Just Dial is entering the primary market on 20^th May 2013 through an offer for sale of 1.75 crore equity shares, of Rs.10 each, by 9 selling shareholders (16% by 3 promoters and 84% by 6 PE investors), in the price band of Rs. 470 to Rs. 543 per share, offering Rs. 47 discount to retail investors. The issue represents 25.02% of the company’s fully diluted post issue paid-up capital and will raise Rs. 814 crore and Rs. 942 crore at the lower and upper price band, respectively. To be listed on NSE, BSE and MCX-SX, the issue closes on 22^nd May.

There is a (voluntary) safety net arrangement (first issue with this feature, as Sai Silks IPO withdrawn) for benefit of retail investors who continue to hold the shares for a continuous period of 180 days, post-listing. It shall be triggered, on the completion of the 180 days from date of listing, if the volume-weighted average share price during 121^st to 180^th days post-listing is lower than IPO price paid by retail investors. Upon safety net trigger, the 3 promoters will buy back shares from the original retail shareholders at the retail offer price (IPO price less retail discount of Rs. 47 per share).

The issue has 75% reservations for qualified institutional buyers (QIBs), 15% for high net worth individuals (HNIs) and only 10% for retail investors (application upto Rs. 2 lakh), unlike the usual ratio of 50:15:35 respectively. By lowering the size of the retail book, promoter liability towards safety net stands reduced, as the money towards safety net needs to be deposited in an escrow account upon receipt of final listing and trading approvals from stock exchanges!

Just Dial, India’s local search engine, provides search service, information and user reviews of 91 lakh businesses and service providers (mainly SMEs) listed in its database, as of 31^st March 2013, through multiple platforms, such as internet, mobile internet, telephone (voice) and text (SMS) across the country. Main revenue earner is paid listing services, which accounts for approximately 2% or 1.95 lakh listings of the total database. Of these paid listings, 22% are premium listings and balance 78% is non-premium paid listing. Although company plans to increase the ratio of paid advertisers, this scope will be limited beyond a point, as it cannot extend this ‘premium’ tag to the entire database.

In FY12, it addressed over 25.43 crore search requests across platforms. For FY12, its consolidated revenues stood at Rs. 262 crore with EBITDA of Rs. 82 crore and net profit of Rs. 53 crore, resulting in EBITDA margin and net margin of 31.4% and 20.2% respectively. On standalone basis, FY12 revenue being same as consolidated figure, but EBITDA and net profit were marginally lower at Rs. 80 crore and Rs. 51 crore, respectively. Consolidated EPS for FY12 stood at Rs. 8.13.

During 9 months ended 31^st December 2012, the media split for search stood at 50% through internet, 11% through mobile internet and 39% through voice. Top 11 cities contribute to 81% of its campaigns while Delhi NCR and Mumbai account for 35% of campaigns. During 9MFY13, its revenues (standalone) rose to Rs. 264 crore, with EBITDA of Rs. 79 crore and net profit of Rs. 47 crore, leading to contraction in net margin to 17.8%. EPS for 9mFY13 is Rs. 6.8, on equity of Rs. 69.4 crore. As of 31^st December 2013, company’s networth stood at Rs. 405 crore, resulting in BVPS of Rs. 58. Being debt free, company has surplus cash of Rs. 476 crore. It has negligible receivables as payment is made in advance by most customers.  

Since it is an offer for sale, company will not receive any funds from the IPO (no requirement, enjoys a cash bounty). The issue will only provide part exit to promoters and PE investors, in addition to liquidity and benefits of listing. Post-listing, promoter stake will reduce to 33.13% (from 37.15% currently) while existing PE investors (Sequoia, SAIF, Tiger Global, EGCS, SAP Ventures) will own 39.48% (down from 60.50%), with Amitabh Bachchan and employees owning 0.09% and 2.26%. Balance 25.02% will be with public investors.

At the lower and upper band of Rs. 470 and Rs. 543, shares are being issued at EV/EBITDA multiple of 26x and 31x, based on FY13E (annualized 9MFY13) earnings, respectively, and on PE multiple of 52x and 60x, respectively, which is very expensive, given the current market conditions. World’s largest internet search engine Google, is currently trading at a historic PE multiple of 28x based on CY12 earnings, while there are no local listed peers for the company.

Although the company enjoys positives like first mover advantage, difficult-to-replicate business model, debt free status with negative working capital cycle, its market cap on listing at Rs. 543 will be Rs. 3,771 crore, which is very aggressive and PE multiples look quite stretched.

On expensive valuations, the issue can be given a miss!