Raj Koneru, the investor-entrepreneur, deserves to be complimented for being one of the first to see the potential of Just Dial. This savvy investor invested Rs. 6.5 crore to grab a 40% equity stake in Just Dial, when it was just a fledgling.
Though Raj Koneru made super-duper multibagger profits from Just Dial by selling it to various investors before the IPO, he must be ruing his decision to sell the stock. Even a visionary like Raj Koneru could not foresee that a day would come when Just Dial would command a valuation of Rs. 8,700 crore even though its total revenue is only Rs. 376 crore and the net profit is only Rs. 68.45 crore.
A lot of other savvy private equity investors like SAIF Partners, Tiger Global and Sequoia Capital also made multibagger profits from Just Dial though even they would also probably be surprised by its meteoric rise.
In fact, Ramkumar Krishnamachari, CFO, went on record to say that nearly 95% of the IPO investors had cashed out of the stock.
However, one investor who has held on tightly to his shares and is laughing his way to the bank is Amitabh Bachchan. Amitabh Bachchan, in a brilliant strategic move, managed to get a chunk of 62,794 shares at the face value of Rs. 10 each at the time that he was the Company’s brand ambassador. At today’s CMP of Rs. 1243, his holding is worth Rs. 7.80 crore, giving him incredible multibagger profits of 12,430%.
Anyway, now the question is about the future. If you did not have the nerve to buy the stock at the time of the IPO is it likely that you will have the nerve to do so now?
Just Dial’s business model continues to be robust and its CFO Ramkumar Krishnamachari pointed out that he expects that the margins will improve 150 basis points for FY14. Also, Just Dial has more than 221,000 paid advertisers who pay it in advance for premium listings. The result is that Just Dial is debt-free and also has cash of nearly Rs. 600 crore.
Also, Just Dial has foreseen that the mobile devices will be the platform for the future and that more and more customers will use their phones and tablets to search for listings. So, it has invested a considerable amount in the mobile technology.
However, the downside is that the stock is quoting at a PE of 126 times the FY 2013 diluted EPS of Rs. 9.85. These are frothy valuations especially if you compare it with the valuations of other internet companies like Google and Infoedge (naukri.com and jeevansathi.com).
Also, while Just Dial is still basking in the first-mover advantage, that advantage can evaporate because there are a number of local competitors like Askme, Asklaila, Getit and Sulekha who are snapping at its heels. Also, big ticket players like Google and Yahoo are also girding their loins to expand in the local search business.
So, it may be better to stay on the sidelines and watch the game even if it means ruing a lost opportunity.