Just Dial surges 12% after Kotak upgrades stock despite weak earnings

These investments should result in superior product offerings and higher monetisation, the company said. Analysts expect the headcount to go further up in the next couple of quarters on account of aggressive hiring.

Total traffic stood at 142.7 million, up 7.7% year on year and down 4.6% quarter on quarter. 84.2% of the traffic originated in mobiles, 11.4% in desktops/PCs and 4.4% in voice, the firm said.

"The company posted a weaker-than-expected quarter with a revenue decline of 6.9% year on year driven by lower-than-expected paid campaigns and muted realisations. It is looking to transform its platform into a comprehensive discovery and transactions platform; this will take time to fructify and near-term financials may remain muted," Kotak Institutional Equities said in a note to its investors.

The brokerage firm said that the change in ownership should drive change in strategy. It kept its target price at Rs 970 a share.

In July 2021, Mukesh Ambani-led Reliance Retail agreed to acquire a majority stake of 40.95% stake in Just Dial for Rs 3497 crore from promoter VSS Mani and preferential allotment.

The brokerage report said that with new initiatives of JDMart (B2B focused), JDShopping (B2C buy and sell) and JDXperts (on-demand services provider), the company is wiring itself for long-term play in transaction-led e-commerce, thereby providing a comprehensive offering. However, aggressive investments in talent, salesforce, and building user-centric products may impact near-term profitability.

"We have revised down our EPS forecasts for FY2022/23/24 by 41/15/13% as we bake in slower revenue recovery but higher investments," the report added.

Brokerage firm UBS expects Just Dial to be a rerating candidate. It believes underperformance is due to market skepticism on Reliance's past acquisitions and a lack of strategic communication from management.

"We believe the firm could be the vehicle for Reliance to tap into various segments such as: leading B2B discovery platform with the aim of surpassing the current leaders; enabling B2B e-commerce on JDMart to compete against Udaan, Moglix, etc; and  launching a pure-play market place B2C or C2C e-commerce with small businesses in line with Taobao of Alibaba Group or Meesho in India," UBS said in its 13 January report.

UBS has a buy rating with a target price of Rs 1350, up 56% from its earlier target.