Home >Market >Mark-to-market >Justdial: back to basics please
The cash on Justdial’s books itself amounts to `135 per share, adjusted for which it is valued at around 19 times trailing 12-month earnings.
The cash on Justdial’s books itself amounts to `135 per share, adjusted for which it is valued at around 19 times trailing 12-month earnings.

Justdial: back to basics please

The sharp fall in share prices is not just because investors have revisited heady valuations for Internet firms, but also because of a decline in Justdial's core business

When Just Dial Ltd announced its September quarter results, its stock fell by 17% in two trading sessions. When it announced the December quarter results, its shares fell by over 22%. The company’s market capitalization has fallen by 70% from its highs 18 months ago.

This is not just because investors have revisited heady valuations for Internet companies, but also because of a decline in Justdial’s core business. Growth in the company’s core search (classifieds) business has fallen considerably this year, besides which investors have toned down expectations from the e-commerce business called Search Plus.

The latter is best valued as an option, which may or may not pay off, but the decline in the core business is more worrying.

In fiscal year 2014-15, the core business had grown by 28%. In the December quarter of the current fiscal year, revenue growth fell to 11%. Paid listings grew by just 1.5% sequentially, on the back of a 0.8% growth in the September quarter. Worse still, average realizations fell by 1.1% sequentially.

One of the reasons the core business has been hit, according to analysts, is the management’s preoccupation with the new Search Plus business. While the company’s version is that it is making a course correction and increasing sales staff for the classifieds business, some analysts feel that it hasn’t done enough. After all, it was amply evident from the September quarter results that growth had declined materially.

Although Search Plus has seemingly taken up a fair share of management bandwidth, its commercial launch continues to be delayed.

The silver lining is that, thanks to the sharp fall in the share price, valuations have become far more reasonable. The cash on Justdial’s books itself amounts to 135 per share, adjusted for which it is valued at around 19 times trailing 12-month earnings. Later this month, the company will buy back shares through a tender offer at a price of 1,550, which is almost three times the current valuation. But note that the number of shares that will be bought back is minuscule, and if all shareholders tender shares in the offer, the acceptance ratio will be a mere 25 shares for every 1,000 shares tendered.

For overall returns to improve, Justdial’s management will need to demonstrate quickly that it has arrested the decline in the core business. Else, even current valuations will start looking rich, despite the 70% fall from the peak.

The writer does not own shares in the above-mentioned companies.

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