Focusing On Qualified Leads And Online Platforms Will Yield Success

Key Takeaways

• Optimizing sales strategy and implementing dynamic pricing can enhance revenue growth and improve earnings.
  
• Focusing on advertising and operating efficiency may maintain healthy margins and boost future earnings despite increased investment.
  
• Increased advertising spending and sales efforts may pressure margins, while slow capital allocation policy progress could affect investor confidence and financial governance perception.

Catalysts

Engages in the search engine business in India.

• Just Dial plans to optimize its sales strategy by focusing on qualified leads rather than cold calling, which may increase sales team productivity and enhance revenue growth.
  
• The company aims to accelerate top-line growth through advertising both for users and merchants, potentially boosting traffic, user engagement, and revenue.
  
• Initiatives like dynamic pricing in non-premium listings may lead to better revenue realization, supporting an increase in the company's earnings.
  
• The implementation of an online shopping platform is expected to tap into new revenue streams by targeting businesses with online sales capabilities.
  
• The company's strategy to optimize operating expenses and leverage operating margins may enable Just Dial to maintain healthy margins despite increased investments in advertising and manpower, supporting net margins and future earnings.

Just Dial Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Just Dial's revenue will grow by 9.0% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 52.0% today to 38.5% in 3 years time.
• Analysts expect earnings to reach ₹5.8 billion (and earnings per share of ₹70.17) by about September 2028, down from ₹6.0 billion today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting ₹7.6 billion in earnings, and the most bearish expecting ₹4.6 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 25.5x on those 2028 earnings, up from 11.6x today. This future PE is greater than the current PE for the IN Interactive Media and Services industry at 19.5x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 14.73%, as per the Simply Wall St company report.

Just Dial Future Earnings Per Share Growth

Risks

• The return of the effective tax rate to expected levels of 20-21% from a lower 12% could impact net margins, reducing overall profitability.
  
• The company's reliance on seasonal fluctuations and external factors, such as elections and festive seasons, has contributed to lower-than-desired growth in collections in previous quarters, which could continue to affect revenue stability.
  
• While there is a plan to increase advertising spending to boost growth, such expenses could pressure EBITDA margins if they do not yield the expected increase in top-line growth.
  
• The company's endeavor to accelerate top-line growth through increased sales efforts and advertising spending may not necessarily improve profitability if the increase in operating expenses surpasses revenue growth, leading to reduced margins.
  
• Concerns about slow progress on implementing a capital allocation policy, including potential dividends or cash returns, may affect investor confidence and the perception of the company's financial health and governance.

Valuation

• The analysts have a consensus price target of ₹1149.571 for Just Dial based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of ₹1325.0, and the most bearish reporting a price target of just ₹968.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be ₹15.0 billion, earnings will come to ₹5.8 billion, and it would be trading on a PE ratio of 25.5x, assuming you use a discount rate of 14.7%.
• Given the current share price of ₹818.85, the analyst price target of ₹1149.57 is 28.8% higher. Despite analysts expecting the underlying buisness to decline, they seem to believe it's more valuable than what the market thinks.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.