Fundamental AnalysisIndia

Is Justdial a good bet for Reliance ?

Overall Rating: Race Car 🏎️

What is the national economic outlook?

  • How well are we recovering from the pandemic? [High 🟢]
    • Overall Indian economy is posting a strong recovery post the 2nd COVID wave. Though there is recent concern on the rising inflations, the majority of the pundits still believe it to be transitory.
  • Change in purchasing power [High 🟢]
    • Based on FY20 data, the overall purchasing power of the Indian customer is on the rise and poses a strong economy in the immediate future.

What is the industry outlook?

  • What is the current industry category for the company?
    • E-Commerce
  • What are the growth prospects? [High 🟢] 
    • Demonetization + COVID = Digital Purchase. Beating all the target numbers, e-commerce transitions in India grew by 35%(based on FY20 report). Going forward the trend isn’t going to stop; the post COVID world is surely hybrid with a tilt toward online business.
  • What is the competitor landscape? [Medium 🟠]
    • Just Dial poses a strong and unique model with limited local competitors. But, with the growing e-commerce preference of global tech giants such as Google and Facebook, it would be harsh to say that JD is the market leader.
    • Even though JD is the first mover in the concentrated industry, they are facing some tough competition from Indiamart Intermesh & Udaan
    • Additionally, with big players such as tata trying to enter this industry the future holds for more competitive pressures.

What is the company profile?

  • Business Overview
    • Started as the search engine for business, JD has expanded to the prelim view of how a future of One Platform in India would look like. Currently, JD provides options from booking a flight to buying bulk plastic polymer. In the era of rising internet power, JD has maintained its grip on telephone and SMS driven services.
    • JD has an overall business listing of ~3crores in 250+ cities with over 4L + running paid campaigns and ~12Cr active quarterly users.
  • Financials
    • How are company financials changing?
      • JD posted a relatively strong recent quarter. Though revenue remained at a similar level as Q1 FY21, overall operating and net margin demonstrated a steep decline owing to INR 50 Cr marketing expense in IPL season this year.
      • The company has not declared dividends in 5 Years despite strong earnings. Also, it is virtually Debt Free.
      • Due to Covid 19 Pandemic, its Revenue has been declined by 30%.

  • What are the stand-alone future financial prospects? [ Medium 🟠]
    • JD has recently tried to revamp their business model by looking beyond the B2B business and capitalize on its strong database holding to emerge as a super app catering for everything from air tickets to steel purchase for a factory.
    • Though there has been a strong diversification into multiple streams, the overall unique visitors have remained almost stable.
    • But, these numbers might not be ideal to make a future conclusion given the impact created by multiple COVID waves.
  • Pipeline deals and possible future risk and gains [Low 🔴]
    • IndiaMart had filed a copyright infringement case last year, alleging that Justdial’s JD Mart B2B platform had copied its website compilations and In this regard IndiaMart moves Bombay High Court claiming Just Dial filed false documents.
    • Reliance Retail acquires 40.95% Majority Stake in Just dial for ₹3497 Crore and will acquire 26% Stake in Mid Sept for around ₹2222 Crore. Although, VSS Mani (Promoter) shall continue as MD & CEO to lead Justdial with its stake of around 11%.
  • Beyond the numbers – ProCapitas Think Tank 🧠
    • Let’s look beyond these numbers and try to answer – “What Matters”
      • Why would promoters dilute their holding to such a big extend(post-acquisition from Reliance)? 🤔
        • To be honest, this question has confused me a lot – Why would I lose my equity from 30% to 10% if the business has very good potential?
        • Well, the answer is – “Stagnant Numbers”. Though JD has been able to enter into multiple product offerings, the overall user growth has remained stagnant. Additionally, potential future competition risk requires money (with just a small marketing stint into IPL, JD had to suffer negative margins).
        • In short 30% of 100Rs is less than 10% of 1000Rs
      • Why would Reliance go so aggressive on JD? 
        • If you are not aware, Tata(building a super app) was in talks to acquire JD. But somehow Reliance grabbed this one.
        • Are we smelling Indian Google vs Facebook? – For sure 🦹
        • On the bigger side, Reliance aims to build upon the current JD database to pursue their dream venture of building the all connect retail ecosystem powered with Google cloud database.

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