Just Dial needs to dial up correctly

Current Market Price: 806

Target Price              : 750

What could be better than best of two worlds. At one end, there is profit making operations from brick and mortar shops, at the other end this is positioned shoulder to shoulder with other blue blood e-commerce set up. 

It would only come as a surprise that Just Dial - now identified by most people as a quick tool to find their nearest grocer/dentist/anything; as well as with approx 19 years of solid history - has not been a rewarding investment for its investors.

First the corporate finance and operational issue. To the credit of its promoters, they did set up a great company; but now it's time to move ahead. Unsurprisingly but unfortunately, the promoters seem to cling to their control over the company. What else could have been the reason for company to be running on 100% equity. Now, for tax etc consideration, it could have been a wise move to allow some leverage and utilize that amount for other operational/strategic endeavors. According to the latest company report, the promoters have approximately 33% of share holding, FIIs 40%, NRIs 18% and rest others by private corporate bodies and general public. 

Since being listed in 2013, the company has been promising the launch of Search Plus which is getting delayed repeatedly and is yet to see the light of the day. 

The company first toyed with the idea of making acquisitions and getting into the league of e-commerce companies but shelved the plan and instead planned to buy back shares at the maximum price of Rs 1550 per share. This rich valuation by the company for itself seems to be a gimmick at best as most of the analysts have valued the company far below to this.

After Q2'15 results the Just Dial stock is down 20% in 3-4 days, probably reflecting investor's uneasiness about tall promises/prospects and sobering reality.

Valuation:

The P-E ratio is in the range of 40s, however both Economic Value Added and Free Cash Flow for Equity has been considerably low. Unless the company gears up for quantum changes (such as transforming itself into an e-commerce company, a mighty search plus features etc ), the competition will bring the valuations even lower.   The average of all methods of valuation calculations indicate a target price of approx 750.