Just thought of sharing my 2 cents on JustDial at CMP
Thesis
- Extraordinarily huge cash reserves to the tune of 5600 Cr. For Current Mcap of 6200 Cr, I get this business for a paltry sum of 600 Cr. Valuations alone make it a steal in this market
- For most of their cash is parked in Government securities earning around 8% per annum on average. Assuming no huge dividends or buybacks, the company with the cash generated on business and investments will be practically free based on liquidity alone in the next 12 months. This makes margin of safety in this play to be immense.
- I see some Intent on the part of Reliance since they have acquired it. They are not just in listings space but a lot many verticals. Hence, they have created a bunch of optionality’s. A lot of them will not work out. But even one success can move the needle in a huge way.
- Core business even though isn’t growing fast, but is a very solid business with a strong moat.
- I don’t see any meaningful competitors in sight here. They earn 340 Cr of OP which can grow at a low single digit multiple. If I would assign a fair value of 15X FCF of core business, I would believe the fair value of business would be somewhere between 3800-4200 Cr. And I assume it on the lower side without any optionality’s.
- It has the strongest promoter backing in India you can think of
- It has the ability to give 10% dividend yield per year without disturbing the net cash position, any change in dividend policy can see repricing on the stock multiple.
- Management in concall has preferred dividends over buybacks
Anti-Thesis
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One reason the stock is so cheap is that it is the market expected “Promoter Apathy”. For Reliance, I assume a business of this size is only worth a few glances annually for Mukesh Ambani. Regardless, the business struggled to grow sales at a meaningful rate even before it was bought out by Reliance. And after the acquisition, the core business has maintained the fundamentals like OPM and mediocre (5-7%) sales growth intact.
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The core business has a slow growth rate. I feel the listings space is pretty much exhausted in India. They either have to go outside India and raise the rates sequentially for faster revenue growth. Unique visitors have remained the same but listings have grown in last two years.
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I initially saw some operating leverage playing out with lower employee costs when compared with FY24. But this is a business where you will need a huge sales team to stay relevant and push sales. That will hinder them from getting the kind of operating leverage certain tech companies get. So, I don’t expect a huge upward kick in the margins anytime soon.
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In other verticals, it competes with players with huge moats. In B2B, it competes with IndiaMart and is nowhere near them on any important metric. JDXperts is unheard of when compared to Urban Company. Same with JD Shopping, Search and Homes. Regardless, all these are optionality’s and all of them aren’t expected to work out. Some of these competitors have a strong moat that even Reliance firepower will find it difficult to find their way into.
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It has a mediocre 60% retention rate in core business. But considering how thrifty Indian SMEs are, they pay, pause and come back very frequently. So, customer churn is rarely a customer permanently lost.
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ROCE is single digits because of huge cash in BS. On flip side, They have only 128 cr of fixed assets on which they generate 330 Cr of OPM, which makes it a pretty solid business.
Conclusion
I believe JustDial is a good business. Not a great compounding one (but a small potential to become one) or a mediocre one. It has a competitive advantage in the listings space. I See some intent from the Promoter to enter new verticals which is positive as the core business was a laggard before acquisition as well. The net cash and potential dividend play makes it a very safe and somewhat asymmetric bet which is hard to find in the Indian market these days. Even though it was acquired, VSS Mani still leads it with some significant (7-8%) stake.
He has the ability to try new things and be a bit more bold with the backing of Reliance.
Classic case of “Heads I win, Tails I don’t lose much”