Group No.

: 02 Mohit Tandale (19-MF-30)

Hemant Kudale (19-MF-23)
Ashutosh Pathrabe (19-MF-25)
Rupesh Kakade (19-MF-16)

JustDial Case Study Question:

1. What are the value drivers in the just dial business model?

Answer: The major value driver for JustDial is the database they are having various MSMEs.
Based on these databases only, they can trade information and have an upper hand in the market
over the competitors.
The second value driver for the company is its business model itself, which started as a
freemium model with subscription-based products and services attached to it. This model first
attracts the emerging MSMEs to be listed on the JustDial database and then to have better
visibility, they will have to go for the subscription for larger exposure in the market.
Recently, classified advertising has undergone a paradigm shift towards online from print
media with a large chunk of businesses shifting to the former. Moreover, the much-anticipated
jump in internet usage over the next few years is bound to further fuel this segment, presenting a
humongous growth opportunity to relevant players. The competitive intensity has moved from
vertical services providers to horizontal services providers, opening up opportunities for
specialized players like JustDial. However, given the slowdown in the economy, especially
affecting the SMEs in Tier2, Tier 3 cities, we should become cautious about the ongoing revenue
growth trajectory of the company.

2. What is JustDial's current financial position?

Answer: JustDial’s (JD) revenue growth decelerated to 3.8% YoY (Q2FY20: 9.7% YoY) in
Q3FY20 due to weak macroeconomy. Unearned revenue - lead revenue growth indicator - also
fell 2.0% YoY as customers switched to monthly plans. However, the company rationalised
costs, which led to 80bps QoQ jump in EBITDA margin. While muted business sentiments
disproportionately impacted Q3FY20 revenue, JD continues to be a valuable platform
considering its ability to generate high numbers of leads. It also has INR15.3bn cash on books
(41% of MCap) lending additional comfort. The stock has corrected almost 65% since the last
six months and we believe at 16x FY21E EPS, valuations are attractive.

3. What is just dial competitive advantage over local and global competitors?

Answer: GetIt was the oldest player in the market, thereafter JustDial joined in the race, but it
was present in only 35 cities in India and JustDial was present in more than 1500 cities in India,
which technically shows that JustDial had a first mover’s advantage. The other competitors of
JustDial also show less visibility in India. JustDial has 6 Mn listings on its portfolio, more than
any other local search engine website in India and also time spent on the website is 7.1, which
also shows the content on the website is so engaging that users take maximum output from it.
The capital employed by JustDial is very high in comparison with its competitors, which is
132%, in the form of cash and marketable securities. The losses accumulated by JustDial was
also lowest in comparison to its peers, which was 47%.

4. What is the rationale behind JustDial’s IPO?

Answer: The two reasons for a firm to launch an IPO is to raise capital and to enrich prior
investments. As JustDial’s operations grew in scale and volume either through offering
innovative products and services or expansion into new markets, it required more funding.
Therefore, to respond to the growing need of capital, JustDial decided to look for fundraising
options through the market and considered going public. Before deciding to go for an IPO,
JustDial’s operations were funded by private equity investors.

5. Book building process

Answer:
 Book Building is the process by which the underwriter attempts to determine the price at
which an IPO can be offered. An underwriter is basically an Investment Bank who builds the
book by inviting Institutional Investors to submit the bids for the shares and the prices they
would be willing to pay for them. This price helps in determining the price at which the IPO is to
be offered.
When a company has planned to list its shares on the stock exchanges for the first time
via IPO, the company management has to decide various things to get its share listed on the stock
exchange such as issue size, share price, etc and to get through all this process, first company
management has to appoint underwriter to help in the listing process.

Step #1 – Hiring Underwriter

Firstly, the Issuing Company needs to hire an Investment bank who acts as an
underwriter. With the help of issuing company management, the Investment bank identifies the
size of the issue and determines the price range of the securities. An Investment bank drafts the
company prospectus which includes all the relevant details about the issuing company such as
financials, Issue size, Price range, future growth perspectives, etc. The price range of share
consists of floor price (Lower end of the price range) and Ceiling price (Upper end of the price
range).

Step #2 – Investor’s bidding

Investment banks invite investors, usually, these are high net-worth individual & fund
managers to submit their bids on the number of shares they are willing to buy at the various price
levels. Sometimes, it is not a single investment bank who underwrites the entire issue rather the
lead investment bank is engaged with other investment banks who use their networks to tap a
large number of investors for the bidding process.

Step #3 – Share Pricing

After all the bids are collected by the investment bank at different price levels, they
evaluate the aggregate demand for the issue from the submitted bid. To price the share of the
issue, the underwriter uses the weighted-average method to arrive at the final price of the share.
This final price is also known as ‘Cut-Off price’. If there is a good response for any issue by
investors, the Ceiling price is usually a ‘Cut-off Price’.

Step #4 – Bidding Process Transparency

Most of the regulators and the stock exchanges in the world require companies to make
public the details of the bidding process. It is an underwriter duty to publicize the details of the
bids submitted by the investor to purchase the shares of the issue.

Step #5 – Allotment & Settlement

Lastly, the allotment process begins by allocating the shares of the issue to the accepted
bidders. Now as you know, initially investors had bid for this issue at the different price range
but the settlement process ensures that all allotment happens at the cut-off price of this issue. An
investor who had bidden in excess to cut off price, their excess money is returned and investors
who had bidden less than cut-off price, investment bank ask them to pay the difference amount.

6. Pros and cons of a company going public.

Answer:
PROS:
1. Increased Capital – The major difference in a private limited company and a public
company is that a private limited company may have a hard time raising capital and this
is because once an investor invests money, they are locked in with the company.
However, in case of a public company that is not the case. Investors can enter and exit the
investment at their own convenience. There is an active secondary market for all stocks
listed on the exchange. Therefore whenever an investor wants to sell their investment
they can do so, and there will always be someone else willing to buy. This liquidity
makes investors willing to part with cash more easily than they would have otherwise
done. Therefore companies listed on the exchange have more access to capital and
therefore more opportunities.
2. Higher Valuation - Companies that have their shares listed in the stock exchange have
investors competing with one another to invest in them. As a result of this competition,
the price of the shares is driven higher. Sometimes, the price goes abnormally high, and a
bubble is formed. However, usually, the price reflects the true valuation of the firm. Since
the stock market makes it possible to put a price tag on public sentiments about a firm’s
business, many successful businesses watch their valuations soar when they list on the
exchange. The primary beneficiaries of such a price rise are the existing investors and
most of all the promoters.
3. Reputation - All major companies in the world are listed on stock exchanges. In fact,
every company in the Fortune 500 is listed on some exchange or the other. Also, stock
markets have minimum listing requirements which allow only businesses that have
attained a certain level of growth and success to list with them. Hence when a company
gets listed, all its stakeholders, including its suppliers and employees start viewing it with
more respect. Listed companies are considered to be larger and more efficient than other
companies.

CONS:
1. Loss of Control - The biggest disadvantage of taking your company public is that the
promoters tend to lose control over the workings of the corporation. Whereas earlier, the
promoters could make their decisions unilaterally but now they need to have a certain
number of shareholders approving the decision. The worst consequence of going public is
when the promoters dilute their holding way too much. In such scenarios, competitors
and investors can just buy the majority holding from the marketplace and end up
 conducting a hostile takeover. Over the years, many entrepreneurs have lost control over
their businesses because of a hostile takeover.
2. Pressure of Performance - Privacy can be an extremely important asset when it comes to
conducting business. The more information, a company gives out about itself, the more
competitors can find out about the inner workings and the strategy being followed.
However, when a company goes public, it is required to disclose its financial results
periodically. These financial results can be reverse engineered to make a fair estimate
about the operational strategy that is being followed by a company. Thus, going public
may make a company lose its competitive edge especially if its edge is based on
withholding certain information from their shareholders?
3. Abiding by Compliance - When companies list on the stock exchange, they have to spend
an enormous amount of money trying to comply with the regulations that result from
such listing. For instance, audits need to be done every quarter; financials need to be
published every quarter, the management reviews also have to be sent along with the
financials and therefore a whole lot of tasks need to be performed. All these tasks require
the company to hire specialists and pay them fees periodically. A company that is not
listed on the exchange need not be so stringent about compliance and hence is not
required to spend nearly as much. Listing a company on the stock exchange, therefore,
requires huge upfront payments to investment bankers as well as regular expenses to
other specialists that need to be incurred periodically over the company’s lifetime.
4. Performance Pressure - Going public creates enormous pressure on companies as they are
required to perform every quarter. The financial results of the company are reported
every quarter and the stock market is notorious for having very little tolerance for
declining performance. Some long-term strategies require short-term decline in
performance. For instance, if a company is investing for future growth, the results may
not show up immediately. However, that does not mean that the company is not
performing well. Going public therefore creates a scenario wherein the company also
becomes short-sighted in its bid to keep the investors happy.

7. What are the just dial limited future opportunities?

Answer: The future for Just Dial doesn’t seem convincing because India is growing faster in the
digital world, we have unlimited internet at a lower price. So here the call model of just dial fails
as anyone would always prefer searching for anything on the internet rather than calling someone
and asking the information about anything.
Now when it comes to address of a place or reviews of the place you can use google map
to locate it and just read reviews then and there at the same time, whereas for just dial we would
need to open up my browser go to the website search the place it’s a long process and google
maps being user friendly and so impressive that a user tends to use that rather than using
anything like just dial. Just dial has already stopped growing as fast as it was growing earlier. It
will come to an end unless and until they come up with something new which will overcome all
the benefits that we get from google maps.

8. Was the timing of the IPO appropriate?

Answer: JustDial was on the peak of its success at the time they decided to go public. They were
having stupendous returns and their revenue was growing at a CAGR of 40.2%, but because of
the financial crisis from 2007-09, India’s gross domestic production growth rates were going
down substantially and also the market sentiment was bearish for all the stocks. Eventually, the
markets recovered in 2013 and the numbers of initial public offers also increased as compared to
the previous year. CRISIL had also given a rating of 5 on 5 for the company’s strong
fundamentals. So overall the timing of the IPO was appropriate considering the increase in the
investments in the market and huge rise in the market sentiment.

9. JustDial IPO price range justified? (Optional, need to find valuation using DCF)

Answer: Even though the market was thinking that IPO was overvalued, JD was eventually
going to show high growth in initial 2/3 years. So when JD was actually listed on the exchange it
opened at Rs. 612.35 which was close to our estimate.
Please find attached excel sheet to refer the discounted cash flow model.