Why Just Dial IPO is a complete 'Avoid' for ABMoney
Brokerage house Aditya Birla Money has recommended investors to 'Avoid' Just Dial initial public offering (IPO). JDL has a high cash conversion ratio (FCF/EBITDA - 92 percent over FY10-12), due to 100 percent pre-payment by paid advertisers and the low capex intensive nature of the business, said the research firm.
Aditya Birla Money has recommend an avoid rating to Justdial IPO on valuation basis. "Just Dial, at the lower price band of Rs 470. The company is valued at post-IPO issue market cap of Rs 37.9 billion, which translates into an annualised FY13E P/B & P/E valuation of 8.1x and 52.3x respectively," research report said.
Aditya Birla Money's note on Just Dial IPOJust Dial enjoys the first-mover advantage & strong mindshare among users in the local search space. In addition, it has shown resilience to the technological changes over the period and is planning to expand & deepen its presence into new territories & existing geographies respectively. On the financial front, JDL has a high cash conversion ratio (FCF/EBITDA - ~92 percent over FY10-12), due to 100 percent pre-payment by paid advertisers and the low capex intensive nature of the business. On the growth front, as the business model continues to move more towards non-linearity through increased penetration in the high growth internet and mobile internet platform (Mobile Internet & Internet - ~60 percent of the total traffic now vs ~35 percent in FY09), JDL should see expansion of operating margins and strong growth in earnings.""The net proceeds of the IPO would not come into the company, as it is an exit opportunity for the existing investors (16 percent of the OFS by promoters and the remaining 84 percent by PE investors). We accept that the business model is efficient and has good growth prospects; however, the valuation premium JDL is demanding is very steep (P/E of 60x on upper band and 52x on lower band on FY13E), considering Google (US) trades at 27x. We believe that the steep pricing of the IPO factors in the medium term growth expansion. In addition, entering into low-entry barrier business model (Google India & Nokia City lens app biggest threat) - demands rigorous monitoring and also has the risk of technological obsolescence. Moreover, ~ 16 percent of the issue size is an offer of sale by the existing promoters - a move not likely to inspire confidence among investors. We, thus, recommend an Avoid rating to Justdial IPO on valuation basis," says Aditya Birla Money research report.Also Read: Why CRISIL rates Just Dial as fundamentally strong companyDisclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions. 
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