Buy Just Dial, target price Rs 685: ICICI Securities

ICICI Securities has a buy rating on Just Dial with a target price of Rs 685. The company is trading at an absolute enterprise valuation of just Rs 5bn – roughly worth two years of fast cash flow (FCF) generation for them (FY19 FCF generation was Rs 2.59 billion). The company’s strategy of allowing paying customers to pay on a monthly basis for annual packages is seeing solid early traction and should help revenue growth to accelerate sequentially from Q1FY21, says the brokerage.

The share price moved up by 3.11 per cent from its previous close of Rs 311.45 on Tuesday. Just Dial’s last traded price is Rs 321.40. The midcap company, incorporated in 1993, has a market cap of Rs 2020.76 crore, and operates in the services sector.

Investment Rationale


ICICI Securities expects Just Dial to return capital to investors through a buyback as they did last year with a magnitude of around Rs 2.5 billion (~25 per cent of net worth). We expect revenue growth to recover in fourth quarter FY20 to ~1 per cent quarter on quarter, post a decline of 2.9 per cent QoQ in the Q3 of FY20. More important metrics to monitor would be growth in paid campaigns and trends in average realisation per new paid campaign, where we expect the company to report better trends than in recent quarters. Risk Reward on the stock cannot be any better, says the brokerage.

Key Risks

The key risks to our call are: i) slower-than-expected growth in paid campaigns, ii) significant decline in realizations, and iii) slower-than expected growth in traffic.

Financials
For the quarter ended December 31, 2019, the company reported consolidated sales of Rs 235.42 crore, down -2.95 per cent from last quarter sales of Rs 242.57 crore and up 3.81 per cent from last year's same quarter sales of Rs 226.79 crore. The company reported net profit after tax of Rs 62.03 crore in the latest quarter.