JustDial is a leading horizontal search engine with a large, rapidly growing database of business listings and users. The transition from search engine to search+ transaction engine is well- timed. We expect high growth in online classifieds market, digital advertising, rising internet usage (especially mobile) and proliferation of ecommerce to drive revenue growth while greater monetisation of existing listings should drive operating leverage. We expect 34% and 49% revenue and earnings CAGR over FY15-17. Buy.
Advantages like speed of delivery, delivery from a local, known vendor and no inventory risk make JustDial a viable marketplace. In addition, shop front and marketplace services provide a credible defence to SMEs against competition from ecommerce portals. We estimate ~13% and 24% contributions from search plus and marketplace services to JustDialís FY16 and FY17 revenues, respectively.
We value JustDial at 52x FY16E PE. This is above the average PE (36x FY16E) multiple for peers but reflects JustDialís above-industry average revenue and earnings growth, PEG of 1.1 (in line with sector peers), strong positive free cash flow and high ROE, which we forecast to continue improving. Risks include competition from larger search engines and online marketplaces.