Revenue acceleration to boost margin expansion: Focus on cost rationalisation and better execution led to 580bps margin expansion in FY18.
Our recent interaction with Just Dial’s (JD) management reinforces our confidence in the company’s bright prospects. Key takeaways are: (i) management is confident of improvement in revenue growth led by rising collections; (ii) the company is mulling appointment of JD resellers to enhance penetration without adding feet-on-street; (iii) operating leverage is envisaged to boost Ebitda margin, but FY19 advertising spends are likely to be higher than FY18; and (iv) although focus is on monetising core search operations, management is investing in JD Omni & Search Plus with an eye on long-term growth. While we maintain our target multiple, we believe strong user engagement matrix will accelerate revenue growth and could warrant a rerating ahead.
We revise FY19e and FY20e revenue/PAT 3.6/6.1% and 5.5/10.1%, respectively, to factor in revenue growth. Maintain Buy with revised target price of Rs 650 (20x FY20e EPS). Rising user engagement to spur revenue: In Q4FY18, unique visitors jumped 28.6% y-o-y led by 51.4% traffic surge on the mobile platform. This translated into better realisation— up 7.9% y-o-y in Q4FY18. We believe, higher traffic will also drive campaign growth, pushing revenue spurt to 14% in FY19 from 8.8% in FY18.
Revenue acceleration to boost margin expansion: Focus on cost rationalisation and better execution led to 580bps margin expansion in FY18. We expect improving revenue growth and execution to lead to 360bps Ebitda margin expansion over FY18-20e, driving 23.9% PAT CAGR. Outlook and valuations: Fundamentals strong — JD continues to generate strong cash flow with 8% FCF yield. Considering ~Rs 175 cash per share, 23.9% PAT CAGR and high return ratios over FY18-20, we believe the stock is available at attractive valuations—17.4x FY20e EPS.