Just Dial share price soars 20 pct today on UBS report | All you need to know

UBS highlights Just Dial (JD) management recently hosted a demo launch of its B2B platform, JD Mart. The company showed a strong commitment to the new initiative. UBS thinks suggesting the market is ignoring JD Mart's potential to become a relevant B2B platform. UBS maintains Buy rating on Just Dial; raise target price to Rs 800 from Rs 640.

Launching a formidable B2B platform; what is the go-to-market strategy?

UBS recently hosted JD management for a demo launch of its B2B platform, JD Mart (video link), which was better than what they expected. Aided by interactive content, the platform appeared superior to competing platforms and offers significant depth (30 mn products) and breadth (6 mn B2B listings). UBS believes JD will leverage its existing platform that attracts 140 mn quarterly unique users and has 100,000 paid B2B subscribers to upsell JD Mart. JD's core strength is its large sales force (9,000), which should help monetize JD Mart. The company showed a strong commitment to the new initiative, earmarking US $15 mn for JD Mart branding and indicating it will hire senior management and a specialised sales team. JD trades at 13x FY22E PE compared to 60x for IndiaMART, suggesting the market is ignoring JD Mart's potential to become a relevant B2B platform. UBS thinks successful sales strategy execution could result in a significant rerating for JD. Also, the spread of new vertical search engines in the past few years has decreased competition from Google.

B2B platform offers a significant value proposition; can two players co-exist?

India's manufacturing space is highly fragmented with 20 mn MSMEs. B2B platforms provide superior ROI for marketing budgets compared to legacy channels. Linking sellers to buyers saves on commission payable to distributor/ trade agents and the cost of working capital. While IndiaMART is the leader with 150,000 paid subscribers (2.5% of listings) and US $ 90m in revenue in FY20, this is a fraction of the number of MSMEs in India.

Given room for growth, we think two or more B2B platforms can co-exist

JD Mart and new initiatives are promising JD Mart will likely use a 'freemium' model (free subscription, but leads are chargeable) followed by premium listing subscriptions. Additional services like escrow payments, logistics integration, trust certification, etc., will be rolled-out piecemeal to enable transactions on platform.

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Valuation: UBS maintains Buy rating on Just Dial; raise target price to Rs 800 from Rs 640

UBS raised their DCF (Discounted cash flow) (WACC (weighted average cost of capital) of 12.8% and terminal growth of 4%) based price target to Rs 800 due to their higher long-term growth expectations (FY25-30E EPS up by 4- 6%). Their price target implies 15.5x FY23E PE and 10x FY23E EV/EBITDA. UBS expects JD Mart to become a competing second player with a 25% market share in the next three years and contribute 19-27% of revenues in FY23-25E.

(Authored by Rahul Kamdar)