JustdialÂ offers local search services where you can search for a service around you using your cellphone, SMS, or just the internet. In fiscal 2012 they addressed 254.3 million searches on their platform, and that shows that it is a fairly big platform. I don’t think there is another local search engine in India that has these kind of numbers.
Just in case you’re wondering, Google said sometime ago that it addresses more than 100 billion searches a month.Â
Justdial makes its money by advertising, and the way that works is that they have sponsors that pay to be displayed along side the organic search results that Just Dial shows.
So if I search for pizza home delivery near Chembur – Just Dial shows me links from Pizza Hut, Dominos etc. and then towards the right they have links for Pizza Craft, Smoking Pizzas etc. which are their advertisers and have paid to be listed there. You can see an example in the screenshot below.Â
Justdial is debt free, cash flow positive and profitable so obviously the local search business is doing well for them. The company made Rs. 2,770.2 million in fiscal 2012 with a net profit of Rs. 522.8 million. The cash from operations was Rs. 1,166.05 million last fiscal. The EPS last year was Rs. 6.54 and it was Rs. 7.19 in the nine month period this fiscal.
The price band for this IPO is Rs. 470 to Rs. 543, so if you were to just annualise the EPS last year – the P/E ratio at the lowest multiple is about 49. So, the IPO is richly valued, however, there is a safety net in the Just Dial IPO so retail investors are at least guaranteed that their principal is secure for six months.
This IPO is akin to PSU disinvestment in the sense that proceeds from the IPO will go to existing shareholders, and the company won’t get any of the money. When you look at how much cash the company has generated over the past, and the capital expenses, it does seem like there is no need for the company to raise additional cash so in that sense I feel that the company isn’t losing out on anything, and the current market conditions give the promoters a good opportunity to cash out a little.
Retail investors will also get a discount of Rs. 47 and I feel that anyone interested in IPOs or direct equity this might be a good option to dip your toes in. However, IPOs haven’t done so well in the past few years and the general optimism in the market along with the rich valuation of this particular IPO makes me feel that it isn’t that great a deal for investors.