR530 the stock is trading at 33.8x and 24.7x FY14E and FY15E EPS of INR16 and INR22 respectively. We value JDL at 30x FY15E EPS of INR22 and arrive at a target price of INR660, an upside of 25%. We initiate coverage with a Buy.

Strong brand with first-mover advantage complimented by strong database

JDL has a first-mover advantage among consumers seeking information on local businesses backed by 16 years of experience in this segment. Company has a strong database of 9.1m listings and SME database of more than 2,000 cities, significantly ahead of competitors. JDL has easy to remember phone numbers, which have a very strong recall and a well-known established brand on the Internet now. Substantial part (70%) of JDL revenue comes from repeat advertisers of the year-ago period, which indicates higher returns generated by advertisers. According to alexa.com, the globally renowned web analytics company, justdial.com is ranked No. 40 among the top websites in India and as a top site in its category. We believe a strong brand, first-mover advantage, updated and accurate database and strong relationship with SMEs are key entry barriers in the business.

60.5 39.5 19.7 11.2 19.9 13.4 18.4 13.8 1.6 1.1 0.9 0 2.3 2.3 0 25 100 100 Source: Company

Weekly and monthly payment packages - a masterstroke in our view

Paid advertisers can opt for premium or non-premium advertisement packages. Premium advertisement packages (platinum and diamond membership packages) allow preferential listing of these advertisers ahead of non-premium (Supreme packages) and free listing. JDL has ~9.1m listed advertisers as in FY13, of which 195,000 are paid advertisers as on December 31, 2012. To reduce the stress on SMEs and increase the percentage of paid subscribers as a proportion of total listings, it came out with weekly/monthly advance payment packages (Evergreen contracts) for all its packages, instead of the earlier 12 months advance payment packages. Evergreen contracts constitute ~50% of JDL's 195,000 paid advertisers.
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We believe this helps to increase the paid subscriber base and most importantly act as a big entry barrier for any new entrant/existing competitor. We also expect this move to substantially improve the percentage of paid advertisers from 2.4% in FY12 to 3.1% in FY15E, thereby driving growth.

New products launches to enhance customer experience and drive campaign growth
JDL launched the first phone-based search engine in India in 1996, Internet and mobile services in 2007 under the Justdial brand. Since then it unveiled newer innovative products like Best deal, reviews and ratings, tag your friend, Justdial events etc. As in FY13, JDL had 23m reviews and ratings on its website, compared to 7.4m reviews and ratings published in FY12. With the aim to be a one-stop solution, JDL plans to launch newer products like enabling transactions, car listings, quick quotes etc. While these launches will not only drive campaign growth due to higher offerings to paid advertisers, but we believe going forward the company might charge a nominal fee, thereby developing a non-linear revenue stream.

Strong sales and marketing team complimented by resellers program to help expand data in newer markets
JDL has a strong sales and market network comprising of 7,342 employees in endFY13, of which ~80% of the total workforce is client facing. Once the contract is signed, company incentivize by paying 2% of the contract value to IRO who transfers the call to the tele sales executives, 2% to the tele sales executive and 4% to the marketing person for convincing the client to take up paid listing on JDL. To develop data base in newer markets, while minimizing costs and expenses, JDL initiated a reseller program whereby third parties collect and provide new entries to JDL's database for a payment. Company charges a one-time registration fee of INR5,000 and an annual fee of INR1,000 from the reseller. This relationship with resellers enables JDL receive new listings and potential paid advertisers in newer markets without additional manpower.

Increased contribution from Internet and mobile platforms to drive margins higher
Netscribes, a research firm, expects the classifieds market to grow from INR37.4b in FY12 to INR84.3b in FY16E, with online classifieds set to improve from 42.3% in FY12 to 46.9% in FY16E, thus cumulatively increasing the potential market for JDL from INR15.8b to INR39.4b over the next five years, marking a CAGR of 26%. JDL's cost for a voice call is ~INR2.7 per call, which in case of Internet and mobile application is very negligible. JDL developed its application, Master App, for Android mobile phones and iPhones in April 2013 and is in the process of developing it as an application for Blackberry and Windows Phone 7. Due to the shift in search mode, from voice-based to Internet (49% in FY12 to 51% in FY15E) and mobile-based search (5% in FY12 to 19% in FY15E), we expect employee cost to fall from 50% of sales in FY12 to 45% in FY15E, thus improving the operating margin.

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Valuation and view

We expect the company to post revenue CAGR of 33% over FY12-15E, complimented by 560bp margin expansion on account of a shift in search mode from voice-based to Internet and mobile-based search, thereby improving the operating margin. Consequently, we expect 43% PAT CAGR over FY12-15E. Given that JDL is in a high growth phase, complimented by asset light business model, virtual monopoly in voice search segment, negative working capital cycle, high free cash flow, strong dividend payout and healthy return ratios, we believe the premium valuation is justified. At issue price of INR530 the stock is trading at 33.8x and 24.7x FY14E and FY15E EPS of INR16 and INR22 respectively. We value JDL at 30x FY15E EPS of INR22 and arrive at a target price of INR660, an upside of 25%. We initiate coverage with a Buy.
Comparative valuation: International (USD b)
MCap Sales (USD b) CY11 CY12 CY13E CY14E Google Baidu Yahoo Linkedin Yelp 288.4 33.8 28.5 18.5 1.9 37.9 2.2 5.0 0.5 0.1 50.2 3.5 5.0 1.0 0.1 47.4 4.9 4.5 1.5 0.2 EBITDA EBITDA margins (%) PAT 5 Yr CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E 5 yr CAGR % CAGR % 55.0 17.0 13.6 15.7 21.5 25.5 35.9 31.3 45.4 46.4 9.7 10.7 15.7 18.1 20.8 6.3 52.3 1.3 2.0 2.2 2.8 58.4 56.3 45.7 44.4 1.0 1.7 1.8 2.2 43.4 4.7 -7.4 1.5 1.5 1.7 1.7 29.6 29.2 36.7 37.1 1.0 3.9 1.5 1.6 6.9 2.1 71.7 0.1 0.1 0.4 0.5 13.2 14.1 24.4 25.6 0.0 0.0 0.2 0.3 101.3 0.3 59.7 -0.01 -0.01 0.02 0.05 -14.3 -7.5 10.4 15.9 0.0 0.0 0.0 0.0 na

Comparative valuation: Domestic (INR b)

MCap Sales (INR b) FY12 FY13 FY14E FY15E Info Edge 37.1 Just dial 37.7 3.9 2.6 4.7 3.7 5.5 4.8 6.7 6.2 EBITDA EBITDA margins (%) PAT 5 Yr FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E 5 yr CAGR % CAGR % 20.3 35.3 1.2 0.7 1.2 1.0 1.5 1.4 1.9 1.9 30.2 25.7 25.7 27.8 27.1 29.6 28.7 31.3 1.0 0.5 0.9 1.3 1.6 26.0 0.7 1.1 1.5 52.0 Source: Company, MOSL

International (USD b)
CY11 Google 14.6 Baidu 1.3 Yahoo 1.3 Linkedin 0.1 Yelp 0.00 CF from Operation CY12 CY13E 16.6 1.9 -0.3 0.3 0.00 18.0 1.8 1.3 0.3 0.01 CY14E 21.4 2.1 1.2 0.5 0.03 CY11 107.2 96.7 89.9 193.5 -2.1 CFO/EBITDA CY12 CY13E 105.7 95.5 -19.3 195.4 1.0 83.8 80.5 77.5 93.7 51.9 CY14E 83.7 76.0 69.8 83.8 66.5 CY11 18.7 56.0 8.4 3.7 na ROE (%) CY12 CY13E 16.5 50.6 29.1 2.8 na 17.8 34.8 10.6 10.8 1.6 PE (X) CY14E CY14E 17.7 31.2 10.1 15.1 12.6 16.3 15.8 17.6 80.6 75.1

Domestic (INR b)
FY12 Info Edge 1.0 Just dial 0.9 CF from Operation FY13 FY14E 0.8 1.3 1.3 1.8 FY15E 1.6 2.4 FY12 85.1 134.1 CFO/EBITDA FY13 FY14E 64.5 129.5 88.7 127.1 FY15E 83.8 122.7 FY12 21.5 52.3 ROE (%) FY13 FY14E 16.1 25.0 PE (X) FY15E FY15E

19.6 20.3 23.2 21.7 25.8 24.7 Source: Company, MOSL

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Investment rationale
Huge entry barriers lead to low competitive intensity

JDL has a first-mover advantage among consumers seeking information on local businesses backed by 16 years of experience in this segment with most competitors being unsuccessful to scale up. It has a strong database of 9.1m listings and SME database of more than 2,000 cities, significantly ahead of competitors. In terms of number of listings, the second largest player, Askme, is 1/3 the size of JDL. JDL has easy to remember phone numbers, with a very strong recall, and a well-known established brand on the Internet. Company has a strong, direct and personal relationship with SMEs, which is unique compared to international search engines that operate in India largely on a virtual basis.

First-mover advantage in the Indian local search market complimented by strong database
As one of the first companies to offer comprehensive local search services in India, JDL has a first-mover advantage among consumers seeking information on local businesses backed by 16 years of experience in this segment. Competitors like Getit (established in 1986), Sulekha.com (1998), Asklaila (2007), Askme (2011), Yellow Page services and Google though made an entry into the local search engine space, were unsuccessful and unable to achieve any meaningful scale in the business, with most of them making losses.

Competition at bay in listings and reach...

JDL has a strong database of 9.1m listings and SME database of more than 2,000 cities, significantly ahead of competitors. In terms of number of listings, the second largest player, Askme, is 1/3 the size of JDL. We believe the biggest strength of JDL is maintenance of its database by keeping it updated and accurate through feet-onstreet, and also direct and personal relationship with SMEs coupled with its strong voice-based search option, which is difficult to replicate by competitors. We also believe that a large database of local business listings, such as the one JDL has developed over several years, requires considerable time and effort to develop, which creates a significant barrier to entry.
Profile of competitors
Name of the website Year of Platform inception Database coverage (cities/ towns) ~35 ~2000 ~60 ~1700 ~525 Listing (M) Ranks among Indian websites 883 40 51 161 784 Time spent on the website(min) (last 3 months) Page views per user (last 3 months)

Getit.com Just dial Sulekha.com Asklaila Askme

1986 1996 1998 2007 2011

Voice, online and print Voice, online, SMS, mobile, internet Online Online, SMS Voice, online and print

na 9.1 2 na 3

2.4 2.7 5.5 5.0 3.2 3.2 2.3 2.8 2.4 2.7 Source: Alexa.com, MOSL

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Website analysis
Just dial.com Traffic rank (Global) Traffic rank (India) Unique visitors per day (M) Daily page reviews (M) Time on site Inflow from search engines 565 40 0.86 3.96 5.46 22.4 Asklaila 2,118 162 0.53 1.53 2.33 25.1 Zomato.com 2,717 209 0.04 0.75 15.37 11.1 Adkme.com 9,765 865 na na 2.4 23.3 Sulekha.com 672 53 1.1 3.39 3.2 21.9 Burp.com Yelp.com 4,585 192 353 na na 3.18 na 11.94 3.33 4.2 20.3 38.7 Source: Alexa.com, MOSL

Strong brand recognition with easy to remember phone numbers...

JDL launched the first phone-based search engine in India in 1996 under the Justdial brand and then launched its Internet and mobile services in 2007. Though it started with two cities, Mumbai and Delhi, today services are available across India. JDL not only has easy to remember phone numbers (88888 88888 and 6999 9999), which have a strong recall, it has a well-known established brand on the Internet now. JDL has measurable matrics to track search leads generated through internet. Its strong brand recognition is on account of: 1) long standing presence in local search market, 2) strength and quality of database, 3) fast response to search queries and 4) consistent delivery of quality user experience. According to alexa.com, justdial.com, is ranked No. 40 among the top websites in India and the top site in its category. Even a very niche data search service provider such as burp.com and zomato.com and competitors like Askme, Asklaila lag JDL. The dominance of JDL is visible from that fact that total searches showed a 45.7% CAGR over FY09-12 at 254.3m. It has also signed cine star Amitabh Bachchan as its brand ambassador for a period of three years, starting December 2010, to improve brand recall and popularity.

Number of searches on JDL (m)

Share of Internet and mobile rises

Source: Company, MOSL

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Strong direct relationship with SME

JDL has developed strong relationship with SME businesses over the past 16 years through its first-mover advantage and unique advertising proposition. It is a cost effective platform for SMEs that face a challenge to attract the attention of right target consumers and expand into newer markets due to limited marketing budgets and resources. With the data collection team canvassing local markets, JDL establishes direct relationships with many SMEs. On identifying potential advertisers, marketing executives meet the SME to explain the ease and benefits of advertising and to convert business listings into paid listings. JDL's direct and personal relationship with SMEs is a unique way it differentiates from international search engines which operate in India largely on a virtual basis. JDL has 9.1m listings, as in FY13, with 195,000 campaigns i.e 2.4% paid advertisers of the total listing as in December 2012.
Total number of listings on JDL (m) Number of campaigns on JDL

Source: Company, MOSL

JDL on the cusp of a virtuous cycle

Highest reach in terms of users, towns and SME penetration enables the company to create strong entry barriers and enter the virtuous cycle

Higher Business Listing & Campaigns

Free Access to Information

Larger User Base & Higher Eyeballs Source: Company, MOSL

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Unique listing packages to suit SME needs

Paid advertisers can opt for premium or non-premium packages

Paid advertisers can opt for premium or non-premium advertisement packages. Premium advertisement packages (platinum and diamond membership packages) allow preferential listing of these advertisers ahead of non-premium (Supreme packages) and free listing. All businesses listed with JDL are able to upload logos, pictures, videos and product catalogues to enhance their campaigns and effectively showcase products and services. JDL uses its proprietary pricing algorithms (pricing engine) to set the price range for various membership packages depending on the keyword and locality.

Every business has a right to list for free on JDL, known as free listings, and businesses which choose to pay for a listing to be featured on a priority basis in search results are called paid advertisers. Paid advertisers can opt for premium or non-premium packages. Premium advertisement packages (platinum and diamond membership packages) allow preferential listing of these advertisers ahead of non-premium (Supreme packages) and free listing. JDL has ~9.1m listed advertisers as in FY13, of which 195,000 are paid advertisers as on December 31, 2012.

Effective showcase of products and services for SMEs - added value proposition for SMEs
All businesses listed with the company are able to upload logos, pictures, videos and product catalogues to enhance their campaigns and effectively showcase their products and services. JDL also verifies the name of each business listed with it, the contact details, website (if any) as it exists and also at the time the advertiser signs for a campaign with the company. It also confirms that the advertiser offers the products or services mentioned on the date of signing the campaign. JDL uses its proprietary pricing algorithms (pricing engine) to set the price range for various membership packages depending on the keyword and locality. Company offers annual and long term automatically renewable memberships to paid advertisers. Annual memberships are paid in advance on a monthly or annual basis, while long term automatically renewable memberships are paid in advance on a monthly basis and can be terminated after nine months by providing three month's advance notice. Features of its membership packages are as follows:

Premium advertisement package

Premium advertisement comprises of (in order of priority) platinum and diamond membership packages. For example, when users search for listings in a given category or a specific geographic location, JDL's platinum members are listed first in the search results followed by diamond members in the second place, ahead of non-premium members and free listings on all available media. Premium members also enjoy the flexibility to purchase part of the inventory for a given category -- they may choose to purchase a fixed percentage of leads for a given category. The remaining leads are then sold to other members who wish to purchase part of the position allocated to the type of premium membership held.
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Non-premium advertisement package

In non-premium advertisement, when users search for listings in a given category for a specific geographic location, the listings of non-premium advertisement package enjoy priority in the search results over free listings on all available media. The number of leads, the number of times the business listing is displayed or featured to users, is proportional to the price of the package and the number of members in such category; the more expensive the package, the higher the number of leads generated. JDL's non-premium advertisement package members currently pay annual/monthly/weekly subscription fees, which vary depending on the category, geographic region, number of leads and the tenure of campaign.
Classification of business listings

Source: Company, MOSL

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Monthly and weekly payment system

A masterstroke in our view

Substantial portion (70%) of JDL's revenue comes from repeat advertisers of the year ago period, which indicates higher returns generated by advertisers and strong brand recall. Weekly/monthly packages are called Evergreen contracts and constitute ~50% of JDL's 1,95,000 paid advertisers. Likely to improve to 80% over next 3 years thereby leading to improvement in average realizations. Evergreen contracts not only helps in increasing the paid subscriber base but most importantly act as a significant entry barrier for any newer/existing entrants.

Substantial portion (70%) of JDL's revenue comes from repeat advertisers of the year ago period, which indicates higher returns generated by advertisers and strong brand recall. Earlier, JDL was taking advance payment of around one year from paid advertisers for premium (Platinum/Diamond) packages and non-premium packages (Supreme). Higher upfront payment exerts pressure on advertisers' RoCE as most of them are SMEs. To reduce the stress on SMEs and to increase the percentage of paid subscribers as a proportion of total listings, it came out with weekly/monthly advance payment packages for it's all its packages. These weekly/monthly payment packages are called Evergreen contracts. Evergreen contracts, introduced in FY09, now contribute ~50% of 195,000 paid subscribers. Monthly/Weekly payments to JDL provide better comfort to advertisers' cash flow and also improve their return on investment. It also provides better visibility on advertisement expenditure and revenue generation, thereby leading to a shift from free listings to paid listings. With contribution from Evergreen contracts expected to reach 80% over the next three years, we believe it will cushion the fall in average realization caused due to an entry in newer markets. We believe this is the management's masterstroke as it not only helps to increase the paid subscriber base but pertinently acts as a huge entry barrier for new entrant/ existing competitor who will find it unviable to offer a similar package due to lack of search requests in comparison to JDL (267.2m at end-9MFY13). We expect this to reduce the churn in existing advertisers and lead to higher number of new advertisers. We also expect substantial improvement in the percentage of paid advertisers from 2.4% in FY12 to 3.1% in FY15E.

Share of platinum advertisers' percentage of total paid campaigns to increase going forward
When a consumer enquires for a particular category of service through a phone call, generally a list of seven service providers in that category is sent by SMS. Of this, two names remain fixed i.e. of Platinum being first and Diamond member being the second. The other four change on a rotation basis and depending on the number of paid advertisers in that category and the type of package. A similar method applies to the search on JDL's website.

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To accommodate higher paid members, JDL removed the Gold membership so that only two members remain fixed on every search, while five change on a rotation basis. Going forward, we believe Diamond membership could be removed, resulting in only Platinum and other non premium packages. This should not only lead to substantial addition of paid advertisers but also an increase in pricing of Platinum advertisers, which increased from 16% of total paid campaigns in FY11 to 22% in FY13.

Higher contribution from Tier II, III cities and entry into newer markets to drive growth
JDL derives 37% of its paid listings from Mumbai and Delhi and 92% from top 11 cities. Management expects contribution of top 11 cities to fall to 80-85% over the next few years primarily due to higher traction from other markets (Tier II, III cities) and faster growth due to a lower base. We believe the average realization in these newer markets (Tier II, III) is likely to be lower as JDL's pricing differs geography-wise. While entry into newer markets is likely to exert pressure on average realizations, the increased pricing in Platinum segment complimented by increase in share of evergreen contracts is likely to hold the decline in realizations. We have modeled 150bp reduction in average realization in FY14E and FY15E respectively, but expect 50bp and 30bp improvement in paid subscribers percentage of total listings in FY14E and FY15E respectively, thus driving higher growth.

Premium listings increase...

to help maintain average realization per campaign

Source: Company, MOSL

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Strong sales and market network

~80% of the total workforce is client facing

JDL had a strong sales and market network comprising of 7,342 employees (1,837 IRO, 2,707 tele sales executives, 944 feet-on-street executives) in end-FY13, of which ~80% of the total workforce is client facing. Once the contract is signed, company pays 2% of the contract value to IRO who transfers the call to the tele sales executive, 2% to the tele sales executive and 4% to the marketing executive for convincing the client to take up paid listing on JDL. To develop and update data base in newer markets , while minimizing costs and expenses, JDL initiated a reseller program whereby third parties collect and provide new entries to JDL's database for a payment. Company charges a one-time registration fee of INR5,000 and an annual fee of INR1,000 from the reseller. The one-time registration fee is recognized when the contract with the reseller is made and the annual fee is recognized on a pro rata basis over the period of contract.

JDL had a strong sales and marketing team comprising of 7,342 employees (1,837 IRO, 2,707 tele sales executives, 944 feet-on-street executives) in end-FY13, of which ~80% of the total workforce is client facing. Company has a team of marketing executives called "Just Dial Ambassadors" (372 as in FY13), whose principal objective is to educate SMEs about its services. These executives are located in Ahmedabad, Bengaluru, Chandigarh, Chennai, Coimbatore, Delhi, Hyderabad, Jaipur, Kolkata, Mumbai and Pune.

Motivating incentive structure to increase paid advertisers base

Firstly, the IRO/tele sales executive makes initial contact with existing or potential paid advertisers via telephone. When the existing or potential paid advertiser expresses an interest to upgrade the membership package or advertising to the tele sales executive, JDL sends its feet-on-street executive to meet the advertiser. When the owner of a business registers with JDL online, company's tele sales executive contacts the entrepreneur within 24 hours to register the listing, inform the benefits of paid advertising and, if accepted, to assist in the selection of an ideal membership package. Post signing the contract, JDL pays 2% of the contract value to IRO who transfers the call to the tele sales executive, 2% to the tele sales executive and 4% to the marketing executive for convincing the client to take up paid listing on JDL.

Total employee strength to grow at a slower pace

Average cost per employee trend

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80% of employees in client facing roles

Source: Company, MOSL

Penetration to newer areas through reseller programme reduces cost...

To develop and update data base in newer markets, with bare costs and expenses, JDL initiated a reseller program whereby third parties collect and provide new entries to JDL's database for a payment. Company charges a one-time registration fee of INR5,000 and an annual fee of INR1,000 from the reseller. The registration fee is recognized when the contract with the reseller is finalized and the annual fee is recognized on a pro rata basis over the period of contract. This relationship with resellers derives JDL new entries and business listings and potential paid advertisers, in newer and existing without additional manpower. Currently 55% of JDL workforce is on fixed basis with balance 45% being variable. We believe JDL has strong operating leverage in the business model as most of its costs are fixed in nature and hence any meaningful increase in revenue will improve margins, going forward.
Strong sales and marketing network v/s competition

Source: Company, MOSL

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Innovation key to drive paid advertiser base

New product launches to drive growth

JDL launched the first phone-based search engine in India in 1996 under the Just Dial brand. It launched its Internet and mobile services in 2007. It tracks actual leads through the Internet by using a hosted number rather than clicks. As at March 2013, JDL had 23m reviews and ratings on its website v/s 7.4m as at March 2012. Like Google and Baidu, JDL uses proprietary pricing algorithms (pricing engine) to set the price range for various membership packages. No human intervention is required. With the aim of becoming a one-stop solution provider, JDL plans to launch new products like enabling transcations, car listings, quick quotes, etc.

Just Dial a pioneer in its business

JDL launched the first phone-based search engine in India in 1996 under the Just Dial brand. It launched its Internet and mobile services in 2007. Since then, it has been focused on innovation to enhance consumer experience and to find new avenues of generating higher RoI for its paid advertisers.

Innovative services available on Just Dial website

Best Deal: In an initiative intended to allow users to obtain the best price on products or services, multiple vendors compete for a users business in a process similar to a reverse auction. When a user elects to participate in a Best Deal service, JDL instantly provides the user and the relevant vendors listed in its database each others details. The vendors then contact the interested user directly to compete amongst themselves on price and other factors to sell the product or service being sought. Reviews and Ratings: Users can submit their reviews of businesses, products and services on the Just Dial website or through its phone service. This also enables companies listed in the database to receive feedback on their products and services. JDL has recently added movie reviews and ratings by users on its website and mobile Internet WAP site. As at March 2013, JDL had 23m reviews and ratings on its website v/s 7.4m as at March 2012. Tag-Your-Friend: Users are encouraged to share their reviews and ratings by inviting them to be part of a social search feature called Tag-Your-Friend. This feature allows users to leverage their own network of participating friends and acquaintances to recommend listings for them across the Just Dial website and mobile Internet WAP site, including with JDLs Master App. With this feature, users are able to see the businesses most recently rated or reviewed by their friends, and details of the experiences they had with such businesses. As at March 2013, 7.6m friends were tagged through this feature. Logos, Pictures, Videos and Catalogues: All businesses listed with Just Dial can enhance their listings by uploading Logos, Pictures, Videos and Catalogues of their products and services on their search result pages.

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Facebook and Twitter Links: Users can connect to JDLs Facebook and Twitter pages directly through links provided on the Just Dial webpage. Users can also tweet the business listings directly from JDLs website. As at March 2013, Just Dial had 1.5m fans on Facebook and 10,506 followers on Twitter. Just Dial Events: Users can search for upcoming events without any charge on events.justdial.com. Search categories include Arts & Crafts, Community, Dance, Food & Drinks, Lifestyle, Literary, Music, Nightlife & Parties, Sales & Exhibitions and Theatre. This service is currently available for events in eight cities Ahmedabad, Bengaluru, Chennai, Delhi/NCR, Hyderabad, Kolkata, Mumbai and Pune.

New product launches to drive growth

JDL plans to leverage its Just Dial brand, strong SME relationships and database to expand its business by offering new products and services. These will not only enhance customer experience but could also lead to a non-linear revenue model for the company. JDL plans to launch the following: Mobile Apps: To keep up with the latest in mobile Internet technology, JDL has developed its own Master App for major mobile phone operating systems. Its Master App is already in use with Android mobile phones and iPhones (launched in April 2013) and JDL is in the process of developing it as an application (or app) for use with Blackberry and Windows Phone 7. Enabling Transactions: JDL internet and mobile app in collaborations with service provides and vendors will allow directly allow a number of bookings and purchases rather than calling multiple providers for restaurant bookings, home delivery of food, groceries, doctors appointments, taxi bookings, enable ecommerce Car Listings: JDL is exploring various options for users to offer to sell or buy goods and services through its website, starting with cars. It also plans to develop a Car Listings website, where users can research and rate car models, list their cars for sale, and receive price quotes from vendors of both new and used cars. Quick Quotes: JDL also plans to launch Quick Quotes, intended to provide prospective buyers with price quotes from multiple vendors, and which will be available 24x7. Prospective buyers could also receive real time updates of revised quotes by vendors through SMS and email. This service is likely to be available on all four of JDLs platforms: Internet (www.quickquotes.in), mobile Internet (wap.quickquotes.in), voice (69999999 and +91 88-8888-8888) and SMS (+91 888888-8888).

We believe that the company might look at charging a nominal fees for these services, going forward, thereby developing a non-linear revenue stream.

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MSMEs growing in double digits; turning to online advertising

Huge scalable opportunity for players like JDL

According to the Ministry of Micro, Small and Medium Enterprises, in terms of gross output, MSMEs production has grown steadily from INR7,094b in FY07 to INR10,958b in FY11 a CAGR of 11.5%, higher than the growth rate for the overall Industry segment. Currently, Just Dial has 9.1m free listers, 27-28% of the overall market. As at December 2012, it had just 195k paid advertisers, 0.6% of the overall market size of ~32mn SME. The opportunity for scaling up is huge. According to Netscribes, the Indian advertising market is expected to grow from INR255.9b in 2011 to INR369.5b by 2015 a growth rate of 9.6%. The Internet is the fastest growing medium, with estimated growth of 51% over 2011-12.

MSMEs a sizable force; offer scalable opportunity

The Ministry of Micro, Small and Medium Enterprises estimates that in terms of value, SMEs account for ~45% of Indias manufacturing output and ~40% of total exports, and employ 73.2m people. In terms of gross output, MSMEs production has grown steadily from INR7,094b in FY07 to INR10,958b in FY11 a CAGR of 11.5%, higher than the growth rate for the overall Industry segment. Moreover, the number of SMEs has increased from 26.1m in FY07 to 31.5m in FY11 a growth of 4.8%. Currently, Just Dial has 9.1m free listers, 27-28% of the overall market. As at December 2012, it had just 195k paid advertisers, 0.6% of the overall market size of ~32m SMEs. The opportunity for scaling up is huge.
MSME production in terms of gross output (INR b) Total number of SMEs and growth trend

Source: Ministry of Micro, Small and Medium Enterprises Annual Report 2012, MOSL

Indian advertising market growing at ~10%; Internet the fastest growing medium
According to Netscribes, the Indian advertising market is expected to grow from INR255.9b in 2011 to INR369.5b by 2015 a growth rate of 9.6%. Currently, television represents the largest segment of the Indian advertising market, with 46% share, followed by print advertising, with 40.4% share. The Internet is the fastest growing medium, with estimated growth of 51% over 2011-12. This is due to the growing Internet penetration among individuals, emergence of online solutions/services that are driving end-user interest, and growing Internet usage on mobile phones.
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Trend in advertising revenue 2011

2012E

Source: Netscribes, Just Dial DRHP, MOSL

Medium-wise growth Internet growing the fastest

Source: Netscribes, Just Dial DRHP, MOSL

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Internet penetration in India to triple in five years

Online classifieds at the cusp of high growth

According to Internet World Stats, as at June 2012, Internet penetration in India was 11.4% as against 78.1% in the United States and world average of 34.3%. Internet penetration in India is expected to reach 30% by FY16E, providing a huge opportunity for the online classifieds business. According to an Ernst & Young (E&Y) survey, 43% of the companies use social media for leads, spending 1-5% of their marketing budgets on online leads. Netscribes expects the classifieds market to grow from INR37.4b in FY12 to INR84.3b in FY16E, with the share of online classifieds improving from 42.3% in FY12 to 46.9% in FY16. The potential market for JDL is, therefore, likely to increase from INR15.8b to INR39.5b in five years.

Indian Internet market still at nascent stage

The Indian Internet market is still at a nascent stage and has the potential to expand rapidly. According to Internet World Stats, as at June 2012, Internet penetration in India was 11.4% as against 78.1% in the United States. There were ~137m Internet users in India, making it the third largest population of Internet users after China and the United States. Internet penetration in India is expected to reach 30% by FY16, providing a huge opportunity for the online classifieds business. According to an Ernst & Young (E&Y) survey, 43% of the companies use social media for leads, spending 1-5% of their marketing budgets on online leads.
Internet penetration (%)

Source: Internet World Stats, MOSL

Potential market for JDL to increase at a CAGR of 26%

According to Netscribes, classifieds are becoming an increasingly popular mode of advertising. It expects the classifieds market to grow from INR37.4b in FY12 to INR84.3b in FY16E, and the share of online classifieds to increase from 42.3% in FY12 to 46.9% in FY16E, driven by strong growth in online advertising and significant increase in Internet penetration. As a result, the potential market for JDL is likely to increase from INR15.8b in FY12 to INR39.4b in FY16E a CAGR of 26%.

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Classifieds market size and growth

Classifieds market segmentation share of online classifieds increasing

Source: Netscribes, Just Dial DRHP, MOSL

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Telecom revolution a key growth enabler

Increasing smart phone penetration leading shift from voice to Internet

Tele-density in India has increased from 37% in FY09 to 73.3% in FY12, led by greater affordability of handsets and call rates. As at December 2012, the subscriber base stood at 895.5m and is likely to grow at a CAGR of 6% over FY12-16E. According to IDC, India had 2.5% share of the smart phone world in CY12. This is likely to reach 8.5% in CY16E, and by that year, India would be the third-largest smart phone market. Also, with growth in smart phones, the number of 3G subscribers is likely to increase from ~3m in FY11 to ~236m in FY16E a CAGR of 139%.

Tele-density in India up from 37% in FY09 to over 73%

Growth of advertising and search services in India is also due in part to the growing use of mobile Internet in India. The telecom revolution has been a key enabler for voice-based searches. Tele-density has increased from 37% in FY09 to 73.3% in FY12, led by greater affordability of handsets and call rates. As at December 2012, the subscriber base stood at 895.5m and is likely to grow at a CAGR of 6% over FY12-16.

India to be third-largest smart phone market by FY16E

According to IDC Asia Pacific Quarterly Mobile Phone Tracker data for CY12, the overall mobile phone market in India grew 16% during the year to ~218m units. Growth was largely driven by smart phones, which grew from ~11m units in CY11 to 16.3m units in CY12, up 48%. India had 2.5% share of the smart phone world in CY12. This is likely to reach 8.5% in CY16E, and by that year, India would be the worlds third-largest smart phone market. Given the favorable demographics and rapidly expanding economy, Indias smart phone numbers are poised to expand at a much faster pace than the rest of the world. With growth in smart phones, the number of 3G subscribers is likely to increase from ~3m in FY11 to ~236m in FY16E a CAGR of 139%.
Overall (wireless and wireline) tele-density in India

Source: TRAI, MOSL

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Margins to expand with higher contribution from Internet, mobile app

Cost of service delivery through Internet and mobile app negligible

JDLs topline has grown at a CAGR of ~40% over FY09-12, with PAT growing at a CAGR of 106%, primarily driven by margin expansion from sub-5% in FY08 to 28% in 9MFY13. While service delivery through voice costs JDL INR2.7/call, in case of Internet and mobile app, the cost is negligible. With shift in search mode from voice to Internet and mobile, we expect employee cost to decline from 50% of sales in FY12 to 45% in FY15, improving operating margin further. JDL intends to develop a dedicated category of portals to attract SMEs. It has already developed its Master App for Android mobile phones and iPhones, and is developing it as an application for Blackberry and Windows Phone 7.

Has grown manifold in five years, with significant margin expansion

JDL launched the first phone-based search engine in India in 1996 under the Just Dial brand. It launched its Internet and mobile services in 2007. Over the last five years, JDL has grown manifold in terms of its reach, listings and paid membership. Its topline has grown at a CAGR of ~40% over FY09-12, with PAT growing at a CAGR of 106%, primarily driven by margin expansion from sub-5% in FY08 to 28% in 9MFY13. We expect further margin expansion, with shift in search mode towards the Internet.

Margins likely to expand further

While service delivery through voice costs JDL INR2.7/call, in case of Internet and mobile internet, the cost is negligible. With shift in search mode from voice to Internet and mobile, we expect employee cost to decline from 50% of sales in FY12 to 45% in FY15, improving operating margin further.

with growing usage of its mobile app

JDLs growth would also be a derivative of growing usage of its mobile app. The company believes that this growth would be a function of two things: 1. Decline cost of acquisition of smart phones, resulting in higher penetration of smart phones, which equip users with Internet while on the move. 2. Decline in cost of Internet service, increasing Internet usage on phone. JDL intends to develop a dedicated category of portals to attract SMEs. It has already developed its Master App for Android mobile phones and iPhones, and is developing it as an application for Blackberry and Windows Phone 7.
Increase in number of searches through Internet and mobile Improving share of internet and mobile

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Financials impressive; to get even better

Expect 43% earnings CAGR over FY12-15E

We expect JDLs topline to grow at a CAGR of 33% over FY12-15E, primarily driven by increase in paid advertisers from 171k in FY12 to 356k in FY15E. EBITDA margin would expand from 25.7% in FY12 to 31.3% in FY15E, primarily driven by increased share of Internet and mobile app. Owing to 33% topline growth and 560bp margin expansion over FY12-15E, we expect PAT to grow at 43%. Over FY12-15E, operating cash flow would be INR5.5b and free cash flow would be INR4.3b. We expect JDL to pay out 38-40% of its profit as dividend, keeping return ratios at healthy levels.

Topline to grow at 33%, driven by increase in paid advertisers

We expect JDLs topline to grow at a CAGR of 33% over FY12-15E, primarily driven by increase in paid advertisers from 171k in FY12 to 356k in FY15E. We expect paid advertisers as a percentage of total listings to improve from 2.4% in FY12 to 3.1% in FY15E. However, overall realizations would decline by 150bps in FY14E and FY15E respectively, primarily due to JDLs entry into new markets and higher contribution from existing tier-2 and tier-3 markets.
Sales growth trend

Source: Company, MOSL

EBITDA margin to expand 560bp over FY12-15

We expect JDLs EBITDA margin to expand from 25.7% in FY12 to 31.3% in FY15E, primarily driven by increased share of Internet and mobile internet. The share of voice has reduced from 63.5% in FY09 to 45.6% in FY12. Consequently, the share of Internet has increased from 34% in FY09 to 49% in FY12. We expect employee cost to decline from 50% of sales in FY12 to 45% in FY15E, as the share of Internet and mobile internet improves. We believe that while the share of Internet would increase to 51% in FY15E, the share of mobile app would increase from 5.3% in FY12 to 18% in FY15E. The cost of delivery through Internet and mobile internet is negligible as compared to voice.

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EBITDA margins to inch higher

Source: Company, MOSL

PAT to grow at 43% over FY12-15E

Owing to 33% topline growth and 560bp margin expansion over FY12-15E, we expect PAT to grow at 43%. Given the negative working capital cycle, we expect JDL to generate free cash flow of INR4.3b over FY12-15, leading to ~44% CAGR in other income.
PAT growth trend over FY09-15

Source: Company, MOSL

Negative working capital cycle to lead to higher free cash flows

JDL collects advances from its paid advertisers and has no debtors. It has a negative working capital cycle of 154 days. JDL operates an asset-light business model, with no major capex. Over FY13-15E, we expect JDL to incur capex of INR1.1b. During the period, its operating cash flow would be INR5.5b and free cash flow would be INR4.4b. We expect the company to pay out 38-40% of its profit as dividend, keeping return ratios at healthy levels.
Healthy operating cash flows and free cash flows Free cash flow as percentage of PAT

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Possible upside of over 20%

Initiating coverage with Buy

JDL trades at 33.8x FY14E and 24.7x FY15E EPS. Given that the company is (1) in a high growth phase, (2) generating strong free cash flows, and (3) maintaining healthy return ratios, we believe the premium valuations are justified. We initiate coverage with a Buy rating. Our target price of INR660 implies 24.5% upside.

Has grown manifold over FY08-12

Over the last four years, JDL has grown manifold in terms of its reach, listings (from 4.5m in FY10 to 9.1m in FY13; CAGR of 26.5%), and paid membership (from 40.5k in FY09 to 171k in FY12; CAGR of 61.6%). Its topline has grown at a CAGR of ~40% over FY09-12, with PAT growing at a CAGR of 106%, primarily driven by margin expansion from sub-5% in FY08 to 28% in 9MFY13.

Expect high growth to continue over FY12-15E

We expect JDLs topline to grow at 33% CAGR over FY12-15E, with 560bp margin expansion, driven primarily by shift in search mode from voice to Internet and mobile app. Consequently, we expect 43% PAT CAGR over FY12-15E.

Deserves premium valuations

The stock trades at 33.8x FY14E EPS of INR16 and 24.7x FY15E EPS of INR22. Given that (1) JDL is in a high growth phase, (2) has an asset-light business model, (3) is a virtual monopoly in the voice search segment, (4) negative working capital cycle and high free cash flows, (5) boasts strong dividend payout, and (6) maintains healthy return ratios, we believe that premium valuations are justified. We value the stock at 30x FY15E EPS and arrive at a target price of INR660 an upside of 25%. We initiate coverage with a Buy rating.

Comparative valuation: International (USD b)

MCap Sales (USD b) CY11 CY12 CY13E CY14E Google Baidu Yahoo Linkedin Yelp 288.4 33.8 28.5 18.5 1.9 37.9 2.2 5.0 0.5 0.1 50.2 3.5 5.0 1.0 0.1 47.4 4.9 4.5 1.5 0.2 EBITDA EBITDA margins (%) PAT 5 Yr CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E CY11 CY12 CY13E CY14E 5 yr CAGR % CAGR % 55.0 17.0 13.6 15.7 21.5 25.5 35.9 31.3 45.4 46.4 9.7 10.7 15.7 18.1 20.8 6.3 52.3 1.3 2.0 2.2 2.8 58.4 56.3 45.7 44.4 1.0 1.7 1.8 2.2 43.4 4.7 -7.4 1.5 1.5 1.7 1.7 29.6 29.2 36.7 37.1 1.0 3.9 1.5 1.6 6.9 2.1 71.7 0.1 0.1 0.4 0.5 13.2 14.1 24.4 25.6 0.0 0.0 0.2 0.3 101.3 0.3 59.7 -0.01 -0.01 0.02 0.05 -14.3 -7.5 10.4 15.9 0.0 0.0 0.0 0.0 na

Comparative valuation: Domestic (INR b)

MCap Sales EBITDA EBITDA margins (%) PAT (INR b) FY12 FY13 FY14E FY15E 5 Yr FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E FY12 FY13 FY14E FY15E 5 yr CAGR % CAGR % Info Edge 37.1 Just dial 37.7 3.9 2.6 4.7 3.7 5.5 4.8 6.7 6.2 20.3 35.3 1.2 0.7 1.2 1.0 1.5 1.4 1.9 1.9 30.2 25.7 25.7 27.8 27.1 29.6 28.7 31.3 1.0 0.5 0.9 1.3 1.6 26.0 0.7 1.1 1.5 52.0 Source: Company, MOSL

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International (USD b)
CF from Operation CY11 CY12 CY13E Google 14.6 Baidu 1.3 Yahoo 1.3 Linkedin 0.1 Yelp 0.00 16.6 1.9 -0.3 0.3 0.00 18.0 1.8 1.3 0.3 0.01 CY14E 21.4 2.1 1.2 0.5 0.03 CY11 107.2 96.7 89.9 193.5 -2.1 CFO/EBITDA CY12 CY13E 105.7 95.5 -19.3 195.4 1.0 83.8 80.5 77.5 93.7 51.9 CY14E 83.7 76.0 69.8 83.8 66.5 CY11 18.7 56.0 8.4 3.7 na ROE (%) CY12 CY13E 16.5 50.6 29.1 2.8 na 17.8 34.8 10.6 10.8 1.6 PE (X) CY14E CY14E 17.7 31.2 10.1 15.1 12.6 16.3 15.8 17.6 80.6 75.1

Domestic (INR b)
FY12 Info Edge 1.0 Just dial 0.9 CF from Operation FY13 FY14E 0.8 1.3 1.3 1.8 FY15E 1.6 2.4 FY12 85.1 134.1 CFO/EBITDA FY13 FY14E 64.5 129.5 88.7 127.1 FY15E 83.8 122.7 FY12 21.5 52.3 ROE (%) FY13 FY14E 16.1 25.0 PE (X) FY15E FY15E

19.6 20.3 23.2 21.7 25.8 24.7 Source: Company, MOSL

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Management details
Mr V S S Mani, MD & CEO
Mr V S S Mani is the Founder, Managing Director and CEO of JDL and has been associated with the company since its incorporation. Previously, he co-founded Ask Me Services and also worked with United Database India Private Ltd. He is presently engaged in exploring avenues for technological innovation of JDLs business and has been responsible for adapting the companys business model to suit the changing market conditions. He is also involved in the formulation of corporate strategy and planning, overall execution and management, and concentrates on growth and diversification plans.

Mr V Krishnan, Director & COO

He is the co-founder of JDL and has ~20 years of experience, working in the field of strategic planning and execution. He played a key role with responsibilities including business development, business expansion, operations, strategic planning and execution.

Mr Ramkumar Krishnamachari, CFO

He is a member of the ICAI and ICWA. He is also a Certified Public Accountant by the State Board of Accountancy, Delaware, US. He is a CFA charter holder from the CFA Institute, US and has ~22 years of experience in the field of finance and accounting. Prior to joining JDL, he worked with Royal Sundaram General Insurance Allied Company Ltd.

Mr Sandipan Chattopadhyay, CTO

He has been associated with JDL since January 1, 2009. He holds a bachelors degree in statistics from the Indian Statistical Institute, Kolkata and post graduate diploma in computer aided management from the Indian Institute of Management, Kolkata. He has ~16 years of experience in the field of technology. Prior to joining JDL, he was associated with E Dot Solutions India Private Ltd.
Shareholding pattern
Particulars Pre IPO Post IPO

Key milestones
Year 1993 1996 1997 2000 2006 2006 2007 2007 2007 2009 2009 2011 2011 2012 Event Incorporation of Company as A&M Communications Private Limited Commencement of Companys search business operations in Mumbai with 8888?888 telephone number The brand Just Dial was registered Secondary sale of 50% stake by Promoters to Indiainfo.com Private Limited Investment of Rs546.9m by SAIF Change in name of Company from A&M Communications Private Limited to Just Dial Private Limited Launch of Companys website http://www.justdial.com Investment of Rs165.3m by Tiger Global and second round of investment of Rs40m by SAIF Launch of search service through SMS and mobile internet The companys website receives 25m visits in a year for the first time Investment of Rs383.5m by Sequoia , Rs308.8m by Tiger group and Rs95.9m by SAIF Investment of Rs166.9m by SAP Ventures and Rs166.9m by EGCS Demerger of activities and operations pertaining to IT?related testing and other related services of Company to JD Global Investment of Rs3,269.5m by Sequoia and second round of investment by SAP Ventures. Source: Company, MOSL 27

Promoter 37.1 33.1 PE Inventors/ Venture capital 60.5 39.5 SAIF 19.7 11.2 Tiger global 19.9 13.4 Sequoia 18.4 13.8 SAP Ventures 1.6 1.1 EGCS 0.9 0 Employees 2.3 2.3 Public 0 25 Total 100 100 Source: Company

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Key risks

Execution: JDL has an edge over competition due to its strong reach of more than 2,000 cities and database of 9.1m listings, which however has to be updated regularly to maintain accuracy. Any failure in updating might lead to customer dissatisfaction and lead to lesser number of search requests going forward, and hence might impact its paid campaigns' growth. Also, security breaches may result in downtime. Evolving with technology, the biggest challenge: JDL, over the past 20 years, preempted the change in content medium impressively by moving from directoryto-voice-to-Internet-to-mobile application. Over the long term, as this medium keeps evolving, JDL will have to preempt it and understand the consumer needs and develop an ideal product without delay. With INR5b of cash balance and annual free cash flow potential of INR1.3b, company is well-equipped to develop a new technology or platform when required. Competition from Google would be a threat: Presently, JDL is significantly ahead of competition due to its strong brand recall coming from its long touch point with customers. None of its competitors over the last five years has been a threat. Going forward, as India grows in terms of Internet usage, there would be rising competition from large global players. Google, for its next leg of growth, may plan to develop local search platforms and earn from local companies. Globally, Google's search services are based on technology, while the search market in India requires collating and maintaining database through feet-on-street and voice-based search options. Hence, probability of Google re-entering the local search market is low. But any such move by Google is a key monitorable considering its technology competence and capital availability. LTE technology and affordable smart devices could provide users more online options: LTE technology is likely to provide a boost to data usage. This may attract domestic and international companies to provide mobile applications for local search services which could potentially be another big competition for JDL. While the company continues to keep pace with new technologies (such as Androidbased applications), competition from newer applications and its ability to compete remain a monitorable. Regulatory policies can affect business, as seen in the past: The Department of Telecom and Ministry of Broadcasting are the two regulatory agencies that guide web content in India. Any policies or reforms passed by the agencies can have an adverse impact on JDL's operations and growth. Telemarketing norms and enforcement of do-not-disturb (DND) list in 2010 discouraged the practice of directly connecting the customer with the service provider. If the Telecom Regulatory Authority of India (TRAI) prohibits JDL from sharing the caller's details with advertisers, it will reduce the company's ability to monetize their listings to the fullest and may impact realizations in the future. Going forward, any policies to regulate the classifieds content and malpractices of players can be a dampener for JDL. Growth at cost of working capital: Company has 50% of its campaign based on weekly and monthly payment format. A special package to increase the share of paid subscribers at the cost of working capital might impact the balance sheet and cash flow from operations.
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Company description
Just Dial Ltd (JDL) is one of the leading local search engines in India. It provides users with information and user reviews from its database of local businesses, products and services across India. Its search service is available to users through multiple platforms: Internet, mobile Internet, telephone (voice) and text (SMS). In FY12, it addressed over 254.3m search requests across its platforms. Campaigns increased from ~40,500 as on March 31, 2009 to ~195,100 as on December 31, 2012. As one of the first companies to offer local search services in India, it has a first-mover advantage among consumers seeking information on local businesses. JDL is a wellknown and established brand on the Internet and through its easy to remember phone numbers (88888 88888 and 6999 9999) and user friendly mobile phone interface, it attained significant mind share with users for their local search needs. In 2009, JDL launched its service in the US to experience the market first-hand. With not much development in the US, the company demerged the same into a different entity with JDL's promoters and investors as its owners. It is no more a part of Justdial Ltd. The brand, Justdial, is owned by JDL and JDL Global would pay a royalty to use the same when operations commence. Presently, JDL has 7,342 employees, of which 2,707 are in sales, 944 on-the-street, ~1,837 in the voice data center and the rest in product development, security, database management and administration. Since commencement of operations, JDL expanded its physical presence to 11 cities, with call centers at eight locations. Company launched the first phone-based search engine in India. Beginning with just two cities, Mumbai and Delhi, its services are available across the country. Having initiated search operations only through phone, six years ago it adopted the new era mediums of Internet, mobile Internet and SMS. JDL is the most preferred brand in the local search engine space due to a highly-satisfactory user experience.
Share of category searches at 36%

Source: Company, MOSL

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Financials and Valuation

Income Statement
Y/E March Net Sales Change (%) Total Expenditure EBITDA Margin (%) Depreciation EBIT Other Income - Rec. PBT bef. EO Exp. EO Expense/(Income) PBT after EO Exp. Current Tax Deferred Tax Tax Rate (%) Reported PAT PAT Adj for EO items Change (%) Margin (%) 2010 1,309 52.4 1,012 297 22.7 53 245 39 283 0 283 0 99 34.9 184 184 165.5 14.1 2011 1,839 40.5 1,385 454 24.7 68 386 37 423 2 421 119 15 32.0 286 288 56.1 15.6 2012 2,621 42.5 1,948 673 25.7 90 583 150 732 -5 737 206 3 28.4 528 524 82.3 20.0 2013E 3,651 39.3 2,635 1,016 27.8 138 878 157 1,035 0 1,035 300 0 29.0 735 735 40.1 20.1 2014E 4,805 31.6 3,383 1,422 29.6 190 1,232 337 1,570 0 1,570 455 0 29.0 1,114 1,114 51.7 23.2

(INR Million)
2015E 6,167 28.3 4,239 1,927 31.3 238 1,689 462 2,151 0 2,151 624 0 29.0 1,527 1,527 37.0 24.8

Consolidated - Balance Sheet

Y/E March Equity Share Capital Total Reserves Net Worth Minority Interest Total Loans Capital Employed Gross Block Less: Accum. Deprn. Net Fixed Assets Capital WIP Total Investments 2010 11 626 637 1 3 641 342 150 192 0 780 2011 521 411 932 0 1 933 464 191 273 0 1,160 2012 531 542 1,072 0 0 1,072 638 281 357 3 1,568 540 0 237 303 1,405 1,392 13 -865 1,072 2013E 694 4,101 4,795 0 0 4,795 1,038 419 619 22 1,568 4,486 0 4,123 364 1,909 1,892 17 2,577 4,795

(INR Million)
2014E 694 4,772 5,467 0 0 5,467 1,338 610 729 29 1,568 5,616 0 5,180 436 2,484 2,462 22 3,132 5,467 2015E 694 5,695 6,389 0 0 6,389 1,738 848 890 37 1,568 7,055 0 6,532 524 3,170 3,142 28 3,885 6,389

Curr. Assets, Loans&Adv. 235 449 Account Receivables 0 11 Cash and Bank Balance 121 201 Loans and Advances 113 236 Curr. Liability & Prov. 593 961 Account Payables 580 940 Provisions 13 21 Net Current Assets -359 -512 Appl. of Funds 641 933 E: MOSL Estimates; * Adjusted for treasury stocks

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Financials and Valuation

Ratios
Y/E March Basic (INR)* EPS Cash EPS BV/Share DPS Payout (%) Valuation (x) * P/E Cash P/E P/BV EV/Sales EV/EBITDA Dividend Yield (%) Return Ratios (%) RoE RoCE 2010 3.8 166.3 13.3 0.0 0.0 2011 4.6 6.0 14.8 0.0 0.0 2012 8.1 10.8 16.5 0.0 0.0 2013E 10.6 12.6 69.1 4.6 38.4 2014E 16.0 18.8 78.7 7.2 39.8 2015E 22.0 25.4 92.0 9.8 39.6

65.7 49.1 32.1 9.3 36.0 0.0

50.1 42.2 7.7 5.6 20.0 0.9

33.0 28.2 6.7 4.0 13.6 1.4

24.1 20.8 5.8 2.9 9.3 1.9

34.3 52.5

36.7 53.8

52.3 73.0

25.0 35.3

21.7 30.6

25.8 36.3

Working Capital Ratios Fixed Asset Turnover (x) 4 Asset Turnover (x) 2.0 Debtor (Days) 0 Creditor (Days) 162 Working Capital Turnover (Days) -134 Leverage Ratio (x) Current Ratio Debt/Equity * Adjusted for treasury stocks

4 2.0 2 187 -142

4 2.4 0 194 -154

4 0.8 0 189 -154

4 0.9 0 187 -156

4 1.0 0 186 -157

0.4 0.0

0.5 0.0

0.4 0.0

2.4 0.0

2.3 0.0

2.2 0.0

Consolidated - Cash Flow Statement

Y/E March Net Profit / (Loss) Before Tax Depreciation Interest & Finance Charges Direct Taxes Paid (Inc)/Dec in WC CF from Operations EO Expense CF from Operating incl EO (inc)/dec in FA (Pur)/Sale of Investments Others CF from Investments Issue of Shares (Inc)/Dec in Debt Dividend Paid Others CF from Fin. Activity Inc/Dec of Cash Add: Beginning Balance Closing Balance 4 June 2013 2010 283 53 0 -45 82 373 -24 350 -99 -233 34 -298 2 4 0 204 2011 421 70 0 -133 259 618 -13 605 -176 -388 36 -528 1 -2 0 -7 -8 69 121 190 2012 736 91 0 -209 384 1,003 -101 902 -231 -1,092 179 -1,144 293 -2 0 -15 277 34 201 235 2013E 1,035 138 0 -300 443 1,316 0 1,316 -419 0 0 -419 3,270 0 -282 0 2,988 3,885 237 4,123

(INR Million)
2014E 1,570 190 0 -455 503 1,807 0 1,807 -307 0 0 -307 0 0 -443 0 -443 1,057 4,123 5,180 2015E 2,151 238 0 -624 599 2,364 0 2,364 -408 0 0 -408 0 0 -604 0 -604 1,352 5,180 6,532 31

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