Confident of seeing margin expansion in FY14: Just Dial

The 28 percent rise in revenue, and 20 percent increase in EBITDA in July-September quarter justifies the euphoria surrounding Just Dial. The stock was on fire last week and had rallied over 57 percent in a month.  

The company's margins saw a sequential fall in Q2 due to addition of 500 employees and an one-time reward to employees; margins are likely to be impacted by 100-200 bps in the coming quarter as well on account of incremental ad spends, says Ramkumar Krishnamachari, CFO. But the company, which boasts of Amitabh Bachchan as an investor, is confident of a year-on-year improvement in its FY14 margins.

The company has seen phenomenal success since its debut in the stock market in June. Krishnamachari informed that 95 percent of the pre-IPO retail investors have booked profits but FIIs have a sizeable presence in the company.

Also read: Just Dial to continue good show on solid biz model: JM Fin

Below is the verbatim transcript of his interview on CNBC-TV18

Q: What led to the sequential decline in margins in Q2?

A: If you see the Q1 traditionally has high margins. Second quarter is a period where we give out our increments. We added in Q2 about 500 employees which pushed up the average employee costs. There was also one-time spend in Q2.

All these impacted but still we were able to improve margins by 300 bps. So I think it is in line with what normally happens in Q2 and it is business as usual from our standpoint. We continue to grow and expand the margins

Q: How much was the one-time spend and what was it for? Also where do ad-spends stand for Q2?

A: We had one-time reward for employees in this quarter, so maybe that impacted about 75-80  bps.

There would be incremental ad spends happening in Q3 but in Q2 they were normal ad spends that we usually do Quarter-on-Quarter (Q-o-Q).

Q: How much will ad spend increase be in Q3 and how much might it impact your margins?

A: The way we manage spends is to make sure margins are not impacted much. While we don’t give out guidance but due incremental spends, perhaps there could be an impact of 100-200 bps but other than that we make sure that the margin expansion continues

Q: Street expectations are that margins will improve 150 basis points for FY14 is that a realistic target?

A: We don’t give out guidance. Even last year we improved our margins by 240 bps and we have been maintaining that we will demonstrate good margin expansion Year-on-Year (YoY). So, I have no reason to change that view

Q: You have been putting investments in a lot of platforms – how much has the company made or will make in these various internet platforms?

A: We have research and development team in Bangalore. We have a bunch of smart tecnologists working on mobile platform and products. So I wouldn’t say there are any significant or material investments going there but good portion of our technology budget is allocated to developing these products, which is a part of our R&D costs.

So, it could be around 1.5-2% of our revenues goes towards that.

Q: Has the shareholding pattern changed in this quarter? Where does the foreign institutional investor (FII) and promoter holding stand at?

A: We have seen retailers who were there during IPO, 96% have sold off. So, predominantly the holding is with FIIs; out of the 25% that we came along, 20% plus is with the FIIs.

Q: Any of the PEs that still is locked-in?

A: All the PEs, as well as shareholders that were there pre-IPO, their shares are locked-in for one year from the date of IPO. So, the lock in should end by the end of May or first week of June next year.