IPO Note | Justdial | Justdial Ltd (JDL) - InvestmentGuruIndia

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IPO Note | Justdial | 17 May 2013 Business Model Having being a free service provider to users, JDL generates revenues from paid advertisers (mostly SMEs) who subscribe to feebased campaign packages or memberships in order to list their businesses on priority ranking on users’ search results. The company offers annual and long-term renewable memberships to paid advertisers. The payments are made in advance by SMEs on a monthly or annual basis (~` 1130/month), which reduces the credit risk profile for JDL. Currently, JDL converts ~2% of the total listings into paid category (in that, ~22% belongs to premium ad package and rest belongs to non-premium ad package) and rest are free business listings. Since FY09, paid advertisers base has grown exponentially from 40.5k to 195.1k in 9MFY13. Further, the total business listings (free + paid) database has increased to 9.1 mn in 9MFY13 from 7.2 mn in FY12. Chart 1: Traffic Mix – 9MFY13 Chart 2: Business Listings categories Search Mix - 9MFY13 0.3% Business Listings 39.2% 49.9% Premium Ad package (21.7%) Paid listings (2.1%) Non-premium Ad package (78.3%) Free listings (97.9%) 10.6% Internet Mobile Voice SMS Platinum Diamond Gold Source: RHP, ABML Research Having started its search services through only phone (voice call local search in Mumbai & Delhi), JDL has expanded into emerging verticals internet, mobile net and sms in 2007 and increased their presence across the nation. Currently, JDL is witnessing bulk of the traffic from new verticals: a) Internet: attracts ~50% of the traffic (up from 34% in FY09, CAGR of ~48%), b) Mobile Net: witnessed rapid CAGR of ~94%, constitutes ~11% of total traffic (up from 2.4% in FY09) and c) Traditional voice: grew at relatively lesser pace at CAGR of 19% to ~39% (down from 63.5% in FY09). JDL is the most preferred brand in the local search engine space, primarily due to high user satisfaction experience along with a first mover advantage, which has enabled it to occupy strong brand recall and mindshare among users. Key Strengths First mover advantage in local search & strong brand recall: First, JDL started local search services in 1996 under Just Dial brand in only two cities (Delhi and Mumbai) and launched its internet and mobile internet services in 2007. By being the first in this local search market, JDL enjoys first mover advantage and strong mindshare among users largely due to high user satisfaction. Currently, JDL concentrates on 11 large cities, in order to expand its network and database further in existing and new cities appointed resellers to collect data. JDL’s database has 9.1 mn businesses listings in 9MFY13 (up from 4.5 mn in FY10), mostly SMEs. “History shows that the first brand into the brain, on an average, gets the twice the long-term market share of the No.2 brand and twice again as much as the No.3 brand” – Al Ries & Jack Trout Profitable business model: JDL takes payments in advance from paid advertisers, thereby reducing credit risk and enabling a comfortable working capital management. In addition, JDL would likely benefit from non-linearity, as the business model is skewing more towards net and mobile as against the traditional voice based linear model. The company has a) higher cash generation capabilities (FCF/EBITDA - ~92% from FY10-12 and 93% OCF/EBITDA in 9MFY13), b) no long-term debt and c) cash and cash equivalents worth ` 4.76 bn (12.5% & 14.5% of higher & lower end of M-cap respectively). Aditya Birla Money Limited 2 nd Floor, Sheil Estate, Dani Corporate Park, 158 CST Road, Kalina, Santacruz (East), Mumbai 400 098 | Tel: +91 22 42333400 Page No. 2
IPO Note | Justdial | 17 May 2013 SMEs lifeline for advertising: JDL acts as a platform for SMEs to advertise with relatively low cost (` 1130/month) compared to traditional Medias. With limited marketing budgets, SMEs can attract right target customers. SMEs can upgrade their listings from free to non-premium memberships and finally to premium memberships based upon their customer traction. Currently, JDL has conversion ratio of ~2% of total listing as paid advertisers. To achieve higher conversion of paid advertisers, it is working on a dedicated category portal to attract SMEs in a particular business. Multiple platforms: JDL provides services through several communication media i.e., Internet, Mobile Internet, Voice and SMS. Multiple platforms offer to provide reviews and ratings from users on one platform to users across all other platforms (~23 mn reviews and rating in FY13). These reviews help users for better selection of product, services and brings social quotient into the picture. Objects of the Issue The objects of the offer are to achieve the benefits of equity shares listing on stock exchanges and to carry out the sale of 17.50 mn shares by the selling shareholders. The listing would further enhance the brand name and provide liquidity to existing shareholders. The company will not receive any proceeds from the offer. Company’s Strategy going forward Widening the pan-India presence: The company has enormous scope to expand beyond its existing main concentration of 11 large cities and deepen its presence in existing cities. Apart from brand recall, JDL’s database updating capability would keep them ahead of competitors and attract niche users and customers. Currently, it has 9.1 mn listings across various cities and towns in India and is planning to convert more non-premium customers to premium by offering specialised packages (2.2% of total listing is paid). Develop new products and services: Mobile apps: JDL created a Master App for Android & iPhones and is expected to launch for Blackberry and Windows enabled phones. In addition, users can use WAP to search the JDL’s database. Enabling transactions: JDL is in the process of offering additional services under its existing platform by enabling purchases and bookings that are integrated in the search results from across the platforms in collaboration with service providers and vendors. For example, reservations at restaurants, taxi bookings, doctors’ appointment fixing, ordering groceries, etc., Car listings: JDL is exploring various areas for users to offer to sell, as well as buy, goods and services through its website. On this process, it is developing a car listings website in which users can research and rate car models being offered for sale, list their cars for sale and receive price quotes from vendors of both new and used cars. Quick Quotes: This product will provide a price quote from multiple vendors for the prospective buyers on 24/7 basis. Prospective buyers will also receive real-time updates of revised quotes by vendors through SMS and email. Structured data for business: JDL plans to use data analytics to leverage its existing search & user data to provide structured data to various businesses, product and services. Key Risks Low entry barriers: Local search industry has a low entry barrier as any player can establish a database and offer services. As it requires more initial investment, players with strong balance sheets can enter and offer competitive pricing (Google India and Nokia’s city lens app would be the biggest threat). Once lost is lost forever: The business model depends on the user traffic, - the higher the traffic, the more the SME’s advertising. Any dissatisfaction on user’s experience on data updation (availability), technological glitches in mobile & website would be difficult to win back the customer’s trust. Technological obsolescence: As the technological cycles are getting shorter and shorter, any failure to adapt to the latest and next generation of technology might affect them quite adversely. Aditya Birla Money Limited 2 nd Floor, Sheil Estate, Dani Corporate Park, 158 CST Road, Kalina, Santacruz (East), Mumbai 400 098 | Tel: +91 22 42333400 Page No. 3
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IPO Note | Justdial | Justdial Ltd (JDL) - InvestmentGuruIndia

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