The Spectacular Rise and Fall of Just Dial Shares

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Just Dial shares fell as much as 12 per cent on Monday to hit a low of Rs 536 on the National Stock Exchange. At its day low, Just Dial came close to the IPO price of Rs 530. The local search firm made a strong debut in stock markets in June 2013. Its shares gained steadily to finish the year (2013) at Rs 1,441.80, which was a 172 per cent jump from its issue price. The stock hit an all-time high of Rs 1,894.70 on August 5, 2014, but a year later, Just Dial shares were reduced to triple digit. This year, Just Dial shares have come under severe pressure, crashing 28 per cent in three sessions since January 28, when the company reported its Q3 earnings.

Here is your 10-point cheat-sheet to the story:

1) Just Dial started as a hyperlocal search provider in 1996. It listed local businesses for free, while those who wanted “visibility” paid for listings. Over the years, it grew exponentially, and users can now access Just Dial’s services through voice, internet and text (SMS).

2) Paid listings form the core of Just Dial’s operations, but they have come under pressure over the last few quarters. In the December quarter, Just Dial’s overall revenue increased by just 11 per cent, with paid campaigns rising 13 per cent. The company also reported a decline in average realization per campaign. This impacted Just Dial’s margins, which stood at around 22 per cent in Q3 against nearly 30 per cent over the last two fiscal years.

3) The management has indicated that Just Dial’s core business is likely to growth between 20 and 25 per cent year-on-year as compared to 30 per cent-plus growth the company has been logging earlier.

4) Just Dial’s core listing business is facing tough competition from companies such as Zomato and Practo. As a result, the company has lost market share in segments such as food orders and doctor appointments.

5) Just Dial did a soft launch of its ‘Search Plus’ app last year to capitalize on the e-commerce boom in India. But, a “formal” launch of the app is yet to happen. The company’s ‘Omni’ app, aimed at local vendors, is in a test phase. Just Dial is incurring an operational loss of around Rs 2 crore per month on Search Plus and Omni apps, said Kotak Securities, quoting the management.

6) Analysts are hugely disappointed by the reduction in total employees that Just Dial reported in the December quarter. The management conceded that it could not add enough sales people in time to drive new client acquisitions.

7) Kawaljeet Saluja of Kotak Securities says Just Dial management has taken “little” corrective action to solve the problem of lower employee count in the sales force.

“The company is struggling with basics – management admitted to delayed recruitment of sales force for slowdown in paid listings… The focus now seems to have shifted back to tier-I cities. Sales force addition is also happening in these cities,” he added.

8) Over the next few quarters, Just Dial expects to add around 2,000 employees. It also plans to spend Rs 100 crore to advertise its ‘Search Plus’ app. The additional spending will continue to weigh on margins, analysts say.

9) The stock has fallen out of favour with many brokerages. Kotak Securities last week downgraded Just Dial to “reduce” from “buy” and cut its target price on the stock by 29 per cent to Rs 710. IDFC Securities maintained its “underperform” rating on Just Dial, while cutting the target price from Rs 800 to Rs 630.

10) However, some brokerages such as Motilal Oswal Securities (MOSL) continue to remain optimistic about Just Dial. “It has a database of 16.1 million listings spread across 2,000 cities as on 3QFY16, significantly ahead of competitors… Just Dial is launching a plethora of new products…which will take the Search Plus platform to a completely different league,” the brokerage said. MOSL has a “buy” on Just Dial with a target of Rs 830.

Just Dial shares closed 7 per cent lower at Rs 567.45 on Monday, underperforming the broader Nifty, which ended 0.10 per cent down.

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