No competition in core search biz; to grow 25-30%:Just Dial

Search plus is a master app which combines Just Dial’s search services with transaction-based ones such as online food delivery, groceries, wine delivery, doctors’ appointments, taxi bookings and online purchases of electronics, among others.

Brokerage house UBS last week initiated had initiated coverage on the stock with a 'sell' rating and price target of Rs 1200, citing competition from aggressive vertical online search companies.

“Search Plus may thus be necessary for a more complete value proposition, even to sustain the growth of the Search business,” the brokerage had said in its report, adding that overestimating core business earnings and underestimating the challenges in Search Plus.

Brokerage house Macquarie, on the other hand, has an ‘outperformer’ rating on the stock with a price target of Rs 2000.

Justial reported strong numbers in the December quarter, with revenues growing 29 percent, operating profit by 50 percent and net profit by 23 percent.

Below is the transcript of Ramkumar Krishnamachari’s interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Sonia: This concern is legitimate, the fact that there is so much aggression, competition coming in from other online search companies that it makes it very difficult to stick in the game without giving up on margins? What is your own view of how Just Dial is combating the competition that you are getting currently? A: If you look at our business, we have two parts. One is the core search business. On the core search we virtually have no competition and that continues to grow at a healthy 25-30 percent. We continue our initiative that the ecosystem is supporting us. However, when you come to Search Plus which we are going to launch in May first or second week, we have a shoot this week with a brand ambassador. So, on Search Plus so far Just Dial is known as a search destination. We are not yet known as a search and transact destination. So, with our launch people are going to discover that there is going to be an easier convenient way of doing transaction and in the process they are going to save money and time. It is only a question of discovery from our standpoint. I would say from a market perspective it is quite nascent. The whole internet, e-commerce space is nascent. There is different business model coming up on many of the things we are doing on the Search Plus. So, we believe that because of the very early stage that we are in there is going to be space – there is aggression going on in the market as far as e-commerce is concerned. A lot of money is being poured into this segment because of their relative attractiveness and potential. However, our own belief is that we are not going to subsidise buying customer, we believe that the Indian consumers, they are going to see value. We are confident that the connect that we have been able to establish through the search we will be able to establish with transact as well. It is only a question of time and discovery. We are not making much noise at this point of time but you will see us making a flash from May onwards. People will discover and that is when the real game starts. Latha: When is the Search Plus launch slated? A: It is slated to be in May. We are quite confident that once we complete the shoot it is only a matter of weeks before we launch the commercials of our Search Plus product. Latha: How much is the money you have set aside for advertisement? Will it be larger than previous years and therefore if you can give us your trajectory of both revenue and EBITDA growth for FY16? A: We don’t give guidance but I can tell you that the advertising spend that is allocated is roughly ballpark Rs 100 crore that is especially because the expenses relating to launch of Search Plus. Going forward it will be 4-5 percent of revenue which is going to be the normal spend. Our own belief is that this Rs 100 crore is needed for us to sort of educate and help consumers discover the Just Dial Search Plus product. It is going to be in various schemes – television, print and the evangelist program that we have of connecting directly with consumers or users.As far as revenue growth is concerned we maintain that 25-30 percent growth. We have conviction in the next couple of years. Latha: Rs 100 crore is not 4-5 percent, it is a substantial percentage – it is a quarter of your revenues? A: No, what I am saying is Rs 100 crore is for this year. That includes a substantial one time expense. After this FY16-17 onwards it will come back to the 4-5 percent of revenue which we normally spend. Latha: So this year it is going to be about 20 percent, that product alone of your revenues in terms of ad expenses? A: Rs 100 crore if you look at FY16 that is not 20 percent, less than that. Latha: How much, 15 percent? A: You can take a guess. I told you 25-30 percent. Sonia: How many searches are conducted annually on Just Dial’s platform and how would that compare to some of the bigger online retailers like Flipkart, Snapdeal, etc? A: It is a very unfair comparison at this point of time because we haven’t even launched Search Plus. People don’t know Just Dial as a search and transact destination. They know Just Dial as a search destination. We are going to be launching in May post which you can wait for couple of quarters and then you can do all sort of comparison. However, right now at this point of time for you to sort of compare as to any of these established online players which are into transaction is unfair. Latha: Since there are so many angel and private equity (PE) investors now loosening their purse strings at the very mention of digital, any changes to your capital – raising money, anything at all, changes to your capital structure? A: The good point about our strategy is the core business continues to generate cash. We are sitting on Rs 850 crore of cash. Plus, our Search Plus model is asset and capital light and it is going to be like that. We are not going to splurge on. We have to remember that a lot of easy money is flowing into the system; there is a lot of money which is going into subsidising consumer transaction and acquiring customers. Our own belief is that you have a great product which is what we have developed. Once you launch it, have the people discover, people themselves will see the value and then transact. So, far we haven’t spent tonnes of money in advertising. The way we have grown on the search business it is purely word of mouth based on the service that we offered. We believe that similar experience consumers are going to have on Search Plus transaction as well. It is only a matter of time; we have conviction and belief that it is a great product. I would suggest that you guys should download and use it for movie ticketing, flight booking, food order, grocery order, buying any of the branded products, etc. You will discover it.